What justification is there for the enormous amount of corporate secrecy? Should this also apply when it comes to enormous volumes of consumer fraud or any other kind of fraud? environmental destruction? physiological manipulation, especially of children? political manipulation and activities that might threaten the democratic process?
These are all leading questions and any rational person would almost certainly say no. If someone did benefit from these activities then they might be be cautious about addressing these issues or perhaps they might claim that these is little of this type of activity going on; however there is an enormous amount of evidence that has been exposed over the decades that corporate secrecy has been used to do these things for the benefit of those that have been keeping the secrets.
Trade secrets are often used to withhold the truth from the public about many important subjects.
Deceptive advertising is protected much more effectively than the disclosure of trade secrets that often involve fraud.
Therefore, in many cases, the first amendment provides much more protection in the mass media for corporate lies than it does for exposing fraudulent behavior.
Trade secrecy or proprietary information laws aren't the only contributing factor to these problems; there are also attorney client privilege, political access to those that make the laws, propaganda and other related subjects which may contribute to it but trade secret laws are part of it. This could raise the question, why do we have trade secrets that are protected by law instead of disclosure laws that might help workers and consumers access the information they need to make informed decisions?
How has the media and the political establishment addressed these questions in the past?
This seems to be relatively simple; for the most part they act as if it is a given that these laws are justified and rarely even discuss it avoiding the need to inform the public about any justification. Instead some people might get the impression that this is a a sacrosanct right for corporations and that consumers and workers shouldn't be entitled to access the information they need to make decisions.
Of course the political establishment and the media never phrase it this way; instead they often say that the free market system is successful because the consumer has the ability to make informed decisions. However the trade secrecy laws, often referred to as proprietary information laws, may prevent people from actually having the information they need to make decisions. In many cases they rely on the information that the corporations give them, a large amount of which is in the form of deceptive advertising. The cost of these ads is routinely passed on to consumers and in a competitive market then corporations might have an incentive to keep these costs down or they won't be able compete. That's the theory anyway. In the current market the majority of corporations have gone through an enormous amount of consolidation and many of them have dramatically increased their bureaucratic expenses which they pass on to consumers including advertising, lobbying, shipping, consulting, and legal expenses including an enormous amount of efforts to keep people from knowing what they're doing.
At the same time they've been cutting many of their manufacturing expenses to the bone. This has even led to fires in sweatshops and collapsed buildings that have killed the workers that make our products. Part of the reason this has happened is that the corporations have claimed that trade secrecy laws protect their rights to disclose where their factories are so that they can remain competitive, or so they claim.
Another major problem is that over the past thirty years while they've been cutting these manufacturing expenses and increasing their bureaucratic expenses the typical quality of many products has been deteriorating. Sneakers that used to last close to two years now fall apart in under six months, or at least some of them do; fortunately as a result of consumer backlash some retailers finally partially reversed this process so they might last closer to a year again but they're still not as good as the product that we used to be able to buy. The fact that the deterioration of the quality of products has happened with most if not all manufacturing and retailers should raise some doubts about whether or not the "free market" system really is working as it is supposed to. Regardless of whether it is working it is virtually guaranteed that trade secrecy laws have enabled this, at least partially. At the same time they have increased their spending on advertising to convince consumers that they're getting good products when they're not.
Whether trade secrecy laws were intended to do this or not they have been partially responsible for it and this isn't even being considered in a high profile manner anywhere as far as I can tell. I have addressed this more in a past blog, Is Wal-Mart driving planned obsolescence? and additional blogs under the author tag "A small success against planned obsolescence" which is cited in that post. It includes reviews of many products and how they have deteriorated. Part of the reason that many consumers didn't notice might be because corporations have been using trade secrecy laws to gradually reduce their quality. At the same time they might have been conducting research into consumer complacency and how effective their advertising has been at convincing consumers they're getting their money's worth when they're not. this information might be protected by trade secrecy laws whether or not this was the intent of those laws.
This should raise doubts about whether or not trade secrecy laws are being used to increase fraud. Even tough the political establishment and the commercial media hardly pay attention to this their have apparently been some academic professors and lawyers and presumably lobbyists and consultants that have been addressing this and making some justification for these laws although most people are almost certainly not aware of it. One of these professors is Professor Michael Risch who wrote Why Do We Have Trade Secrets? PDF , an article defending the use of trade secrecy laws. He does not attempt to address some of the problems that I have cited, as far as I can tell; instead he declines to mention them. However it is almost certainly a major problem and as far as I can tell few of the people that are involved in this discussion or policy decisions are doing much if anything to represent workers, consumers, environmental protection, psychological manipulation of children and yet all of this is impacted by corporate secrecy. It could be argued that the laws weren't intended to defend these problems but they've been going on long enough that it should be clear that they are and failure to address them should at a minimum be considered negligence.
