Thursday, August 1, 2013
Why Do We Have Trade Secrets? Professor Michael Risch's defense of fraud?
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.
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.
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.
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.
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.
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.
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.
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."
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.
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