The Cinderella of IP (or not)

Trade Secrets sit somewhat awkwardly amongst IP rights.  To start, there is debate over the mere status of trade secrets as an IPR.  Unlike other IPR, their protection often lies in contract and tort law.  They also have the distinct disadvantage of generating relatively lower fees for the legal professions and none for IP offices.  Did I mention they are also secret? However, interest in the topic appears to be increasing with institutions such as the European Commission launching research programmes and consultations on the subject.   

No secrets here

At the Workshop on Non‐Compete Clauses, Trade Secrets, and Mobility in Munich last week, organised in large part by Karin Hoisl, a gathering of specialists on trade secrets, non-compete clauses (NCC) and labour mobility gathered to discuss these issues.  This is where IP law and economics meets labour law and economics.  Labour mobility is economically desirable due to its association with higher efficiency as it allows for better allocation of resources and higher levels of innovation.  Stringent NCC or trade secret laws are said to reduce labour mobility as employees are legally or contractually restricted from moving between competitors.  Trade secret and NCC law must strike a balance between protecting innovation and facilitating labour mobility.

To start, we looked at field evidence of trade secrets. Ivan Png presented his work on trade secrets non-competes and mobility of engineers and scientists. Png’s work is unique in that he looks at the empirical side of trade secrets using field data.  He measures protection of trade secrets with a new index of trade secrets law as well as the doctrine of “inevitable disclosure”.  Stronger trade secrets protection reduced mobility by 1% of scientists and engineers with postgraduate degrees but not those with less education.   

Michael Risch presented his take on American data on trade secret disputes collected by Almeling.  The defendants in these cases are typically employees (62%) or business partners (27%.) It is also very hard to lose a case, as the owner of a trade secret, on the basis of not having “independent economic value.”  However, employees often win on the basis that the owner did not take reasonable precautions.   Trade secret owners need an average of two precautions (e.g. employee agreements or passwords) in order to have taken sufficient precautions. 

On the legal side, John Howe discussed the highly entertaining Australian term “BOOT” which is the “better off overall test”.  BOOT suggests that, in collective bargaining agreements (unions), employees shouldn’t be worse off than the industry standard.  This prevents employers from using the collective bargaining process to strengthen trade secrecy clauses and disadvantage employees. 

Sarah Turner called trade secrets the “Cinderella” of the IP world, as misappropriation appears to be getting worse.  She discussed her recent EC report, with Robert Anderson, which finds that current law in Europe is fragmented.  In many places, Italy for example, it is very difficult to prevent the public from entering the court during hearings.  This presents a problem as the trade secret loses its value when it becomes public. 

Van Caenegem is a Kat fan.

Turner also pointed to an interesting balance in injunctions. The granting of permanent injunction can significantly extend the protection of a trade secret.  A permanent injunction creates a potentially interminable legal support against the use of a trade secret this could extend beyond the natural life of the trade secret.  To account for this, Danish courts, for example, may grant a injunction lasting a few years which may be insufficient commercially.  Damages may also be an unsatisfactory remedy as defendants may be judgement proof.  William Van Caenegem discussed the trade off between NCC and trade secrecy laws.  Courts may interpret NCC more favourably in recognition that the trade secrets law was relatively weak.  Is this still the case? [Thinking like an economist, Merpel asks how these balances might affect incentives to innovate.]

In some exciting experimental economics, Michael Vlassopoulos (with David Gill and Victoria Prowse) looked at cheating in the workplace.  Participants in an online experiment received bonuses either randomly or correlated with effort.  He finds that subjects who received the random bonus are more likely to cheat.  More productive workers cheat more.  Workers are not concerned only about the amount they received, but at the way it was achieved – a notion of procedural fairness. As disgruntlement is a motive to misappropriate trade secrets, perhaps ‘fairer’ reward schemes would reduce theft.

My favourite quote of the day: “where there is data, there are economists.”  [Merpel says this appears to be the case regardless of the importance of the issue.] However, trade secrets may still be a bit of a pumpkin as researching them is a challenge.  The search for the owner of the glass boot continues.