When Googling "justification for trade secrets" this article is one of the first ones to come up but it isn't the only one, including a few listed below, and a relatively quick look at the other ones indicates that although they're not exactly the same they don't address what I would consider the most obvious problems with trade secrecy laws any more than the commercial media. As far as I am concerned all of these people that make a case for their beliefs, including Michael Risch, do a better job than the commercial media and the political system even if I don't agree with them because at least they're showing how they came to their conclusions and i think that they should receive more attention from the commercial media along with more diverse views although I don't expect the commercial media or the political system to do any such thing unless they're pressured from below.
One of the most important justifications that is often used for trade secrets is the claim that they're "intellectual property" which have value that the owner should be allowed to protect. This might seem reasonable when it comes to the formula for Coca-Cola, which is one of the examples that he cites; but when it comes to the possibility that they might be gradually reducing the quality of their products to save money in manufacturing expenses and force many consumers to replace things much more often their "intellectual property" is also consumer fraud. Also when it comes to psychological research into marketing to children and manipulating them through advertising and other means this "intellectual property" involves interfering with the well being of children which I have attempted to address in posts including Proprietary information is, by definition, a conspiracy and blogs about marketing to kids (author tag). Similar examples could include environmental destruction safety in food and other issues and interfering with the democratic process. In order to find out whether many of these apply we would have to have access to these trade secrets, which we don't; however there have been enough leaks of problems to indicate that a lot of their "intellectual property" involves just that, the use of secrecy for profit at the expense of the public.
This issue should be discussed much more in public and all those that are impacted by it should be allowed to participate in the decision making, whether it is based on Michael Risch article or other reviews of the subject. As it stands the majority of those that have been involved in the decision making on this subject are those that benefit from secrecy, while the majority of the public remains unaware of the impact.
The following are some of what I consider the most important issues that he raised and my responses; for those that might be skeptical of my views or that might want to use their own judgement feel free to read the article first in it's entirety.
Trade secrets differ from other forms of intellectual property in many ways. The most significant difference is the role of public disclosure. Copyright law and patent law are founded on the notion that creativity and innovation, respectively, are rewarded by limited governmental protection to facilitate recoupment of the costs of creation. Furthermore, the policies of patent and copyright law favor building on prior work, as well as freedom for all to use subject matter that is outside the scope of protection. 37 Trade secrets are treated exactly opposite—the trade secret owner is rewarded for keeping information that is neither new nor original away from the public for an unlimited duration. Thus, information that could not be patented or copyrighted is still protected for as long as the owner can keep the information secret. These differences lead to two criticisms of trade secret law. First, there is a lack of public benefit due to the lack of information sharing. Second, there is little or no marginal incentive to innovate because the owner obtains protection of the information by keeping it secret even in the absence of the law. This Article addresses these criticisms below. .....
Although I don't agree with the growing use of patent and copyright laws especially when it is partially subsidized by the government including research into developing pharmaceuticals, at least they make their information public so researchers can access the information being partially controlled to assess whether or not the justification is reasonable. As previously indicated this isn't possible when the government makes laws to defend secrecy. This provides an incentive to require people to sign nondisclosure agreements which have often been used to silence people that attempt to disclose corrupt activities, most notably, perhaps, when Jeffery Wigand was threatened for exposing dangerous tactics by the tobacco companies, as well as what is considered reasonable trade secrets. It also leads to an enormous amount of expense trying to restrict the spread of important infor5mation that people need to make decision. When this expense is carried out by large and powerful corporation that have dominant market position they can use their market dominance to pass these expenses on to the consumers without providing a benefit for those that ultimately pay for them.
In an oft cited case, the U.S. Supreme Court had an opportunity to address this state law issue and both affirmed that trade secrets could be property and left the issue up to the states. 91 In Ruckelshaus, pesticide manufacturer Monsanto challenged, as a Fifth Amendment taking, a statute that allowed the Environmental Protection Agency to disclose its trade secret data to the public. 92 The Court determined that under Missouri law, which followed the Restatement (First) of Torts at the time, trade secrets were property, and thus could be subject to a taking. 93 In doing so, the Court relied in part on a Missouri case decided in 1917, 94 which makes sense because the shift from “property” to “unfair competition” around the time of Masland
had not yet become widespread. .......
