A trade secret is an item of information that a firm desires to keep hidden from its competitors because of the information’s commercial value and the likelihood that competitors would copy it. Although trade secrets commonly comprise manufacturing processes or customer lists, almost anything with commercial value can qualify as a trade secret if it is in fact secret.[1] Theft or wrongful disclosure of a trade secret is termed "trade secret infringement" or "trade secret misappropriation," and is a tort in all states and a crime in some.[2]
The law governing trade secrets has developed erratically and has been marked by a lack of coherence.[3] Courts sometimes view their role in finding liability under trade-secret law as "an attempt to enforce morality in business."[4] This judicial role as "commercial-ethics cop," and the vagueness regarding what can be considered an improper taking of a trade secret, have prompted criticism of an "open-ended approach" in trade-secret law.[5] Some scholars, including Professor Robert Bone, have argued that trade-secret law is merely a group of independent legal norms, such as contract, fraud, theft, and trespass.[6] Because there is no normatively independent body of trade-secret law, the argument goes, existing trade-secret law should be narrowed greatly or even abandoned in favor of contract law.[7]
Economic and moral justifications for trade-secret law have been proposed. The economic justifications focus on incentives to create,[8] indirect and transaction costs,[9] and the social cost of enforcing secrecy.[10] The moral justifications offered in support of trade-secret protection, grounded in rights and fairness, have included the right to privacy[11] and contractarian arguments.[12] Commentators have criticized these economic and moral theories of trade-secret law on various grounds.[13]
This paper argues that a body of trade-secret law, distinct from contract and other tort law, is justified by the principles of unjust enrichment. The paper does so by classifying the legal rationales implicit in the remedies currently available under trade-secret law. From those legal rationales, the paper attempts to discern the scheme of distribution of entitlements, and the value judgments underlying that scheme, within trade-secret law. One of these value judgments is that, to some degree, trade secrets reflect the personal identity of their owner.
Part II of this paper is an overview of general trade-secret principles. Part III describes the intersection of trade-secret law with other areas of the law, including property, tort, fiduciary duty, contract, and criminal law. Part IV examines the rationales behind the different remedies available in trade-secret law, using the framework of unjust-enrichment law. In Part V, I attempt to identify the societal values that undergird these rationales. In answering Professor Bone’s contention that trade-secret law should collapse into contract law, the paper concludes in Part VI that if society wishes to continue to value a reflection of personhood, however weak, inherent in trade secrets, then contract law is inadequate for this purpose.
II. Trade Secret Principles

