Trade Secrecy's Information Paradox

Abstract

Trade secret law is meant to encourage socially beneficial behaviors by permitting firms to protect their investments in the creation of valuable information. In theory, the ability to protect valuable information will make firms more likely to create that information in the first instance. But the law can also be used to shield socially harmful behaviors from public oversight. Firms can assert trade secret protection to prevent journalists, watchdogs, and criminal defendants from learning whether they are engaged in dangerous, wrongful, or biased activity. Ideally, trade secret law should sort socially beneficial uses from socially harmful ones, permitting only the former while screening out the latter. However, the problem for trade secret law is that, in a variety of contexts, it is virtually impossible to know whether the underlying information is beneficial or harmful to society, and thus, whether the information should be disclosed, without first disclosing and scrutinizing it. This is trade secrecy’s information paradox: it is hard to know whether a trade secret should be protected without first revealing it. This information paradox implicates numerous social interests, including the environment, public health, criminal law, and the success of the regulatory state. It is at the heart of recent concerns about potentially biased bail algorithms, environmentally harmful fracking chemicals, and disparate hiring practices. Yet as is the case with many paradoxes, trade secrecy’s information paradox cannot easily be solved, at least with any politically feasible set of tools.

Keywords: trade secrets, algorithms, fracking, arrow's information paradox