By being "subject to a taking" a taking because it is "property" I assume it is referring to the eminent domain process which would also require justification and compensation. If there was no better way to handle this then this might be a reasonable method but there clearly is a better way to handle this. Monsanto has a long history of using trade secrecy to hide their activities even when it might impact the health of the public. This means that they are essentially using the public as human research subjects for their own profit. That would effectively mean that they're treating the public as a form of "property" which they can use for research the same way they use guinea pigs as property in a research lab. When the health of the public is at stake their should be no justification for trade secrecy for a corporation working for their own profit while claiming to provide a public benefit even though various studies not financed by Monsanto have raised major doubts. These studies have been done despite trade secrecy laws and without them they would be much more reliable and better able to protect the public.
As a result, trade secret law (or even secrecy without the law) does not necessarily confer an opportunity for the owner to charge more than would be available on the open market. 136 In fact, to the extent that trade secrets reduce production costs, they would lead to lower pricing in the market. A trade secret must have competitive value, but every company has information that has competitive value. Take customer lists, for example. Knowing who to contact will reduce costs of sales vis a vis a company’s competitors. This fact does not mean that a company can extract monopoly pricing; while the company may have a “leg up,” product quality and pricing will still affect competition.
The assumption that trade secrecy would lead to lower prices depends on the nature of the secret and whether or not the market really is as free as many people claim it is. If the trade secret involves research into consumer complacency then it could lead to higher prices; or if it involves predatory pricing to eliminate the competition then the lower prices tend to be lower and once the consumers lack the advantage of competition their benefits from the free market. With all the mergers and acquisitions that have been going on for decades trade secrecy laws may have enabled an enormous amount of consolidation and there is now much less competition than there used to be creating an oligarchy system that has been partially enabled by secrecy. With this system, even if there isn't conclusive evidence of collusion or price fixing, there is a common system of motivation for the corporations that remain which encouraging them to increase their profit margins by declining to participate in price wars that might interfere with their profits. This might not quite be dividing up the market without real competition but it is very close. Instead of competing with price or quality they often compete with advertising methods that are controlling the information the public receives about their products and are taking up a steadily growing percentage of the GDP. If the customer winds up paying for the growing cost of advertising as a cost of business then they're essentially paying for the deceptive lies that have been used to control their decisions and they receive no benefit, thanks partially to trade secrecy laws.
The same is true for a secret process for making goods. Assume there is a secret process for making food taste better or making a widget more cheaply. Producers compete with other food and widget makers, and they still have price competition. Their competitors will have their own methods for taste enhancement and cost reduction. ......
Trade secrecy laws rarely seem to take into consideration whether or not a potential process for making food taste better might affect their health. This is often ignored until an outbreak of food poisoning. We have had at least two of these recalls recently including A Bagged Salad Recall and a Beef Recall; but thanks to trade secrecy laws the "intellectual property" of corporations appears to be more important than the health of the public. Trade secrecy may also increase the centralization of the control of food as well; which might sacrifice the benefits of factory or farm direct sales keeping cost down so that profits can go up. When it comes to making products cheaper one of the most popular ways to do this seems to be to suppress wages and reduce safety in the factories. This is often accompanied by increased distribution and shipping costs and lower quality products. so the owners of "Trade Secrets" increase profits by violating human rights and depriving the public of quality merchandise without proving much if any lower costs.
The end result of each of the above utilitarian “justifications” that give moral force to the labor theory is an increased incentive to develop information that becomes a trade secret. If exclusive use were to be eliminated (or if owners were forced to share their secrets with the world), the incentive to create would certainly decrease, even if not entirely.
This isn't necessarily true. When it comes to creativity many artists writers or engineers do it because they like and they often do so because they want to contribute to society as well. social research projects have been done into similar things including the "prisoners dilemma" and other projects where people have been given incentives to contribute to the well being of the group. In the "prisoners dilemma" multiple prisoners have been kept apart as part of a divide and rule tactic and they turned against each other when the investigators lacked evidence to convict either. If two prisoners had known and operated they could have both gotten off but they often both tern on each other and get convicted. In this case it might work in the favor of society, or at least it might seem to. However in many other cases they have found that if people have been given incentive to cooperate they all benefit even if it isn't exactly even. the best example of this might be creative commons where anyone can use work as long as they make their contribution along with the material they take from others available to the public.