A. Trade Secret Law Generally
Secrets are an important intellectual resource. They can represent a company’s most valuable assets,[14] and they can be converted or destroyed even without a physical transfer.[15] As a result, firms are relying increasingly on trade-secret law to protect their information and inventions. One commentator estimated that in 1995, more than 70 percent of the technology interests in the United States were in the form of trade secrets.[16]
As a general rule, a competitor is free to use information obtained from or about its competition.[17] Trade-secret misappropriation is an exception to this rule, an exception that hinges on two unique aspects of the tort: secrecy and misuse.[18] Unlike other areas of intellectual property, such as copyright and patent, trade-secret law imposes liability only when the appropriator acquires, reveals, or uses the secret in a wrongful manner.[19]
Trade-secret theft is a serious problem. A 1996 study conducted by the American Society for Industrial Security estimated that trade-secret theft amounts to an aggregate U.S. industry loss of two billion dollars per month.[20] This study also reported an average of 32 successful trade-secret thefts per month in 1995, up some 320% from 1992.[21]
To be considered a trade secret, information must fulfill three requirements: 1) it must confer a competitive advantage when kept secret; 2) it must be secret; and 3) it must be protected by reasonable secrecy precautions.[22]
To establish trade-secret misappropriation, a plaintiff must prove two elements: first, the information is in fact a trade secret;[23] and second, the defendant improperly acquired, used, or disclosed the information. These two requirements are fairly uniform in all jurisdictions.[24]
Two proper means of acquiring a trade secret are independent discovery and reverse engineering.[25] Reverse engineering is the process of learning a trade secret by inspecting the product and figuring out how it works. Thus, a person may lose her trade secret by selling or displaying a product, absent a confidentiality agreement, if another person ascertains the secret by examining the product.[26]
B. Sources of Trade Secret Law
Trade-secret protection may be traced back to 1851 in England[27] and 1868 in the United States.[28] The common law of trade-secret protection has developed over the last century through two primary policy objectives: 1) to encourage research and innovation, and 2) to maintain standards of commercial ethics.[29]
In the United States, trade-secret law is the product of state common law.[30] Unlike patent, copyright, and trademark, there is no private federal civil cause of action in trade-secret law. The Restatement of Torts, published by the American Law Institute in 1939, was the first official attempt to clarify trade-secret law in the United States, and until recently it was the source of analysis most frequently used by courts deciding trade-secret cases.[31] The authors of the Second Restatement of Torts deliberately omitted the chapter on trade-secret law, apparently because the American Law Institute concluded that the law of unfair competition, including trade-secret law, required separate treatment.[32] States were slow to enact trade-secret laws until after 1979, [33] when the American Bar Association approved the Uniform Trade Secrets Act ("UTSA") as a model for states to adopt.[34]
The latest major effort to explicate modern trade-secret law is the Third Restatement of Unfair Competition, published in 1995 by the American Law Institute.[35] Today, states protect trade secrets through civil trade-secret acts, larceny statutes, the common law, or some combination of these. While many states have enacted statutes patterned after the UTSA, many courts have chosen to cite as their primary authority the 1939 Restatement of Torts, instead of the UTSA.[36]
In October 1996, President Clinton signed the Economic Espionage Act of 1996 ("EEA")[37] into law. This is the first federal trade-secret law, and it was enacted partly out of fear of espionage rings backed by foreign governments.[38] The EEA provides for criminal sanctions only. Because it allows no private right of action for trade-secret owners,[39] the EEA does not displace existing civil and criminal remedies for trade-secret misappropriation.
III. The Intersection of Trade Secret Law with Other Areas of Law
Trade-secret law contains elements of property, contract, tort, fiduciary duty, and criminal law. Because elucidation of the boundaries of trade-secret law may prove useful in the quest to classify it properly, an examination of these areas of intersection is presented below.
A. Trade Secrets as Property
Some critics of trade-secret law, including Professor Bone, find that "[n]either the fact that a trade secret is information nor the fact that it is secret provides a convincing reason to impose liability for a nonconsensual taking."[40] If trade secrets are truly "property," however, whose value depends on its secret and informational character, a rule imposing liability for nonconsensual taking may be justified. Some commentators and courts indeed describe trade secrets as property.[41] Nevertheless, the status of trade secrets as property is open to debate.
Scholars sometimes cite John Locke’s theory of natural law in analyses of intangibles as potential "property."[42] Three hundred years ago, Locke theorized that a person’s labor can form the foundation for property.[43] This notion influenced the framers of the Constitution,[44] and it remains a strong influence in the law today. Although Locke’s Two Treatises of Government do not offer an explicit defense of intellectual property,[45] his notion therein of "labor as property" has been used frequently to justify creators’ ownership rights in their creations.[46]
Locke believed that "no one ought to harm another in his life, liberty, or possessions."[47] He argued that every person has a property in his body and in the labor of his body.[48] Furthermore, when a person takes things from the common plenitude, as in drawing water from a river or picking fruit from a tree, she joins her labor to the things taken.[49] A person "has a property" in the things taken from the common by her labor, provided there is "enough and as good" left for others.[50] This is the famous "Lockean proviso." Locke’s arguments lead to the conclusion that persons are under a duty not to take something to which another person’s labor is "joined."[51]
Early trade-secret cases utilized a property-based theory to support a finding of liability. In Peabody v. Norfolk, the first major trade-secret case in America, the Massachusetts Supreme Judicial Court defined a principle that it intended to apply to all branches of intellectual property:[52] "If a man establishes a business and makes it valuable by his skill and attention, the good will of that business is recognized by the law as property."[53]
With regard to trade secrets specifically, the Peabody court said the following:
The nineteenth-century theory of common-law property rights, based on possession and exclusive control,[55] declined somewhat with the rise of legal realism in the early twentieth century.[56] A new view of property emerged, one based on positive law, which held that property is not based on natural rights of ownership, but instead on whatever the community decides property is.[57] On this view, while there may be natural-law justifications, such as labor-desert theory,[58] for protecting intellectual property including trade secrets, positive law ultimately determines whether and to what degree various species of intellectual property are protected. Courts and legislatures decide whether any particular thing, such as a trade secret, will be granted property status in society.[59]
Courts continue frequently to refer to trade secrets as property.[60] The Supreme Court cited Locke in 1984 when it held that trade secrets can be property for purposes of the Fifth Amendment Takings Clause.[61] As trade secrets are intangible, the Court said, the existence of a property right depends on the extent to which the owner protects the trade secret from disclosure.[62]
In 1994 the Utah Court of Appeals opined, "A trade secret is a property right, ‘with power in the owner thereof to make use of it to the exclusion of the world or to deal with it as he pleases.’"[63] And in Hudson Hotels Corporation v. Choice Hotels International, the Second Circuit in 1992 stated, "In our opinion, New York law dictates that an idea, whether embodied in a product and called a trade secret or otherwise reduced to concrete form, must demonstrate novelty and originality to be protectible as a property right under ‘[any] cause of action for [its] unauthorized use.’"[64] (emphasis added).
The judicial tendency to classify trade secrets, and ideas generally, as property has its philosophical dangers. One such danger is that judges may be invoking the notion of "value as property."[65] Critics including Felix Cohen have pointed out that the theoretical underpinning of many decisions is the following analysis: X has "created a thing of value; a thing of value is property; X, the creator of property, is entitled to protection against third parties who seek to deprive him of his property."[66]
Justice Oliver Wendell Holmes was apparently concerned about this equation of value with property. In International News Service v. Associated Press,[67] the defendant was a news service that had copied the plaintiff’s news stories from public sources, including early newspaper editions and bulletin boards. The Supreme Court found that the defendant had tried to "reap where it had not sown."[68] The Court further ruled that the news was "quasi-property" and enjoined the defendant from copying further news stories from the plaintiff. In his concurrence, Justice Holmes disagreed with this property conception by the Court, stating that "[p]roperty, a creation of law, does not arise from value, although exchangeable," and that the existence of exchangeable value is "a matter of fact,"[69] rather than law. In other words, if a thing has value, that is a fact, but there is no automatic requirement that the law protect that thing as property.
