Article

The Case Against Federalizing Trade Secrecy

Trade secrecy is unique among the major intellectual property (“IP”) doctrines because it is governed primarily by state law. Recently, however, a number of influential actors—including legislators, academics, high-technology firms, and organizations representing IP attorneys and owners—have supported the creation of a private civil cause of action for trade secret misappropriation under federal law. Proponents assert that federalizing trade secrecy would provide numerous benefits, including substantive uniformity, the availability of a federal forum for misappropriation litigation, and the creation of a unified national regime for IP rights.

This Article engages in the first systematic critique of the claim that federalizing trade secrecy is normatively desirable. Ultimately, it concludes that there are multiple reasons for trade secrecy to remain primarily the province of state law, including preservation of the states’ ability to engage in limited experimentation regarding the scope of trade secret protection and federalization’s potential negative impact on the disclosure of patent-eligible inventions. Finally, it proposes an alternative approach—a modest expansion of federal courts’ jurisdiction over state law trade secret claims—that can help address the issue of trade secret theft without requiring outright federalization.

The Corporate Settlement Mill

From cases involving “robo-signed” mortgages to catastrophic oil spills, the United States legal system increasingly encourages corporate wrongdoers to design and implement their own high-volume settlement programs to compensate thousands of unrepresented victims. These private settlement systems rely on corporate economies of scale to resolve massive disputes as comprehensively as a class action, but entirely outside of the court system. We call these systems “corporate settlement mills.”

Like class action settlements and “no fault” insurance options, corporate settlement mills may ameliorate many of the most commonly criticized features of individualized litigation. They offer redress to people who often cannot afford counsel, handle large volumes of claims quickly and predictably, and reduce court congestion. For those reasons such programs are increasingly required by federal laws, regulatory bodies and as a matter of complex litigation practice. 

But corporate settlement mills also have costs of their own. When sophisticated corporate actors quietly settle large numbers of cases in assembly-line fashion, they threaten transparency, fair dealing, and the rule of law. We argue that this new category of dispute resolution is more dangerous than others because a single, self-interested party — the prospective defendant itself — designs and oversees the entire determination process. Corporate settlement mills thus raise fundamental questions about how far policymakers may go to privatize our public, and historically neutral, system of adjudication.

Drawing lessons from other movements to privatize government, we argue that corporate settlement mills can provide an appropriate alternative to public adjudication as long as they remain answerable to the regulators, courts, and claimants that rely on them. We therefore offer specific suggestions to make them more accountable — including targeted prospective regulation, judicial review, stakeholder participation, and ethical reform. In so doing, we broaden the debate over what constitutes mass litigation, in the hope that lawmakers realize the benefits of large private settlements, without frustrating administrative regulation or the judiciary’s authority to “say what the law is.”

Patent Experimentalism

Many scholars have wrestled with what I call the “first-order question” in patent law: What policies should we adopt to promote innovation? This Article grapples with the second-order question: What policies should we adopt to promote innovation about promoting innovation? I argue that empirical progress in patent law depends on greater policy diversity (rather than the current emphasis on uniformity), but unconstrained “laboratories of experimentation” are suboptimal due to the spillovers from local policies. Instead, patent policy makers should adopt a third way between uniformity and local control: centralized promotion of policy variation. The optimal approach to such policy experimentation depends on the context. Randomized policy experiments should be used more often, both in the field (for example, testing prizes in a random selection of pharmaceutical classes) and in the lab (for example, testing how varying disclosure affects performance in implementing software patents).

But many nuanced, dynamic issues—such as the patent-eligibility of new technologies in heterogeneous jurisdictions—are better approached not through fixed experiments, but rather through an adaptive “experimentalist” governance regime. Local actors—patent examiners, judges, or even individual countries—should be granted broad discretion to meet centrally-defined framework goals, with the requirement of defending their decisions through robust peer review. Even where controlled experiments are infeasible, experimentalist policies could elicit local knowledge, generate varied observational data, and encourage more robust theory development about the mechanisms by which innovation policies work. This pluralistic, evidence-based approach to patent policy can be guided by recent trends in personalized and evidence-based medicine, and the resulting framework for legal experimentation has implications for policy learning beyond patent law.

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