When it comes to methods that improve production this could also work. Two different corporations could develop improvements and they could both benefit from both while competing in other ways. thanks to corporate espionage this is already happening only in a less efficient manner but small companies are being left out and trade secrecy laws are often helping to wipe out these small companies leading to consolidation and less choice. the small companies are often run by more innovative people which means that when they go out of business instead of encouraging innovation they destroy it in many cases.
Contractarian theories relate to hypothetical bargaining of a set of rules by hypothetical individuals who have an interest in the outcome. The result of such bargaining is theoretically normatively justified by ex ante agreements to be bound by a set of rules. John Rawls popularized one such contractarian theory called the “veil of ignorance.” 159 The veil of ignorance is a hypothetical “state of nature” that predates the distribution of rights in which the people making the decision about the distribution do not know what position they will occupy after the distribution is complete. Rawls suggests that those forming a society under the veil of ignorance would implement the “maximin” principle— namely selecting a distribution of wealth that maximizes the wealth of the person with the least. 160 This seems reasonable if one accepts the right assumptions—that people operating in ignorance would want to make sure that if they turn out to be the least well off, then they would not be destitute. 161 Landes and Posner thus argue that companies would agree to allow reverse engineering because of the benefits such a rule might bring to everyone in the industry.
Professor Bone criticizes contractarian theories in general on the grounds that “real world” companies would protest following the agreements made during hypothetical negotiations by those who do not share their “real world” preferences. 163 His argument highlights many of the problems with contractarian theory in general, such as that their moral force is too dependent on the constraints on hypothetical bargaining—especially as those constraints relate to those in the real world who would prefer a free market to determine such rules.
Despite this criticism, one particular set of bargaining constraints can shed light on the issue—namely the “veil of ignorance.” Under the veil, the “founders” would not know what position they would occupy, and thus the rules they might agree to are determined to be fair and just. From a moral standpoint, it is irrelevant what real world people would agree to in order for these rules to have normative support. Because debate about rules will always be biased by real world positions, any statements about the justification of rules will be biased as well. The goal, however difficult it might be to achieve through thought experiments, is to determine what someone might agree to if he or she did not know his or her lot in life while making the decision.
This leads to a more specific criticism of the veil of ignorance in particular—there is no reason to believe that any particular distribution of rights associated with trade secrets would be the outcome. 165 Why, for example, is reverse engineering allowed? Why is unjust enrichment a measure of damages? Why is improper means broader than common law wrongs? There is no reason to believe that any of the above choices should be the outcome, or perhaps all of them could be a just outcome.
Even if the current set of rules cannot be predicted, veil of ignorance analysis is still useful from a normative point of view. One might be able to consider the balancing those in the original position might have considered given the current set of rules. This may be sufficient for justifying the existence of trade secret law. After all, even with efficiency analysis we have no way of knowing whether a particular rule really is the most efficient in all circumstances. For example, if one assumes that people value that which they create more than others do, but at the same time that people want to build on the work of others, it is well within the bounds of reason that some form of limited protection of trade secrets would be the outcome of a negotiation under the veil of ignorance.
Professor Bone criticizes contractarian theories in general on the grounds that “real world” companies would protest following the agreements made during hypothetical negotiations by those who do not share their “real world” preferences. 163 His argument highlights many of the problems with contractarian theory in general, such as that their moral force is too dependent on the constraints on hypothetical bargaining—especially as those constraints relate to those in the real world who would prefer a free market to determine such rules.
Despite this criticism, one particular set of bargaining constraints can shed light on the issue—namely the “veil of ignorance.” Under the veil, the “founders” would not know what position they would occupy, and thus the rules they might agree to are determined to be fair and just. From a moral standpoint, it is irrelevant what real world people would agree to in order for these rules to have normative support. Because debate about rules will always be biased by real world positions, any statements about the justification of rules will be biased as well. The goal, however difficult it might be to achieve through thought experiments, is to determine what someone might agree to if he or she did not know his or her lot in life while making the decision.
This leads to a more specific criticism of the veil of ignorance in particular—there is no reason to believe that any particular distribution of rights associated with trade secrets would be the outcome. 165 Why, for example, is reverse engineering allowed? Why is unjust enrichment a measure of damages? Why is improper means broader than common law wrongs? There is no reason to believe that any of the above choices should be the outcome, or perhaps all of them could be a just outcome.
