Trade Secrets

You find yourself thirsty in New Delhi in the year 1985 and would like to purchase a bottle of your favorite soft drink, Coca-Cola®. Sorry, you can't. The reason is that between the years 1977 and 1991, the Indian government had foreign-investment laws that would have required the disclosure of trade secrets. In particular, for Coca-Cola to have been sold in India during that time would have required that the recipe for making it have been disclosed. When these laws came into effect in 1977, Coca-Cola, Inc., felt so strongly that it did not want to reveal its secret that it opted instead to shut down twenty-two established bottling plants in India and forgo selling its products in one of the most populous countries of the world. It was only once the Indian government relented in its position that sales of the popular drink in that country resumed.

Ever since John Pemberton, a pharmacist in Atlanta, developed the concoction known as Coca-Cola in 1886, the precise ingredients and their proportions have remained one of the most closely guarded industrial secrets. While Coca-Cola is known to have the same basic ingredients as every other cola—water, sugar, caramel, and caffeine—it also contains a secret ingredient identified to the world only as "Merchandise 7X." The actual composition of Merchandise 7X is reputed to be known only to a handful of individuals who are forbidden from traveling together lest a collective accident cause the secret to be forever lost. In fact, this restriction (should it actually exist) may be excessive since the composition is also supposedly stored in a vault in the Sun Trust Bank Building in Atlanta where it is protected under lock and key and with a guard posted twenty-four hours a day.

Up to this point, the different forms of intellectual property that have been discussed have a common factor: they all protect something that has been disclosed to the public. There are a wide variety of different circumstances in which it is more strategic to keep the intellectual property secret. And the decision to do so is one that is recognized by the law as a legitimate one. While the other forms of intellectual property include inducements provided by the government to encourage disclosure, the fact that there is also a body of law protecting trade secrets reflects the fact that disclosure is almost never compulsory.

The Coca-Cola example provides a vivid illustration of one of the most important consequences of deciding to keep intellectual property secret: trade secrets are not subject to any time limitations in the way that patents and trademarks are. If John Pemberton had decided in 1886 to patent Merchandise 7X, his patent would have expired sometime around the start of World War I. Since details of the composition would have been required in the patent, anyone could freely have consulted it and made his or her own Coca-Cola without infringing on any intellectual property for almost the last hundred years.

The Coca-Cola example may also illustrate the most significant drawback of trade secrets, which is that they provide no protection for independent discovery. How close in composition are competitor cola drinks—Pepsi®, Royal Crown®, Afri-Cola®, and so forth—to Coca-Cola? While this might be an important question in the marketing of these various colas, it is essentially an irrelevant question from the perspective of intellectual property.50 The major risk of deciding to maintain intellectual property in the form of a trade secret is that it provides no protection from independent discovery. This risk of independent discovery is ultimately what underlies the effectiveness of the monopoly inducement provided by the patent system. If someone owns a patent, she is permitted to exercise the exclusion rights it provides even against independent later discoverers of the technology. This is not true at all with trade secrets, which are forever vulnerable to the possibility of independent discovery.

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