Abandoning trade secrets

• Published in: Stanford law review 2021-01, Vol.73 (1), p.1-66
• Main Authors: Hrdy, Camilla A, Lemley, Mark A
• Format: Article
• Language: English
• Subjects: Abandonment (Law); Abandonment of property; Analysis; Breach of contract; Company business management; Competitive advantage; COPYRIGHT; Economic value added; Employee inventions; Employees; Government regulation; INTELLECTUAL PROPERTY; Inventors; Law and legislation; Laws, regulations and rules; Licensing; Management; TRADE MARKS; TRADE SECRETS; Trademarks; Value (Economics)
• ISSN: 0038-9765; 1939-8581
• DOI: 10.2139/ssrn.3534322

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. That conventional wisdom is wrong. A company can "abandon" its trade secrets by failing to derive economic value from keeping them secret. Trade secrets can lose economic value simply because the information has 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 recognize the statutory requirement that a trade secret must derive "independent economic value" from its secrecy, they underappreciate the role that requirement plays in setting a trade secret's end date, and they lack a clear framework for assessing whether information derives the requisite value in any particular case. We argue that courts should draw on trademark law's abandonment doctrine. In order to avoid losing their rights, trademark owners who cease using their trademarks in commerce for a certain period of time have the burden to prove they have an intent to resume use of the mark in the "reasonably foreseeable future." 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 and apply the statutory requirement of independent economic value. Trade secret abandonment has some surprising implications. 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-should 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. Trade secret abandonment can also help solve a very real problem facing one important class of people: employee-inventors. Trade secret abandonment provides an outlet for employee-inventors whose employers didn't use their ideas to t