Even if the current set of rules cannot be predicted, veil of ignorance analysis is still useful from a normative point of view. One might be able to consider the balancing those in the original position might have considered given the current set of rules. This may be sufficient for justifying the existence of trade secret law. After all, even with efficiency analysis we have no way of knowing whether a particular rule really is the most efficient in all circumstances. For example, if one assumes that people value that which they create more than others do, but at the same time that people want to build on the work of others, it is well within the bounds of reason that some form of limited protection of trade secrets would be the outcome of a negotiation under the veil of ignorance.
The “veil of ignorance" hypothesis might make a certain amount of sense if it worked in the real word since people wouldn't have an incentive to rig the system if they didn't know which way to rig it. However this is rarely the case and it might be more effective to enable everyone to participate in the process of setting up the rules. With the current political system this isn't the case since the same people that control trade secrecy also have access to the politicians that make laws about trade secrets and the majority of the public doesn't have the information they need to participate thanks, in part, to trade secrecy laws.
This means trade secrecy laws threaten the democratic process.
C. Populist Justification
A final possible justification of trade secret law is populist support. 166 In short, the majority (or rather the majority’s representatives) in nearly all states support some protection through legislation. For some, this might be sufficient justification. When trade secret law was judge-made law, one could dismiss populism or other forms of “public choice” as a justification. Now, however, with so many state legislatures independently enacting trade secret statutes, it is pretty clear that trade secret law is supported by the masses. 167 It may be that the labor value theory of trade secrets as property underlies populist support.
However, the public has in the past (and even currently) supported morally repugnant and/or economically inefficient laws. 168 Additionally, it is not clear that the public in general has an interest in how trade secrets are implemented; it is not as if product pricing and corporate profits can be directly traced to trade secrets even if secrets may have some effect. 169 More interesting, then, is determining why it is that legislatures choose to have trade secret law. 170 After all, there are a variety of efficient and morally worthy ideas that never make it into law.
From a political economy point of view, those that have much to gain from trade secret law will likely push for its passage, while those that do not have an interest will not oppose it. 171 Thus, it is no surprise that trade secret law was added to the legislative agenda and subsequently adopted. 172 However, criticism that the current form of trade secret law is simply the result of lobbying by powerful companies desiring to protect their secrets 173 is unfounded for three principal reasons. First, trade secrets are much cheaper to obtain and do not grant the absolute exclusive right that patents do. 174 As a result, one would expect small companies to favor trade secret protection over large companies. In fact, this is the case. 175 Second, in general, companies have trade secrets and also want to learn the secrets of other companies; as a result, one might expect that, in general, “industry” would seek to protect trade secrets and that “industry” would also seek exceptions for reverse engineering or other methods of learning information. 176 Third, trade secrets arose from the common law, not the political process, and thus their later political acceptance in forty-five separate jurisdictions is unlikely to be solely driven by interest groups, though those groups obviously had a role in putting trade secrets on the agenda. ......
A final possible justification of trade secret law is populist support. 166 In short, the majority (or rather the majority’s representatives) in nearly all states support some protection through legislation. For some, this might be sufficient justification. When trade secret law was judge-made law, one could dismiss populism or other forms of “public choice” as a justification. Now, however, with so many state legislatures independently enacting trade secret statutes, it is pretty clear that trade secret law is supported by the masses. 167 It may be that the labor value theory of trade secrets as property underlies populist support.
However, the public has in the past (and even currently) supported morally repugnant and/or economically inefficient laws. 168 Additionally, it is not clear that the public in general has an interest in how trade secrets are implemented; it is not as if product pricing and corporate profits can be directly traced to trade secrets even if secrets may have some effect. 169 More interesting, then, is determining why it is that legislatures choose to have trade secret law. 170 After all, there are a variety of efficient and morally worthy ideas that never make it into law.
