Monday, July 18, 2011

Trade Secrets

Now, we come to an even more obscure for of intellectual property: trade secrets. Trade secrets can be any innovation, a process or technique of manufacture, that a firm uses in its business. The most famous example is likely the formula for Coca-Cola. To be a trade secret, a firm must simply treat it as secret, limiting the number of people who know, requiring those who must be privy to the secret to sign non-disclosure or non-compete agreements. Trade secrets require no registration, and trade secret protection never expires. On the other hand, trade secrets also receive no substantial protection from the government, except in cases of corporate espionage. If a trade secret is obtained through illegal means, the victim firm can seek compensation and can get injunctions against the offender using the stolen information. Nevertheless, a firm has no such recourse in cases of reverse engineering.

Some scholars have claimed that trade secrets serve as a counterexample to Utilitarian or incentives-based justifications for intellectual property. For all other forms of intellectual property, some public good is at stake. Trade secrets serve only the firms that keep them, since there is no disclosure requirement or expiration date. While I agree that trade secret is kind of an odd man out in the intellectual property scene, I like to think about it as a recognized alternative to patents. If a firm does not want to disclose its innovations and lose control over them after a fixed term, the firm has the option of holding their innovations as trade secrets. Trade secrets can still be protected by contract law and privacy rights, but since they do not benefit the public as directly as patents, the firm cannot benefit from the patent system. Firms are then free to decide what is the best way to capitalize on their innovations.

This kind of thinking actually underlies much of my thinking about intellectual property. The government provides a carrot to get something the public wants. If intellectual property rights are too strong, the public cannot realize the benefits it hoped to get from a proliferation of creative and technological innovation. Therefore, it is important to understand how we relate to media, as consumers, creators, and potential creators, in order to understand the scope of intellectual property rights. We have to know what we need so that we know how to limit intellectual property rights. There must be a necessary balance between intellectual property rights sufficiently strong to motivate creation, but sufficiently weak to preserve desired public benefits.