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Trade Secrets: History

    Like many other forms of intellectual property protection, the protection of trade secrets dates back to earlier times. Some argue that trade secret protection started during Roman times where there were laws against corrupting the slaves of another. Presumably the corruption was intended to reveal secrets of the slave owner in possession of the slaves. There is certainly some evidence that trade secret laws were in place during the time of the Renaissance as a form of protection for the guilds. The latter laws became the foundation for the evolution of trade secret law during the industrial revolution, and hence the precursor to modern trade secret law.

    Anglo-American jurisprudence followed suit at a later point in time, roughly in the early to mid 19th century. There is some empirical evidence that unlike patent law, trade secret doctrine has proved to be especially important to small businesses. This it probably due to the expense associated with other types of intellectual property protection and the economic impact on a small business when its secrets are revealed. In the 20th century modern trade secret law has its roots in the Restatement of Torts (1939), sections 757 & 758. Section 757 has been, and remains, influential due to its incorporation into the common law. It is highlighted below.

    Section 757 Restatement of Torts

    A trade secret may consist of any formula, pattern, device, or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating, or preserving materials, a pattern for a machine or other device, or a list of customers.

    It differs from other secret information in a business in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for bringing out a new model or the like.

    A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. It may, however, relate to the sale of goods or to other operations in the business, such as a code for determining discounts, rebates, or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management.

    The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business knows it. He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy.

    Others may also know of it independently, as, for example, when they have discovered the process or formula by independent invention and are keeping it secret. Nevertheless, a substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information.

    The Restatement (Second) of Torts omitted sections 757 & 758 apparently due to the fact that trade secrets had evolved into its own separate doctrine. The UTSA was promulgated in 1979 and its widespread adoption arguably makes it the most important primary legal trade secrets authority in American jurisprudence. As a side note, the U.S. Supreme Court has taken the view that trade secret protection is based on a kind of "property right" (see Ruckelshaus v. Monsanto (USSC 1984)). Others argue that the foundation lies in tort law (as described above) and still others insist protection is grounded in contract doctrine. As a practical matter, what is of value is that the protection exists and that online businesses should leverage it to the greatest extent possible.


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