One problem with giving property status to everything of value is that it can lead to social paralysis.[70] As Felix Cohen first observed, another problem is that the "property from value" approach can be circular: the approach "purports to base legal protection upon economic value, when, as a matter of actual fact, the economic value of a sales device depends upon the extent to which it will be legally protected."[71]
B. Trade Secrets, Contract, and Quasi-Contract
Most trade-secret violations occur when an employee breaches a duty of confidentiality arising from the relationship with her employer.[72] Because of its frequent emphasis on relational duties, trade-secret law often implicates contract principles more than property principles.[73]
Justice Holmes found that when a defendant has breached a confidence in misusing a trade secret, the issue of whether trade secrets are property need not even be addressed:
If a defendant breaches an express contract--usually an employment or licensing agreement--in obtaining or using a trade secret, her conduct will be deemed improper for purposes of finding trade secret misappropriation.[75]
Nevertheless, courts do not enforce every trade-secret agreement according to the agreement’s terms. This is particularly true when the court finds that the appropriated information does not qualify as a trade secret.[76] As will be discussed later, this is one reason why contract law does not fit well as a trade-secret protection scheme.
When no express confidentiality agreement exists, courts will often find an implied duty of confidentiality, that is, a contract implied in fact. [77] This often occurs when the defendant is an employee[78] or licensee[79] of the trade-secret owner.
In the absence of an express or implied-in-fact contract, courts will also sometimes impose a duty of confidentiality in quasi-contract (contract implied in law) upon a defendant when the nature of her relationship with the plaintiff warrants it.[80] A quasi-contract is not a true contract, but rather an obligation "created by law for reasons of justice."[81] Failure of a defendant to meet this quasi-contractual obligation can constitute "improper means," for purposes of finding trade-secret misappropriation, when unjust enrichment would otherwise result.[82] In addition, courts will sometimes find breach of an implied duty of confidentiality even when the information in question is not entirely secret.[83]
C. Trade Secrets and Tort Law
After finding that a piece of information is a trade secret, a court next examines the acquisition and use of that information by the defendant. If the mode of acquisition or use is deemed "improper means," tort liability is imposed. Mere possession of a trade secret by a third party, without more, will not support liability.[84]
Many torts that can be committed by a defendant in the course of acquiring a trade secret are recognized as improper means, including fraud and interference with contractual obligations.[85]
Not all torts, however, are considered improper means for trade-secret purposes. For example, in Filmways Pictures, Inc. v. Marks Polaroid Corp., the U.S. District Court held that a person who induces the owner of a trade secret to divulge it voluntarily to the owner’s competitors is not liable for trade-secret misappropriation.[86] This is true even if the inducement may otherwise constitute unfair competition,[87] a separate tort.
Unfair competition has been described as "capacious" doctrine,[88] and trade-secret law is often viewed as a subset of unfair competition.[89] As the Filmways court said, "[Unfair competition] has been broadly described as encompassing ‘any form of commercial immorality,’ . . . or simply as ‘endeavoring to reap where [one] has not sown’ . . . ; it is taking ‘the skill, expenditures and labors of a competitor,’ and ‘misappropriati[ng] for the commercial advantage of one person . . . a benefit or ‘property’ right belonging to another.’"[90] (Such an expansive application of "misappropriation" torts has some commentators, such as Professor Wendy Gordon, concerned about a possible backfiring effect of these laws, whereby the development of new intellectual products may be stifled.[91])
Moreover, a defendant’s improper means need not be a tort, a crime, or a violation of any other legal norm. The case that made this principle clear is E.I. du Pont deNemours Co. v. Christopher.[92] In that case, the defendants took aerial photographs of the plaintiff’s methanol manufacturing plant, which was visible only from the sky, while the plant was being constructed. In doing so, the defendants did not violate any independent legal norm, such as trespass, breach of contract, or breach of confidentiality.[93] Nevertheless, the court held the defendants liable for trade secret misappropriation because their aerial photography constituted an improper means of acquiring the trade secret.
What qualifies as improper means for trade-secret misappropriation, then, is not always clear. The Supreme Court has stated, "The law . . . protects the holder of a trade secret against disclosure or use when the knowledge is gained, not by the owner’s volition, but by some 'improper means' . . . which may include theft, wiretapping, or even aerial reconnaissance."[94] Yet, the Supreme Court has never expressly defined "improper means."[95] In Christopher, the Court of Appeals declared, "‘Improper’ will always be a word of many nuances, determined by time, place and circumstances. We therefore need not proclaim a catalogue of commercial improprieties. Clearly, however, one of its commandments does say ‘thou shall not appropriate a trade secret through deviousness under circumstances in which countervailing defenses are not reasonably available.’"[96]
D. Trade Secrets and Fiduciary Relationships
If an employee uses confidential information that she gained as the result of employment to harm her employer, she may be liable for breach of fiduciary duty.[97] This is true regardless of whether the information is a trade secret.[98] Besides employees, officers[99] and directors[100] also owe a fiduciary duty to a corporation, as does a partner to her other partners.[101]
Fiduciary responsibility is a potentially useful mechanism for protecting trade secrets when the misappropriator is an employee, authorized agent, or a corporate officer or director. Nevertheless, for some reason courts seldom use the doctrine of fiduciary duty in trade-secret cases.[102]
E. Trade Secrets and Criminal Law
A person who engages in criminal conduct in order to expropriate a trade secret will be found to have engaged in improper means.[103] Examples include fraud,[104] trespass, theft,[105] bribery, and breaking and entering a building. The fact that the improper means is a crime in a particular situation, however, does not necessarily indicate that the trade-secret misappropriation is a crime. By the same token, the fact that trade-secret misappropriation is a crime in a given state does not mean that a defendant’s improper means need constitute criminal conduct.[106] For example, aerial surveillance constitutes improper means for purposes of finding trade-secret misappropriation,[107] and although a state may choose to criminalize the trade-secret misappropriation, it need not criminalize the acts of flying overhead and taking pictures ipso facto.
Under the Economic Espionage Act of 1996, trade-secret theft can be a federal crime. Penalties under the EEA range up to $250,000 and ten years in prison for individuals and up to $5 million for organizations. When "economic espionage" is aimed at benefiting a foreign government, however, penalties under the EEA are stiffer: up to $500,000 and 15 years in prison for individuals and up to $10 million for organizations.[108] Perhaps because at this time all prosecutions must first be approved by one of a select few officials in the Justice Department, including the U.S. Attorney General, there have been few prosecutions under the EEA to date.[109]
IV. Classifying Legal Rationales by Measures of Recovery
Professor Bone has issued the challenge to allow protection of trade secrets by contract principles alone, abandoning approaches based on property or tort. He contends that "[t]rade secret law is in a muddle today. Although treated as a branch of intellectual property, trade secret law, with its relational focus, fits poorly with other intellectual property theories such as copyright, patent, and trademark, that grant property rights against the world. Moreover, trade secret’s liability rules include many puzzling features that resist policy justification."[110] Further, Professor Bone believes that "trade secret law is not essential to the protection of intellectual property; in fact, most of its benefits are better achieved through contract. . . . Courts and legislatures should reject broad trade secret torts."[111]
In determining whether contract law is sufficient for the task of protecting trade secrets, this paper attempts to reveal the core values that underlie society’s decision to protect trade secrets in the first place, and then it attempts to determine if contract law can vindicate fully those values. One way to accomplish this task is to identify the rationales courts and legislatures use, if perhaps sometimes unknowingly, to mete out remedies in trade-secret misappropriation cases. Why take this approach? Legal remedies can reflect their underlying rationales, and thus the choice of the measure of recovery in a given case can in fact be normative.[112] Furthermore, rather than courts always moving from rights to remedies, courts sometimes appear first to determine what level of intervention and protection is appropriate and then derive from their conclusion the nature of the plaintiff’s "right."[113]
This section attempts to identify the policy rationales inherent in different remedies available generally in unjust-enrichment cases. Once the rationales are identified, Part V will discuss the important human values that those rationales represent. Then, Part VI applies these principles to remedies available in modern trade-secret law, specifically as elaborated in the Uniform Trade Secrets Act.
The analytic method I use in these sections involves inquiry into a social relationship (herein called a "paradigm") that implicates the doctrine of unjust enrichment:[114] an instance in which a defendant profits from a plaintiff’s resource. This method follows the unjust-enrichment analysis of Professor Hanoch Dagan.[115]