From a political economy point of view, those that have much to gain from trade secret law will likely push for its passage, while those that do not have an interest will not oppose it. 171 Thus, it is no surprise that trade secret law was added to the legislative agenda and subsequently adopted. 172 However, criticism that the current form of trade secret law is simply the result of lobbying by powerful companies desiring to protect their secrets 173 is unfounded for three principal reasons. First, trade secrets are much cheaper to obtain and do not grant the absolute exclusive right that patents do. 174 As a result, one would expect small companies to favor trade secret protection over large companies. In fact, this is the case. 175 Second, in general, companies have trade secrets and also want to learn the secrets of other companies; as a result, one might expect that, in general, “industry” would seek to protect trade secrets and that “industry” would also seek exceptions for reverse engineering or other methods of learning information. 176 Third, trade secrets arose from the common law, not the political process, and thus their later political acceptance in forty-five separate jurisdictions is unlikely to be solely driven by interest groups, though those groups obviously had a role in putting trade secrets on the agenda. ......
The assumption that "trade secret law is supported by the masses" because the "majority’s representatives" pass the laws falls apart quickly under scrutiny when you wonder if the majority is aware of what their representatives have been doing. If you asked the average person if they were familiar with trade secrecy laws they almost certainly would not be since there is little or not effort to inform the majority of it. if you asked people if they should be allowed to know if the products they've been buying are gradually becoming lower quality and falling apart sooner or if their food is potentially more dangerous they would almost certainly say they should. Yet trade secret laws prevent this. If on the other hand the people that present them information control it and ask them if they should be able to keep their private live secret they would say yes, presumably, and they might agree that others should as well and this could be used as a propaganda method to justify trade secrets. that might not be the best or most effective method corporation use; a more likely example might be that they present it as if the person being asked has the opportunity to advance thanks to their own secrets. there are many other methods that have been used but the problem is that the people controlling the debate also have the information they need to make their decisions while the majority doesn't so the "Populist Justification" Michael Risch cites isn't an informed populist justification therefore it is seriously flawed.
His claim that "those that have much to gain from trade secret law will likely push for its passage, while those that do not have an interest will not oppose it," is much closer to the truth but it is also flawed since the majority doesn't have the information they need to realize they have an interest in opposing it so their representatives, who often collect campaign contributions from corporations, often pass these laws without accountability since the public isn't paying attention.
If there was informed populist participation then the public might be outraged by how much they have been losing by epidemic levels of fraud and they might be screaming to have politicians and businessmen put in jail for their activities, or at least elect representatives that change the system. This hasn't happened yet because eh same people that control trade secrets also control the propaganda that is given to the public about their representatives and withhold coverage of sincere candidates or ridicule them as "unelectable."
Critics might argue that trade secret law imposes a cost by keeping valuable information from the public,185 which is directly contrary to the conventionally understood policies of copyright 186 and patent law. However, this particular social cost is minimal because the information would already be kept secret by the owner in the absence of trade secret law while others would attempt to discover the same information independently. 187 The marginal cost of protecting secret information is that those who would use “improper means” 188 cannot obtain that information and must duplicate innovation. 189 This is especially pronounced where former employees must “recreate the wheel” or, even worse, where employees with experience are not assigned to key projects because of the risk of use of confidential information. As discussed below, this marginal cost is likely outweighed by the benefits of protection, especially considering the fact that “duplicate innovation” or reverse engineering may lead to improvements better than the first secret. 190
The discussion thus far has assumed that because the information has value to the owner, there should be some protection. This might not necessarily be true; perhaps it would be more efficient if competitors could simply take what information they want without repercussion, or even if every company were forced to disclose its information. There are bound to be times when the cost of such activity is well justified by the value of such secrets, and the competitor might even be able to make better use of the information so that society will be better off. The subsections below test the alternatives, namely “forced disclosure” and “no liability.”
High cost forced disclosure would relate to disclosure of information that is not easily shared in a timely manner, such as detailed customer information, pricing, product roadmaps, and other ephemeral or unwritten information. 192 In practice, high cost forced disclosure would fail because enforcement and administration costs would be sufficiently high that information producers would risk nondisclosure. 193 Additionally, owners would be more likely to keep information in memory rather than in writing, which would likely make the information less valuable to its owner with no offsetting benefit.
The discussion thus far has assumed that because the information has value to the owner, there should be some protection. This might not necessarily be true; perhaps it would be more efficient if competitors could simply take what information they want without repercussion, or even if every company were forced to disclose its information. There are bound to be times when the cost of such activity is well justified by the value of such secrets, and the competitor might even be able to make better use of the information so that society will be better off. The subsections below test the alternatives, namely “forced disclosure” and “no liability.”
