Abandoning Trade Secrets

Abstract

A trade secret, according to the conventional understanding, “expires” only once it is no longer kept secret. Keep the secret for decades or even centuries, as with the formula for Coca-Cola, and you can potentially protect it forever. In this article, we argue that conventional wisdom is wrong. A company can “abandon” its trade secrets by failing to derive value from them. Trade secrets don’t literally have to be “used” to be protected. But abandonment of trade secrets through failure to derive value is still a very real possibility. Trade secrets can fail to derive economic value simply because they have become obsolete. But trade secret abandonment can also happen due to the conduct of the owner. A company that has been benefitting from a trade secret by selling products based on it can exit the market. It can take a product off the market and replace it with a newer version. Or it might develop a secret but then choose not to enter the market at all. Although courts and commentators recognize the statutory requirement that a trade secret must derive “independent economic value” from remaining a secret, we think they underappreciate the role “independent economic value” plays in setting a trade secret’s end date. Many courts, lacking a clear framework for assessing “independent economic value,” are routinely allowing plaintiffs to rely on circumstantial evidence and highly questionable presumptions to overcome any meaningful burden to prove they are deriving value from their secrets. To solve this problem, we argue that courts should draw on trademark law’s abandonment doctrine. Trademark owners who cease using their trademarks in commerce for a certain period of time have the burden to prove an intent to resume use in the reasonably foreseeable future in order to avoid losing their rights. Trade secret law could benefit from adopting a parallel conception of abandonment. Properly understood, trade secret law already incorporates abandonment. We simply provide a clearer way to interpret what it means for a trade secret to derive independent economic value. Trade secret abandonment has some surprising implications. Perhaps the most surprising is that employees might have more freedom to operate under trade secret law than is commonly believed. Once a company has abandoned a trade secret, people who are in a position to know the secret — most likely, employees or independent contractors — would be free to disclose or implement it themselves. Trade secret holders might not like this. But it’s important for innovation policy because it gives trade secrets that others have discarded a path to enter the market or the public domain. Both innovation and the historical record will benefit. Trade secret abandonment can also help solve a very real problem facing one important class of people: employee-inventors. It is not uncommon for someone who invented an idea while employed at a firm to want to leave and implement the idea herself if the firm won’t. But currently, it’s hard to do that without getting sued. Trade secret abandonment provides a bit more room for employee-inventors whose employer didn’t use their idea to take it and start anew.