One reason for using an account of the legal doctrine of unjust enrichment in this analysis is that, like trade-secret law,[116] unjust enrichment encompasses a wide array of remedies.[117] As the prime example, trade-secret law allows plaintiffs to recover a share in the profits the trade-secret thief makes from the secret.[118] This remedy goes to the core of the unjust-enrichment maxim that "a person who has been unjustly enriched at the expense of another is required to make restitution to the other."[119]
A. The Paradigm Case
Consider the following paradigm case[120] for this analysis: A appropriates B’s interest with respect to a resource without B’s consent (explicit or implied). B then sues A for his profit-making appropriation. B asks for monetary recovery in restitution of A’s resulting benefit, which she believes is a wrongful gain. A does not raise any defense.
Three preliminary explanations concerning this paradigm are in order, regarding 1) the relationship between A and B, 2) the thing taken by A, and 3) the remedy B seeks.
First, in this relationship, A is an invader who appropriates (i.e., takes or acquires) B’s interest in order to use or exploit it, without B’s consent. In doing so, A infringes upon some interest of B’s, while B remains passive.
Second, the thing taken by A is a resource. Here, a resource is any means or capability of raising wealth, supplying wants, or meeting needs.[121] It can be an interest in tangible property (chattels or land), intangible property (copyright, trademark, or patent), or a trade secret (however classified). Or, a resource can be an interest in oneself, an attribute of oneself, a contractual right, or an expectation or opportunity.[122] While a resource may be wealth-producing, it is not equated with wealth itself. And resource is not the same as property, which has many legal implications that are not needed for this paradigm. Thus, one need not confine unjust enrichment principles to proprietary interests.[123]
Third, one should note that in this paradigm, B asks for her remedy after the invasion, and she asks for a monetary remedy. As a result, neither injunctions nor specific restitution (return of the resource) are covered in this preliminary analysis,[124] although injunctions are indeed available as a remedy in trade-secret cases.[125] Finally, B asks for the defendant to give up the gains he made from the appropriation, a claim in restitution. (B’s claim for the defendant to make good her losses, if any, would be a claim in tort.)
This paradigm is rooted in the archaic, Anglo-American concept of waiver of tort, which viewed restitution as an alternative to tort damages.[126] Today, the main difference between restitution and tort concerns restitution’s focus on gains derived from the wrongful appropriation, versus tort’s focus on harms inflicted upon the plaintiff. Of note, claims in restitution can arise in instances where no tort occurs, such as when a physician seeks payment for emergency services rendered to an unconscious patient, or a person seeks partial reimbursement from a merchant after mistakenly overpaying for a purchase.[127] In addition, defenses to tort claims do not always apply to restitution claims.[128]
B. The Available Remedies
This section enumerates the types of monetary remedies, or measures of recovery, available to a hypothetical plaintiff. As Dagan notes, there are five measures of recovery: harm and four kinds of gain: proceeds, profits, fair market value, and proportional profits.[129] These terms, as used in this paradigm, are defined below.
Harm is any loss suffered by the plaintiff from the use of the appropriated interest. In this case, harm refers only to material loss, including lost profits.[130]
Gain is any value secured by the defendant through use of the appropriated interest. Here, gain is a generic term referring to four possible measures of recovery. Gain can refer to the defendant’s gross proceeds acquired from use of the appropriated resource. It can instead refer to his net gain, or profits. Profits are calculated by subtracting from the defendant’s proceeds the costs he expended in obtaining them.[131]
Gain can also refer to a third measure, the fair market value of the plaintiff’s interest or its use during the period of appropriation. Fair market value does not look to the actual events that took place, but rather to the market, for a valuation of damages. It is the price at which bona fide sales have been transacted for similar interests.[132]
Finally, there is the measure of gain known as proportional profits. Like profits, this measure permits the defendant to deduct his material costs from the proceeds. In addition, however, the defendant deducts any portion of the profits that resulted from his contribution to the invaded interest. So where profits exceed fair market value, the proportional-profits measure of recovery splits the difference, based on the relative contribution of the parties’ resources.[133]
One can see in these measures of recovery that there is a hierarchy of remedies, ranging from compensation for harm to the plaintiff, through payment of fair market value of the resource interest involved, to the most extreme measure: return of the defendant’s gross proceeds.
C. The Rationales
How does one justify the use of one the five measures of recovery (harm and four kinds of gain) over another? To understand the rationales implicit in these recovery measures, it is helpful to examine the conception of resource allocation described in an important article by Professors Guido Calabresi and Douglas Melamed.[134] Calabresi and Melamed stated that to allocate resources, the law must decide "which of the conflicting parties will be entitled to prevail."[135] After making this initial choice of entitlements, the law must make secondary decisions regarding how these entitlements are to be protected. The state has two rules from which to choose:[136] a property rule or a liability rule. A property rule compels "someone who wishes to remove the entitlement from its holder [to] buy it from him in a voluntary transaction in which the value of the entitlement is agreed upon by the seller."[137] Nobody may take the entitlement without obtaining the holder’s consent. By contrast, a liability rule states that "someone may destroy the initial entitlement if he is willing to pay an objectively determined value for it."[138] In other words, liability rules "facilitate the [forced] transfer of the entitlement from [its] holder," and thus employ "an external, objective standard of value."[139]
Property rules and liability rules may be thought of in terms of their rationales, or the goals they attempt to promote.[140]
As described by Calabresi and Melamed, liability rules protect the economic value of the entitlement, which measures its "objective" level of well being, or utility, to its holder.[141] Liability rules legitimize the forced transfer of the resource in question. Where such a rule applies, the ex post monetary recovery is intended as a substitute for ex ante consent.
In contrast, where an entitlement is protected by a property rule, a potential invader is required to seek and obtain the resource-holder’s consent prior to the transfer. Such an entitlement therefore defines a domain of individual control over the resource.[142]
These two social goods that are evident from the Calabresi-Melamed framework--well being and control--may be viewed as the rationales that define persons’ entitlements in resources.[143] The choice between these two possible rationales can dictate and mold the available remedies.[144]
D. Aligning Remedies and Rationales
As a general principle, vindication of a plaintiff’s well being can result from compensating her for any decrease in the value of her resource. On the other hand, vindication of her control can be accomplished only a measure of recovery that provides deterrence against uninvited invasions.[145]
Considering first the harm measure of recovery, one might think at first blush that compensating the plaintiff for the harm she incurred as the result of the defendant’s invasion of her resource would restore her to the status quo ante and thereby vindicate her well being. But that is not entirely true. The actual value of her resource includes not only what it worth today (a determinant of her loss or harm), but also the discounted sum of all future transactions.[146] If we are indeed interested in restoring her well being, she must be compensated for the future utility she would have captured had her consent actually been obtained.[147]
Thus, limiting recovery to harm really vindicates a third rationale, which Professor Dagan calls sharing:
The best measure of the utility taken from the plaintiff is fair market value, so this remedy corresponds to the well-being rationale. Fair market value compensates the resource-holder for the lost opportunity of bargaining with the defendant to sell him the use of the resource. Fair market value is what the defendant presumably would have had to pay the plaintiff had he not circumvented the bargaining process, assuming that the plaintiff would have consented.[149]
In looking at the other gain remedies (profits, proceeds, and proportional profits), one may ask, which of these vindicates the plaintiff’s control over the invaded resource? In other words, which remedy discourages potential invaders from avoiding the bargaining process and invading the resource without first obtaining the holder’s consent? The answer is profits because it returns to the plaintiff the net profit gained by the defendant in infringing the entitlement.[150] Profits are aimed to fit most closely the goal of vindicating the holder’s control, by making it worthless for the invader to take the holder’s entitlement. This implies that, when a defendant is faced with the possibility of disgorging all his profits if he invades the plaintiff’s resource, he should effect a transfer instead by obtaining the plaintiff’s ex ante consent.[151]
Allowing the plaintiff to recover the defendant’s proceeds would also deter him from circumventing the market, and it would deter him even further than would profits. Because a proceeds measure of recovery disallows the subtraction of the defendant’s contribution to the gain, and thereby confiscates more of the defendant’s assets, a proceeds remedy conveys society’s condemnation of the defendant’s invading behavior. Thus, a proceeds measure of recovery corresponds to a rationale termed control and condemnation: it vindicates plaintiff’s control and punishes the defendant for his conduct.[152]