High cost forced disclosure would relate to disclosure of information that is not easily shared in a timely manner, such as detailed customer information, pricing, product roadmaps, and other ephemeral or unwritten information. 192 In practice, high cost forced disclosure would fail because enforcement and administration costs would be sufficiently high that information producers would risk nondisclosure. 193 Additionally, owners would be more likely to keep information in memory rather than in writing, which would likely make the information less valuable to its owner with no offsetting benefit.
Ironically while trying to justify trade secrecy laws Michael Risch seems to have made a few good points for the opposite. With all the efforts to hide things and recreate the same work in multiple places without additional information many people would be doing the same work over and over again which would be extremely inefficient as a society. If their were no laws protecting trade secrets and when it effects fraud or health there were laws requiring disclosure then it would save people a lot of trouble and the economic system would be more efficient for everyone. If there is some justifiable value to the owner of information then it seems much more reasonable for them to rely on reasonable copyright or patent laws, either that or find a socialist way of compensating them with grants of some sort. this might have details to work out but it is much better than the enormous amount of effort to ensure that most people don't have the information they need to make decisions.
Michael Risch expressed concern about high cost forced disclosure but it is almost certainly much more expensive to prevent disclosure. If you Google "Trade Secrets lawsuit" you'll find that there is an enormous amount of effort going into this already. They often discuss the cost of pursuing the lawsuits but discussion about court costs or in some cases prison costs for stealing trade secrets aren't discussed as much. Are the tax payers paying for this or are the corporations that benefit from it paying the court cost? there is little or no effort to inform the public about this and it is almost certainly adding to the deficit; which means that the public is paying part of the legal costs to deprive them of the information they need to make decisions. If the public knew they were subsidizing fraud and potential safety hazards they would almost certainly be outraged unless they were fed propaganda to confuse the issue.
as for the cost of forced disclosure it would almost certainly be much lower especially if they provided protection for employees who want to disclose it. In most cases they might not need to spend much money to enforce it although they might pass laws threatening the corporations and board members with fines or in extreme cases with jail if it is necessary as a deterrent. The corporations would no longer be able to require nondisclosure agreements in most if not all cases and with the help of sincere people it would be much easier to enforce. Instead of persecuting sincere whistle blowers they should be protected and the public would be protected as well when information about fraud or safety hazards is exposed much more easily.
One of the most blatant examples of how trade secret laws combined with false advertising can manipulate the political system and encourage the voters to vote against their own best interest based on false information is the recent ballot initiative to label GMOs in California.
Photo source
Monsanto was able to keep most of their activities secret thanks to trade secret laws and they created a deceptive advertising campaign to convince the public that the initiative would drive up the cost of food among other things. this implies if not states that they would be forced to pass on the cost of labeling to the consumer, which is true. However it is also true that the consumer would have a benefit from this expense that would enable them to make better decisions. Furthermore it is also true that they have to add on the cost of other business expenses to the consumers including the cost of their deceptive political ads as well as the cost of their deceptive regular ads and their lobbying expenses. They simply declined to mention this. the implication is that consumers should be required to pay indirectly for the cost of deception which makes their choices worse but they should not be required to pay the much lower cost of disclosing the truth which improves their lives.
The hypocrisy is mind-boggling. By controlling the information with the help of trade secret laws they were able to convince the public to vote against their best interest.
The following are additional related articles including some other views on Trade Secrets:
Wikipedia: Trade secret
Michael Risch joined the Villanova from Stanford Law School
Trade Secrets and the Justification of Intellectual Property Lynn Sharp Paine
Trade Secrets, Unjust Enrichment, and the Classification of Obligations By James W. Hill
Trade Secret Misappropriation - $taggering Numbers For Employers to Consider
A Trade Secret Approach to Protecting Traditional Knowledge
Thanks for your detailed writeup of my article. You definitely hit the key section at the end - the alternatives of forced disclosure. Perhaps you are right that there may be areas where forced disclosure is better. My friend and colleague Dave Levine writes in this area, and you may enjoy his work: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=620105
ReplyDeleteAs for my article, a couple of clarifications:
1. I don't justify trade secrets, only trade secret laws. You are right that there may be secrets that are costly
2. I focus on the default state of the world that companies will keep information secret with or without the law. I stand by that default. First, unless the law is changed with respect to a particular area (as Dave Levine argues for some areas, like Voting Machines), and as you seem to argue, that's the baseline. Second, I stand by my analysis that forced disclosure rules will often fail. Yes, companies will spend lots of money protecting their secrets in litigation. But that's the point - they will ALSO spend money evading disclosure laws, and forcing disclosure will be difficult or impossible. Or maybe not - that's an argument I don't engage in this article.
