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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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Congressional Research Service (CRS)

 

The Role of Trade Secrets in Innovation Policy

John R. Thomas, Visiting Scholar

August 31, 2010

http://opencrs.com/document/R41391/2010-08-31/download/1013/

[full-text, 18 pages]

 

Summary

Many businesses have developed proprietary information that provides a competitive advantage

because it is not known to others. As the United States continues its shift to a knowledge- and

service-based economy, the strength and competitiveness of domestic firms increasingly depends

upon their know-how and intangible assets. Trade secrets are the form of intellectual property that

protects this sort of confidential information.

 

Trade secret law protects secret, valuable business information from misappropriation by others.

Subject matter ranging from marketing data to manufacturing know-how may be protected under

the trade secret laws. Trade secret status is not limited to a fixed number of years, but endures so

long as the information is valuable and maintained as a secret. A trade secret is misappropriated

when it has been obtained through the abuse of a confidential relationship or improper means of

acquisition.

 

A number of competing innovation policy concerns help shape the particular doctrines that

comprise trade secret law. The availability of legal protection for trade secrets potentially

promotes innovation, encourages firms to invest in employee development, and confirms

standards of commercial ethics and morality. On the other hand, trade secret protection involves

the suppression of information, which may hinder competition and the proper functioning of the

marketplace. An overly robust trade secret law also could restrain employee mobility and promote

investment in costly, but socially inefficient security measures.

 

Trade secrets are primarily a matter of state law. In 1996, Congress enacted the Economic

Espionage Act (EEA), a statute that criminalizes both “economic espionage” and the “theft of

trade secrets.” The EEA provides for substantial fines and imprisonment penalties, as well as

criminal forfeiture of property and court orders preserving the confidentiality of trade secrets.

Some commentators believe that few prosecutions have occurred under the EEA since its

enactment and have deemed the legislation ineffective.

 

Patents and trade secrets provide different intellectual property options for many new inventions.

Inventors typically must choose (1) to maintain an invention as a trade secret, (2) to obtain a

patent on the invention, or (3) allow the invention to enter the public domain. As a result, federal

legislation or other developments that are perceived to alter the effectiveness of the patent system

may make the trade secret more or less attractive to industry.

 

Some commentators have encouraged Congress to supplement the EEA, which is a criminal

statute, with civil federal trade secret legislation. They believe that this step would improve

uniformity within the system. However, others believe that no compelling case has been made to

federalize trade secret law. Other observers assert that the EEA should be amended to involve a

private cause of action for economic espionage and trade secret misappropriation.

 

Contents

Introduction ...............................................................................................................................1

Trade Secrets and Innovation Policy............................................................................................2

An Overview of Trade Secret Law ..............................................................................................5

Basic Principles ....................................................................................................................5

Sources of Law.....................................................................................................................7

The Economic Espionage Act......................................................................................................8

Trade Secrets and Patents ............................................................................................................9

Introduction to the Patent System..........................................................................................9

Trade Secrets and Patents Compared ...................................................................................10

Potential Policy Conflicts .................................................................................................... 11

The First Inventor Defense..................................................................................................12

Congressional Issues and Options .............................................................................................13

Concluding Observations ..........................................................................................................15

Contacts

Author Contact Information ......................................................................................................15

Acknowledgments ....................................................................................................................15

________________________________________________________________________

This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
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