Trade Secrets and Mutual Investments

61 Pages Posted: 23 Oct 2000

See all articles by Gillian L. L. Lester

Gillian L. L. Lester

Columbia Law School

Eric L. Talley

Columbia University - School of Law; European Corporate Governance Institute (ECGI)

Date Written: October 2000


This paper employs an optimal contracting framework to study the question of how courts should adjudicate disputes over valuable trade secrets (such as customer lists). We focus principally on contexts where trade secrets are formed endogenously, through specific, non-contractible investments that could potentially come from either employers or employees (or both). Within such contexts, we argue, an "optimal" trade secret law diverges in many important respects from existing doctrine. In particular, an optimal doctrine would (1) expressly consider the parties' relative skills at making value enhancing investments rather than the mere existence of a valuable informational asset; (2) tend to favor "weak" entitlements (such as fractional property rights and/or liability rules) rather than undivided property rules; and (3) frequently have a dynamic structure that progressively favors employees during the lifetime of the disputed asset. Moreover, we argue, the considerations implicit in such a doctrine are relatively simple and need not impose prohibitive administrative costs on either the parties or on courts.

Suggested Citation

Lester, Gillian L. L. and Talley, Eric L., Trade Secrets and Mutual Investments (October 2000). Available at SSRN: or

Gillian L. L. Lester (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10009
212-854-2675 (Phone)

Eric L. Talley

Columbia University - School of Law ( email )

435 West 116th Street
New York, NY 10025
United States


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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