3. One key takeaway from my article that gets missed in this review is that one of the key justifications for the LAW (not secrecy, but the law) is to make it EASIER to misappropriate secrets. Without the law, which gives a recourse, companies would spend EVEN MORE money keeping information secret, and then we wouldn't EVER find out about it, trade secret law or no. So, the law encourages lower fences, and that's a good thing for disclosure, like whistleblowing, etc.
Thanks again for engaging with this article, even if you disagree! I'm also glad it comes up high on Google!
Thank you for your reply; I had considered writing you to inform you that this would be posted and intended to do so but for one reason or another didn't. Excuse me for that.
DeleteWhile reading your article I did note that you mentioned that you defended the Trade Secret laws and that corporations would keep secrets with or without them. This is presumably true; however I suspect that many corporations are much more likely to keep secrets if they have the protection of the law rather than the potential threat of retaliation from the law. Some effort could be made to differentiate between fraudulent trade secrets and trade secrets that could be based on innovation. For example you cited the Coca-Cola formula which could be a trade secret or a patent. It seems to me that it should be a patent since it can almost certainly be discovered by the competition by finding someone in the factory that works their to disclose information and making it public could allow scrutiny for health problems. But assuming that it is a trade secret it wouldn't be as blatant as marketing to children methods that involves deception or research about consumer complacency. If there are trade secrecy laws that protect secrecy it seems to me that they should make exception making it clear that attempting to use secrecy to hide fraudulent activities or psychological manipulation of children could be punishable by the law and that executives who participate in this could be held criminally liable. (comt.)
This would apply to voting machines as well; I'll have to take a closer look at Dave Levine's work. I have previously read a couple other sources on this including Andrew Gumble, author of "Steal This Vote," who has made it clear that proprietary information, when it comes to voting machines, has almost certainly already led to major voting improprieties which have threatened the democratic process. Some of the worst examples of this have taken place in Ohio and Florida. Roy Fox, author of "Harvesting Minds," has also raised major concerns about using proprietary information laws to keep marketing to children secret. In response to an E-mail a few months back, cited in "Roy F Fox on unethical targeting of children by marketers," (http://open.salon.com/blog/zacherydtaylor/2013/02/20/roy_f_fox_on_unethical_targeting_of_children_by_marketers) he said "No, psychological research designed to improve marketing techniques should not be proprietary—especially to children. In fact, I am in favor of disallowing psychological research to improve marketing to ANYONE, unless advertisers and marketers obtain prior consent from the individuals they wish to “study.” If advertisers and marketers do not currently operate within the guidelines of a “Human Subjects Review Board,” then they should be made to do so, just as all the other types of researchers do."
DeleteApparently there are laws about other types of research using human subjects but instead of extending them to marketing research laws they make it proprietary. Juliet Schor and Susan Linn have also expressed similar concerns with this; and I suspect that if the vast majority of the public was familiar with these views they would almost certainly agree. Unfortunately the vast majority of the public rarely hears from these people including Dave Levine and you. Even though I don't agree with you on everything, I actually think that your views should receive more attention since it would draw more debate about it in the public. the worst thing they can do is to ignore it which is what they've been doing. By keeping it low profile they continue to pass laws with little public knowledge of what they're doing. The public has little knowledge about what their elected officials actually do; instead they rely largely on propaganda, lots of which is bought and paid for, in the form of campaign ads, which is among the least reliable information available since it has a financial bias.
I fail to see how the law could "make it EASIER to misappropriate secrets," especially when it comes to fraudulent or dangerous secrets. In fairness when it comes to things like the formula for Coca-Cola I can understand why they might let their guard down with the law but when it comes to fraud they would still spend just as much money keeping it secret and use the law as a potential deterrent that they could threaten their employees. However in most cases they would hesitate to actually use the threat of a lawsuit when it comes to disclosing fraud since the public would be outraged. Numerous whistleblowers have disclosed secrets without prosecution; the most notable exception that I know of was Jeffrey Wigand and that was a public relations disaster. Kentucky attempted to extradite him nut other states wouldn't comply and any rational person knew how wrong it was.
Another case like that could lead to more debate about the laws and that might be exactly what they want to avoid so they might only use the laws when they don't believe it would outrage the public. this would be similar to the McLibel lawsuit which McDonald's partially won but didn't collect and paid a heavy public relations price.
Thanks again