The Value in Secrecy

November 1, 2022

Trade secret law is seen as the most inclusive of intellectual property regimes.  So long as information can be kept secret, the wisdom goes, it can be protected under trade secret law, even if patent and copyright protections are unavailable.  But keeping it a secret does not magically transform information into a trade secret.  The information must also derive economic value from being kept secret from others.  This elusive statutory requirement—called “independent economic value”—might at first glance seem redundant, especially in the context of litigation.  After all, if information had no value, why would the plaintiff have bothered to keep it secret, and why would the parties be arguing over the right to use or disclose it?  Surely, well-kept secrets that end up in court must be valuable.

That assumption is pervasive.  But it is wrong.  Secrecy does not demonstrate value.  Even a company’s best-kept secrets might be commercially worthless if vetted against what is known in the rest of the industry.  Nor does the decision to pursue litigation indicate value.  Trade secret litigants have plenty of exogenous reasons for pursuing lawsuits that have little to do with information’s inherent value.  Most importantly, “value” is not the statutory standard; the standard is economic value that comes specifically from secrecy.

Some federal courts have begun to call out weak assertions of independent economic value and, in the process, are redefining the role of this neglected statutory requirement.  By analyzing this case law and drawing on insights from the larger field of intellectual property law, this Article generates a typology of “value failures” that can arise in any given trade secret dispute—amount failures, causation failures, type failures, and timing failures.  Courts in trade secret cases should screen for value failures far more consistently than they currently do.  Otherwise, courts risk giving trade secret status to mere confidential information.  This leads to wasted court resources and has detrimental consequences for competition, innovation, speech, and employee mobility.

November 2022

No. 2