Finally, there is the proportional profits remedy. Like the fair market value remedy, proportional profits requires a reconstruction of a mutually benefiting transaction that the parties did not actually make. Whereas fair market value reconstructs the hypothetical price, proportional profits aims to reconstruct the way the parties would have divided contractual profits under circumstances of full information--hindsight in this case--and equal bargaining power.[153]
A proportional profits remedy does not vindicate a plaintiff’s control over her resource because it does not deter uninvited invasions; knowing he will have to split his profits with the plaintiff will not deter a person who wants the resource from taking it.[154] Note that proportional profits are a useful measure only when profits exceed fair market value, so that splitting the difference between these measures is worth more to the plaintiff than fair market value alone. When this is so, like fair market value, proportional profits vindicates a plaintiff’s well being.[155] In addition, it also vindicates a notion of her hypothetical consent to share in a profitable venture;[156] that is, the remedy gives the plaintiff the profits she would have made had she consented to the transfer of her resource to the defendant.
V. From Rationales to Values
Why would the law care about promoting the rationales of control, well being, and sharing? In Professor Dagan’s analysis, greatly abbreviated here, these rationales stand for important human values that represent competing social visions.[157] More specifically, he believes the ideological premise underlying unjust-enrichment doctrine is a "distributive scheme."[158] He describes it as follows:
From this, one can see the correspondence between rationales and social goods[160] (or goals): Control reflects the goal of individual liberty, well being reflects a person’s security in her wealth, and sharing reflects the responsibility of other members of society for a person’s fate.
The goals of control and sharing are in conflict, as least as far as our paradigm case is concerned. For example, sharing infringes upon another’s control of the resources she possesses and, thus, undermines individual liberty. On the other hand, granting a resource-holder control over a resource necessarily curtails other persons’ claims to share the resource. Each point along this control-sharing continuum is a societal choice, involving the sacrifice of some values for others.[161]
In trying to isolate the reasons why society makes the resource-allocation choices it does, Professor Dagan argues that our attachment to resources derives from our perception of resources as being "reflections of ourselves, symbols of our identity."[162] Furthermore, "the way we constitute such symbols of identity is, to a considerable extent, through social processes; our resources gain their significance as reflections of the self socially."[163]
This personhood perspective can explain why certain interests individuals have in their resources give rise to stronger claims than others do. If the law is to be responsive to its constituents’ interests, it should afford correspondingly different degrees of protection to such divergent holdings.[164]
It is reasonable to assume that one is most likely to want to control her most precious resources: "those external things that more than any others are constitutive of her identity."[165] Such resources include one’s reputation, personal integrity, and land.[166] On the other hand, one may choose to share those resources that are relatively more remote from her "center of selfhood."[167] Resources in this category include certain types of contractual expectations.[168] From this framework, one can see that the control individuals are accorded by the doctrinal rules in our paradigm exists along a continuum of diminishing interests: "from core interests (protected against almost any kind of invasion or infringement) through less protected interests to least protected interests. More precisely, one can imagine that our doctrine draws concentric circles of diminishing control (and attachment) around the self."[169]
VI. Applying the Unjust-Enrichment Model to Trade Secret Law
Let us apply our paradigm, and its implications about rationales and values, to trade-secret law. This analysis uses the Uniform Trade Secrets Act ("UTSA"), which forty-two states had adopted by May, 1999, as the model for American trade-secret law. Regarding the monetary remedies available in trade-secret cases, the UTSA provides the following:
Using the terminology of our paradigm, this formula reflects a measure of recovery of fair market value[171] or proportional profits,[172] whichever is greater. This unjust-enrichment remedy may be pursued regardless of whether the plaintiff suffered any monetary loss.[173]
Based on Professor Dagan’s model, as elaborated in the previous sections, this measure of recovery indicates that vindication of the plaintiff’s well being and hypothetical consent are operative in granting a trade-secret remedy.
Interestingly, however, in the case of trade secrets, Professor Dagan appears to back away from his remedy-based model of valuating societal resources based on personhood. He argues that a trade secret "has some similarities to intellectual properties, but it is the least connected to its holder’s identity, and it would appear that an entitlement to a trade secret is accordingly quite weak; as long as the defendant appropriates the trade secrets ‘ethically,’ the appropriation is legitimate and he is not subject to any legal sanction."[174] Through this reasoning, Professor Dagan rejects the idea that the plaintiff’s well being and hypothetical consent are vindicated through the trade-secret remedy. He carves out an exception for trade secrets among other resources, arguing that the rationale underlying the remedy in trade-secret cases should be termed propriety of means. A propriety-of-means rationale implies that the only claim a trade-secret owner has against a potential appropriator is that the latter acquire the secret through proper means only,[175] such as independent discovery or reverse engineering.[176] "The mere appropriation of information is legitimate, and the only entitlement of [its] holder is to the propriety of means utilized in the process of such an invasion."[177] When the court awards a trade-secret plaintiff damages, it vindicates only this propriety-of-means rationale, Professor Dagan holds.[178]
While it is certainly true that one may legally acquire a trade secret only through proper means, Professor Dagan appears to make an unfounded empirical assumption in claiming that, relative to (other) "intellectual properties," a trade secret is "the least connected to its holder’s identity." In doing so, he mistakenly discards the consistency of his model by denying the existence of well-being and hypothetical-consent rationales in trade-secret remedies.
There are several reasons to believe, however, that trade-secret remedies do indeed vindicate the rationales of well being and hypothetical consent, and, thereby, reflect the societal value of protecting a person’s security in her wealth.[179]
First, if the UTSA--and the state legislatures that have adopted it--intended merely to advance a propriety-of-means rationale, they could have done so by allowing only fair-market-value damages, and in no case allowing disgorgement of the defendant’s profits. After all, fair market value vindicates the plaintiff’s well being by restoring her to the status quo ante. In allowing proportional profits, the UTSA remedy goes beyond vindicating the plaintiff’s insistence that the defendant use proper means to acquire the trade secret. A proportional-profits remedy even goes beyond vindicating the plaintiff’s well being; it also gives her the benefit of the bargain she never had the opportunity to make with the defendant.[180] That is, the remedy vindicates her hypothetical consent.
Second, it is noteworthy that trademarks[181] and copyrights[182] have the same measures of recovery for infringement as do trade secrets, namely the greater of fair market value or proportional profits. As a result, the remedies for copyright and trademark infringement vindicate the rationales of well being and hypothetical consent under our paradigm.[183] Of course, as Professor Dagan observes, the notable difference between these other species of intellectual property and trade secrets is that misappropriation of trade secrets requires some improper means of discovery or disclosure.[184] But let us assume that a defendant in fact uses improper means to acquire a trade secret, giving the plaintiff reason for a valid claim. Is there any inherent reason why the rationales underlying the trade-secret remedy do not include restoring the plaintiff’s well being and paying her a measure of damages that reflects her hypothetical consent (to a profitable venture with the defendant)? If so, the reason is not evident.
There is no empirical reason to suspect that any less labor, creativity, or innovation might go into the production of a trade secret than the creation of a copyrighted work. As a result, it seems likely that the identity of a "creator" could be just as strongly tied to a trade secret as to, for example, a short story or a painting. In other words, to the trade-secret owner, the trade secret could be something that, in Dagan’s words, is an "external [thing] that . . . [is] constitutive of her identity,"[185] and perhaps even near the "center of selfhood."[186] If a famous restaurant’s success developed from a particular secret recipe, would the originator of the recipe feel any less personal identification with this trade secret than she would with, say, the restaurant’s trademark or its copyrighted advertising material? If so, the reason is not readily apparent.
