The Sanctity of the Trade Secret
posted by Frank Pasquale
Investigative journalists at ProPublica have partnered with Businessweek to investigate serious allegations against natural gas drillers. Some are engaged in drilling that may threaten drinking water supplies–and claiming that trade secrecy protections keep environmental regulators from finding out if people are being endangered:
Some regulators and many environmentalists worry that the fluids injected into many U.S. gas fields could be contaminating drinking water with benzene, methanol, and other toxic substances. The industry counters that its methods are safe. . . . [But] Halliburton [and other drillers] says . . . reluctance to release information about drilling chemicals reflects only a desire to protect valuable trade secrets. “If these formulas were to become available to other companies, it is possible that we could lose our competitive advantage with respect to those companies, not only in Colorado but throughout the world,” says [a] Halliburton spokeswoman.
Halliburton’s assertions here are in line with some major landmarks of “trade secret takings” jurisprudence, including Monsanto (about pesticides) and Philip Morris (about tobacco). However, this line of doctrine is sufficiently underdeveloped that it is by no means an open and shut case. The relationship between changes in IP law and the takings doctrine is a vexed area of law; as a legal realist, I’m surprised by how often IP is treated as real property without the usual types of hedges that limit property rights.
My hope is that the temporary reprieve from high gas prices may undercut the “drill at all costs” mentality that lends support to drillers here. I also hope that work advocating the “virtues of treating trade secrets as IP” focuses on how limits on IP (such as nonpatentability of chimeras) should be imported to trade secret law to protect public health. I’d guess even the most compelling and eloquent “property rights” proponents in the IP community would concede that.
November 21, 2008 at 3:22 pm
Posted in: Intellectual Property
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Responses (3)
Ben Snitkoff - November 21, 2008 at 6:31 pm
There is a great line in Phillip Morris where one of the judges (I think it was the majority) says that if the law passes strict scrutiny, the government doesn’t even need to pay to take the company’s trade secret. Effectively, the takings clause doesn’t apply to IP if you state a compelling interest, and the law is narrowly tailored to that interest.
Michael Risch - November 21, 2008 at 6:40 pm
I’m not sure all the folks you cite would disagree with you. For what it’s worth, I don’t, despite my belief in strong trade secret rights (probably even stronger than at least one of the authors you allude to above).
For example, in Why Do We Have Trade Secrets?, I question whether trade secrets should have unfettered property rights when we are happy to regulate real property despite its clear nature as property.
I also argue that we need trade secret protection precisely so that Halliburton can (and should) disclose its information. I push this even further in a forthcoming book chapter on trade secrets and the incentive to innovate: “Where companies deal with government agencies for product approval or for other regulatory purposes, trade secret law will provide a separate incentive for innovation in such companies. This is because the government will usually not protect information by contract, but many regulatory laws will require state agencies to maintain secrecy of information that qualifies as a trade secret. Without trade secret laws, such information would be publicly available, reducing the incentive for its creation.”
A protective order can additionally provide protection against public dissemination.
I will also note that Monsanto is not nearly the strong property rights case that some might think. Yes, settled expectations render trade secrets property, but if the regulatory statute requires disclosure ex ante, then there is no 5th amendment taking by requiring such disclosure. It’s only the change in the law that triggers matters – to that extent, then perhaps Halliburton has a point, but only if the state does not put protection measures in place.
Frank - November 22, 2008 at 12:09 pm
Many thinks to Michael and Ben. I agree with you, Michael; I just hope that as these cases rise in importance this “public safety” issue gets foregrounded. I have a lot of reading to do in the area.
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