As for the game theoretical computations at the end of the paper, they certainly don’t reflect any actual decision-making processes at the companies, large and small, I’ve worked at or counseled. And the notion that “In theory, … the owner would spend as much as possible to protect the secrets, up until the point where it is marginally less costly to lose the secret than to protect it” (@69) presupposes a prescience about the value of individual trade secrets that no company has, nor in general endeavors to attain (to say nothing of whether it is even attainable). Even if the theory has some plausible explanatory force ex post, it doesn’t describe how many businesses really work from the inside.

Grimmelperson, perhaps.

Michael and A.J., good luck sorting it out and thanks for stimulating me to read more on the serious side of trade secrets.

-Deven

I will note one thing – if you fragment information and otherwise take “extraordinary” (rather than reasonable) steps to keep information secret, then you don’t need trade secret law because no one will discover the secret. Surely you would agree with me that Coca-cola and KFC are taking extraordinary steps.

That’s OK, but it implies that the primary justification for the law (and this is a point on which people disagree) is to get people to take only “reasonable” steps rather than extraordinary steps. Many companies rely on employee confidentiality agreements and allow wide dissemination (in the company) of their crown jewels – source code, let’s say – knowing that the information is extremely easy to copy and take. Why? Because they have a remedy. Without such a remedy, they might fragment more (and I have had clients that did so).

Does that mean that no one will fragment? Of course not. The more wary a company is of litigation (either due to cost, perceived inability to recover, or risk of high damages), the more likely it will engage in more than “reasonable” protections.

This too doesn’t discredit the justification, it supports it.

It’s not clear what you mean by “spreading the information in the company”. Do you mean to make it available in an unfragmented way to many people? Then this would be like driving full force into the wall of your “ironic limitation.” Obviously the more people who know the secret, the higher a risk of loss if an employee who knows it would leave or decide to sell the information to a competitor. In some cases, like the key formula for the main product, it might be questionable whether there even was a trade secret, due to a “reasonable steps” issue. You seem to want to have it both ways: both blame people for being lazy by relying on trade secret law, and then fault them for being inefficient when they do more than the lazy thing.

In most aspects of day-to-day business, only foolish lawyers and businesspeople would trust *any* law to provide an adequate remedy for anything. Especially in the case of trade secrets, when the time delay between injury and remedy can be so long and potentially prejudicial, and where even injunctive relief can’t “undo” the disclosure. But also in the case of contracts, patent law, etc. For example, we had some hesitations about suing our customers for breach or infringement. That’s real life, not theory.

The fact that Coca-Cola and KFC fragment information in a costly way (it would surely be more efficient to spread the information in the company) implies that those companies do not trust trade secret law to provide an adequate remedy if the cat were to exit the bag.

Since we’re playing pop-culture free association here, that bit reminded me of this:

http://www.youtube.com/watch?v=gvj1QGqfQyg