Third, consider a comparison of remedies between trade secrets and patents.[187] Under the Patent Act of 1952, a plaintiff-patentee in a successful patent infringement suit may recover "damages adequate to compensate for the infringement, but in no case less than a reasonable royalty for the use made by the invention by the infringer."[188] Thus, she may recover only compensatory damages, and she may not receive the infringer’s profits.[189] The royalty the patentee can receive is usually based on rates previously charged by the patentee.[190] Because the value of this royalty measure of recovery is based on the fair market value of such royalties, and not on a proportional-profits measure,[191] the patentee does not derive the full measure of her hypothetical consent to a joint venture with the defendant. Thus, patent remedies vindicate a plaintiff’s well being, but not her hypothetical consent.[192]
Professor Dagan assigns trade secrets a lower societal-resource value than patents, by placing them lower on the scale of personhood,[193] yet it is unclear why. Trade-secret remedies affirm a plaintiff’s well being and vindicate her hypothetical consent, whereas patent remedies affirm only the plaintiff's well being. Thus, the law currently vindicates an extra rationale in the case of trade-secret misappropriation,[194] implying that society imputes a higher value to trade secrets (that are improperly acquired) than to patents (that are infringed). This may reveal an as-yet unexplained connection between the personal identity inherent in an invention and the maintenance of its secrecy. While some trade secrets arguably may be weakly attached to a person’s identity, such as a list of customers’ addresses, other trade secrets, such as a family company’s formula for a popular soft drink, may be highly reflective of a person’s identity.
Furthermore, trade secrets and patents often consist of the same subject matter--the only difference being whether the owner has chosen to obtain patent protection.[195] Courts have sometimes believed that, because trade-secret law provides less protection to an inventor than patent law does, trade-secret law must protect a lesser class of inventions.[196] This reasoning is flawed.[197] An inventor may rationally choose to keep a patentable invention a secret rather than seek patent protection, which requires disclosure, in two cases: 1) the inventor believes her patentable invention will take approximately as long as the term of a patent (20 years) for anyone else to invent, but the invention is of only modest value;[198] or 2) the inventor believes her invention will take much longer than the term of a patent for anyone else to invent.[199] If the same invention could be the subject of either a patent or a trade secret, then one may conclude that a trade secret could reflect the inventor’s personal identity as much as a patented invention could.
Finally, there is reason to conclude that trade-secret law not only affirms the rationales of well being and hypothetical consent, but also the rationales of control and condemnation. That is, trade-secret remedies can vindicate both a trade-secret owner’s control over her resource and society’s condemnation of the misappropriator’s behavior. (In Professor Dagan’s unjust-enrichment model, these two rationales are associated with the proceeds measure of gain-based recovery,[200] unavailable in trade-secret cases.[201])
How can a trade-secret remedy vindicate a holder’s control over her trade secret? It does so when the remedy consists of a preventive injunction. Professor Dagan excludes injunctions from his treatment of unjust-enrichment doctrine,[202] except in making the observation that "[injunctions] will surely not be available where the entitlement at issue seeks to secure only a resource-holder’s well being, and not her control."[203] (italics in original). In fact, the UTSA provides for injunctive relief from actual or threatened misappropriation.[204] By creating deterrence from uninvited invasions,[205] the use of these injunctions affirms the control the law chooses to give the trade-secret owner against improper takings.
As explained by Professor Dagan, the control rationale promotes the societal value of individual liberty, or the freedom to do what one chooses with one’s resource.[206] The control rationale also motivates what Calabresi and Melamed termed a property rule, in that where an entitlement is protected by a property rule, a potential taker is required to obtain the owner’s consent prior to the transfer.[207]
How can a trade-secret remedy affirm society’s condemnation of a defendant’s behavior? Through the use of punitive damages. The UTSA provides for exemplary (punitive) damages for "willful and malicious misappropriation."[208] Of course, punitive damages are a blunt instrument, leaving the amount of damages to the discretion of the decision-maker. Anglo-American unjust-enrichment scholars have argued that a profits measure of recovery is more sensitive than punitive damages in deterring defendants generally.[209] Nevertheless, by definition, punitive damages punish a defendant and therefore convey society’s condemnation for his antisocial conduct.
VII. The Problems with Using Contract Law Alone to Protect Trade Secrets
Given the preceding analysis of the societal rationales and values inherent in trade-secret law, as manifested through its remedies, one must ask whether a scheme of protecting trade secrets through contract law alone, as Professor Bone has called for,[210] would further those rationales and values. I suggest that it would not. Several areas of misfit between contract law and trade-secret protection are outlined below.
A. Mismatch Between Contract and Trade Secrets
Mechanistically, many of the efforts of courts to protect trade secrets would not fit well within a contract-only regime. For example, there are times when a contract exists, but the object in controversy does not constitute a trade secret. In these cases, courts have refused to enforce the contracts. [211] In Electro-Craft Corp. v. Controlled Motion, Inc. the court stated that an explicit confidentiality agreement between the parties would not be enforced if court found that information was not a trade secret.[212] The purpose of contract law--to enforce the agreement between two contracting parties--is thwarted in such instances.
In addition, trade-secret remedies currently include punitive damages for egregious acts of misappropriation. [213] As a general rule, contract law does not allow for recovery of punitive damages.[214] Any proposed scheme of protecting trade secrets only by contract would likely eliminate this deterrent remedy.
B. The Conflict Between Unjust Enrichment and Contract
The law of contract holds that, in general, damages for breach should equal the injured party’s lost expectation.[215] The law of unjust enrichment, or restitution, holds that one should not gain by one’s own wrong.[216] These principles are sometimes mutually consistent. If, after a contract breach, the plaintiff’s lost expectation equals or exceeds the gain by the defendant, then expectation damages make the plaintiff whole and strip the defendant of all gain.
But if the plaintiff’s lost expectation is less than the defendant’s gain, then expectation damages do not strip the defendant of all gain. This situation creates a conflict between the rules of restitution and contract.[217] (In this context, restitution refers to a gain-oriented remedy for the commission of torts or other wrongs.[218]) Plaintiffs in this situation would doubtless choose the restitution measure of damages because it exceeds the contract measure of damages. Courts deciding contract cases, however, have generally refused to apply the restitution rule, [219] reasoning that breach of contract is not a "wrong" in the sense required by restitution law.[220] This allows the breaching defendant to keep part of her gain.
This reveals a deficiency in the scheme of protecting intellectual property purely by contract: restitution damages, which negate a defendant’s unjust enrichment, are usually unavailable by contract alone. But restitution damages should be available; disgorgement of wrongful gains is a remedy that is well suited to intellectual property. As Professor Wendy Gordon notes, "[I]n the intellectual property setting, giving creators restitutionary rights tends to encourage consensual markets."[221] In other words, the availability of a restitutionary remedy may encourage persons to, for example, make licensing agreements with trade-secret owners, instead of the remedy serving as a substitute for such market transactions.[222] In fact, in intellectual property, the restitution of benefits conferred may be regarded as a "more fundamental" right than the liability for harms done to a creator.[223]
In order to prevent unjust enrichment in ordinary contract cases, courts must look outside contract law, to quasi-contract. A quasi-contract is a noncontractual obligation imposed by a court on a defendant to prevent injustice.[224]
As currently constituted, American trade-secret law provides a remedy against unjust enrichment of a trade-secret misappropriator.[225] Changing to a contract-only system would eliminate this important remedy, and the societal rationales of insisting on a defendant’s propriety of means in acquiring the trade secret, affirming a trade-secret owner’s well being, and obtaining her hypothetical consent would be destroyed.[226]
C. The Nature of Right in Contract
One fundamental problem with changing trade-secret protection from its current classification in tort (melded with unjust-enrichment principles[227]) to a system based only in contract is that such a change radically changes the nature of the trade-secret holder’s right in the trade secret.
A brief discussion of the relationship between entitlement and right is warranted here. As mentioned previously, value and property are different things.[228] Value can arise from law, and the law often attempts to create more value, such as by enforcing contracts. Value can also arise outside the law, as evidenced by the profits of organized crime. When value arises without particular legal protection, its possessor may ask a court or legislature to grant a legal entitlement to preserve and expand that value. As elaborated by Wesley Hohfield,[229] such entitlements are of three types: 1) a right exclude others from using the thing; 2) a privilege (or liberty) to use the thing; and 3) and a power to transfer or alienate the thing. Together, these three entitlements constitute property.[230]
