The Value in Secrecy
75 Pages Posted: 4 Aug 2021 Last revised: 16 Sep 2021
Date Written: August 2, 2021
Trade secret law is seen as the most inclusive IP regime for protecting inventions and proprietary business information. Keep it secret, the wisdom goes, and you can protect it under trade secret law even if patent and copyright law are unavailable. But keeping information secret does not magically transform it into a trade secret. The holder of the secret also must derive actual or potential economic value from concealing the information from others. This elusive and under- studied statutory requirement—called “independent economic value”—is a vestige of the common law, under which trade secrets had to impart a “competitive advantage.”
Today, the conventional view is that courts generally ignore independent economic value or give it a rubber stamp. However, this article reveals that, while most courts apply a comparatively low bar, a surprisingly large number find the standard is not met. This casts doubt on the assumption that independent economic value is a toothless, check-the-box requirement.
Along with this descriptive account, the article provides a much-needed explanation of the nature and function of independent economic value in trade secret law. At first glance, a legal requirement of economic value appears redundant. After all, if information had no economic value, why would anyone bother to keep it secret, and why would the parties litigate over the right to use it? By drawing on insights from patent law’s surprisingly analogous requirement of “utility,” the article reveals that—far from being toothless or self-enforcing—trade secret law’s independent economic value requirement plays a central role in establishing the contours of trade secrecy. When properly construed, it controls not just the amount of value that qualifies, but also the type of value that qualifies and the timeframe during which a trade secret can be protected. Most subtly, independent economic value ensures the information’s asserted value is caused specifically by its secrecy. This raises the bar on what can be protected and simultaneously fortifies the secrecy requirement itself.
The article has a clear message for courts. In any given trade secret case, a party may fail to meet the independent economic value requirement; a litigant's cost-benefit analysis about whether to pursue a lawsuit will not necessarily screen out trade secrets that do not have independent economic value. Courts and commentators who ignore or trivialize independent economic value are wrong to do so.
Keywords: trade secrets, independent economic value, patent utility
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