Rights. A right is an entitlement to have the government interfere on one’s behalf. In this context, the term right is nonnormative and unrelated to natural law and constitutionality. When one person has a right, those against whom the right operates have a duty not to infringe it. Rights and duties are thus correlative. In Kant’s words, rights are "(moral) capacities to put others under obligations."[231]
Property owners have at least three types of rights: rights of exclusion, rights against harm or interference, and rights to at least some of the benefits their property produces.[232] The right to exclude others is generally considered the most important entitlement of ownership.[233]
Powers. An owner of property generally has the power to transfer her rights, privileges, and powers to another person. The term power, as used by Hohfeld, denotes the ability to change legal relations. One important example is the power to make contracts, which are legally enforceable.[234]
Privileges. A privilege is an entitlement to be free of intrusion or compulsion by the government. For example, in tort law, a person is privileged to kill another person if it is in self-defense. The Hohfeldian term privilege applies to any action that does not violate another person’s rights. In negligence law, unintentional, nonnegligent acts are privileged. Privileged acts are generally considered socially desirable and not wrongful.[235] In economic terms, they are generally considered to yield more benefits than costs.[236]
For purposes of this discussion, a trade-secret holder’s right in her trade secret need not be characterized as property. Whatever her right may be, it becomes an issue when a defendant infringes it somehow, and she seeks a remedy at law. Our concern here is how the nature of the right differs between tort law and contract.
1. Corrective Justice as a Model for Comparing Tort and Contract Rights
One way in which to examine the difference between rights in contract and tort law is from the perspective of corrective justice. Aristotle described "corrective" or "rectificatory" justice as the mode of justice appropriate to transactions between two persons.[237] Corrective justice may be broadly defined as "the correction of certain imbalances or losses created by individual action."[238]
As one of several moral theories of tort law,[239] corrective justice stands in opposition to instrumental (utilitarian) theories of the law, such as law and economics. Whereas an instrumental view of the law critiques legal practices based on their ability to implement social goals, such as prevention of crime or compensation of victims, corrective justice instead posits a moral rationale for the law.[240]
Why use corrective justice as the framework for evaluating the use of tort and contract law for trade secrets? Primarily because of corrective justice’s internal coherence.[241] Coherence is the aspect of private law that "strives to avoid contradiction, to smooth out inconsistencies, and to realize a self-adjusting harmony of principles, rules, and standards."[242] The foremost modern proponent of corrective justice, Ernest Weinrib, has stated that "corrective justice is the structure to which private law must conform if it is to be coherent, and it must be coherent if it is truly to be a justificatory enterprise."[243]
Corrective justice must be distinguished from distributive justice, which refers to the distribution of benefits and burdens among society as a whole.[244] Corrective justice focuses only on the relationship of the two parties involved--the doer and sufferer, without reference to external influences.[245] Distributive justice, on the other hand, requires outside forces to determine how resources are distributed. Distributive justice "is the home of the political. . . . In the case of distributions, an external orientation is both possible and required."[246]
2. Tort Law, Unjust Enrichment, and Corrective Justice
Ernest Weinrib has noted[247] that tort law reflects corrective justice in three respects: First, for a plaintiff to recover in tort, her injury must be to something that qualifies as a right, such as personal integrity or a proprietary entitlement. It is therefore insufficient that the plaintiff was merely deprived of a prospective advantage by the defendant.[248] Second, the defendant must commit an act that violates a duty incumbent upon her and thus constitutes an act of wrongdoing. This explains the emphasis of tort law on fault; the defendant is duty-bound not to perform intentional or negligent acts that are considered faulty. Third, the duty breached by the defendant must be with respect to the plaintiff’s right whose infringement is the basis for her suit.[249]
When the defendant breaches a duty that is correlative to the plaintiff’s right, the plaintiff’s harm must be repaired. Tort law obliges the defendant to restore the plaintiff, as far as possible, to the position the plaintiff would have been in had the wrong not occurred.[250]
Like tort, unjust enrichment is a judicially developed area of law that expresses corrective justice.[251] The principle of unjust enrichment posits that wrongly secured gains must be annulled.[252] Unjust enrichment may be considered a subset of corrective justice because corrective justice requires the annulment of both wrongful gains and losses.[253] From the standpoint of corrective justice, tort and unjust enrichment are tied together as juridical classifications of obligations.[254] Professor Weinrib characterizes tort and unjust enrichment as alike in the sense that they are the two legal expressions of transfers reflecting "the independent pursuit of separate interests" by plaintiff and defendant.[255] This is in contrast to contract, which characterizes transfers in "the common pursuit of independent interests," and fiduciary relationships, "where one party acts in the interests of the other."[256]
3. Contract Law and Corrective Justice
Both tort and contract law are regimes of correlative right and duty. Both branches of law rectify losses through corrective justice, and both are distinct juridical classes of obligations.[257] In Professor Weinrib’s words, "In both branches of law, the plaintiff alleges the violation of a right that the defendant is duty-bound to observe. In both, damages compensate for the defendant’s infringement of the plaintiff’s right."[258]
In looking at contract law from the perspective of corrective justice, one finds that contractual performance is the substance of both the plaintiff’s right and the defendant’s duty.[259]
The difference between contract and tort law, then, lies in the nature of the right. In contract law, the parties create the plaintiff’s right to the defendant’s performance; the damage award gives the plaintiff the value of that performance.[260] In tort law, "the plaintiff’s right exists independently of the defendant’s action; the damage award therefore aims at eliminating the effects on the plaintiff of the defendant’s wrong."[261]
In choosing between contract and tort law for the protection of trade secrets, the essential inquiry is, what should be the nature of the trade-secret "owner’s"[262] right? Should the right exist independently of the defendant’s action in creating a contract with the trade-secret owner? If the trade-secret owner is to have an independent right to the trade secret, a right that exists apart from any contract with a potential trade-secret thief, then corrective justice requires that the owner’s right be vindicated through tort law.
On the other hand, if the trade-secret owner’s right--her entitlement in the trade secret--should depend only on the existence of a contractual promise made by the potential trade-secret thief, then contract law would be the appropriate mechanism by which to rectify a nonconsensual taking of the trade secret. In this case, the owner would have no recourse against any thief with whom she had not contracted, because she would have no right in the trade secret apart from contract. In addition, potential takers of a trade secret could feel free to steal the trade secret unless they were under contract with the trade-secret owner, because a duty not to take the secret would not exist in the absence of a contractual relationship.
Because of the value placed by society in trade secrets,[263] the law currently accords trade-secret holders an entitlement, or right, in their trade secrets that is independent of the existence of any contract between the trade secret holder and a potential misappropriator. [264] As a result of the independent existence of this right, corrective justice mandates that any infringement of this right be corrected through tort, with or without unjust enrichment law. Trade-secret law now allows for annulment of both unjust harm to the plaintiff and unjust enrichment of the defendant.[265] A contract-only system would be inapposite for this purpose.
VIII. Conclusion
Currently, trade-secret law is a primarily a fusion of tort and unjust-enrichment law. In establishing that a defendant used improper means in acquiring or using a trade secret, courts invoke principles from many other areas of the law, including contract. Because of its unique blend of legal principles, trade-secret law warrants and indeed requires the separate legal classification it now holds.
Trade-secret remedies reveal much about the societal values inherent in trade secrets and about the rationales behind deterring their wrongful appropriation. These societal values include the trade-secret owner’s individual security in her resource, her liberty to control her resource, and the requirement that those who would appropriate the trade secret from the owner first obtain her consent. These values, like the values in all resources, stem from a reflection of the resource-holder’s personal identity in the resource. Society’s distribution of entitlements in resources is based at least in part on this reflection of personhood in the resource. Even if the reflection of personal identity in trade secrets is weak, there is at least some corresponding entitlement in the trade secret that the holder possesses. This entitlement exists independently of the existence of any contractual relationship with a potential invader of the entitlement. As a result, a contract-only regime for protecting trade secrets would be inadequate to the task.

Footnotes

[*]Associate, Knobbe, Martens, Olson & Bear, Newport Beach, CA; Clinical Assistant Professor of Radiology, University of Southern California School of Medicine, Los Angeles, CA; Clinical Research Associate in Neurosurgery, Brigham and Women's Hospital and Harvard Medical School, Boston, MA; M.D., University of Southern California School of Medicine, 1986; J.D., Boston University Law School, 1998. The author can be reached at jhill@kmob.com.

[1] See 1 MELVIN F. JAGER, TRADE SECRETS LAW § 3.02, at 3.30 (1996).

[2] See William E. Hilton, What Sort of Conduct Constitutes Misappropriation of a Trade Secret, 30 IDEA 296 (1990).

[3] See id. at 287.

[4] Abbott Lab. v. Norse Chem. Corp., 33 Wis.2d 445, 454 (1967).

[5] See Don Wiesner and Anita Cava, Stealing Trade Secrets Ethically, 47 MD. L. REV. 1076, 1127-28 (1988); Robert G. Bone, A New Look at Trade Secret Law: Doctrine in Search of Justification, 86 CAL. L. REV. 241, 246, 304 (1998).

[6] See Bone, supra note 5, at 245.

[7] See Bone, supra note 5, at 243. Professor Bone feels that trade secret law should be limited to contract law, without invoking quasi-contract or inherently confidential relationships. See id. at 300. He would allow for possible exceptions to this rule, including protection for intermediate research results and certain types of nontechnological information, "but only insofar as rights beyond contract are needed to stimulate creation incentives." See id. at 63-64.

[8] See, e.g., American Can Co. v. Mansukhani, 742 F.2d 314, 329 (7th Cir. 1984) (noting incentives to develop and innovate); Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481-82 (1974) (rejecting patent preemption, noting that trade secret law goes beyond patent law by protecting values beyond incentives to create, such as commercial morality and privacy); RICHARD A. POSNER, ECONOMICS OF JUSTICE 244 (1981); Christopher Rebel J. Pace, The Case for a Federal Trade Secrets Act, 8 HARV. J.L. & TECH. 427, 435-42 (1995). Note that until the early twentieth century, American trade secret cases focused on commercial morality rather than any incentive rationale. See id. at 435 n. 23. In fact, the First Restatement of Torts explicitly rejected the incentive-based argument:

[Trade secret] protection is not based on a policy of rewarding or otherwise encouraging the development of secret processes or devices. The protection is merely against breach of faith and reprehensible means of learning another’s secret.

RESTATEMENT (FIRST) OF TORTS § 757, cmt. b (1939).

[9] See, e.g., MICHAEL J. TREBILCOCK, THE COMMON LAW OF RESTRAINT OF TRADE: A LEGAL AND ECONOMIC ANALYSIS 120-21 (1986); David D. Friedman et al., Some Economics of Trade Secret Law, 5 J. ECON. PERSP. 61, 66-69 (1991).

[10] See Friedman et al., supra note 9 at 67.

[11] See, e.g., Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475-76 (1974) (stating that trade secret law protects a fundamental right of human privacy); Lynn Sharp Paine, Trade Secrets and the Justification of Intellectual Property: A Comment on Hettinger, 20 PHIL. & PUB. AFF. 247, 251-52 (1991); 1 MELVIN F. JAGER, TRADE SECRETS LAW § 1.05, at 1.15 (1996).

[12] See KIM LANE SCHEPPELE, LEGAL SECRETS: EQUALITY AND EFFICIENCY IN THE COMMON LAW 57-85 (1988). Professor Scheppele’s contractarian argument posits that in a hypothetical bargaining situation, everyone would agree to rules that essentially correspond to modern trade secret law.

[13] See, e.g., Bone, supra note 5, at 285-94. Professor Bone offers an extensive critique of these proposed justifications of trade secret law. For example, regarding the right to privacy, Professor Bone doubts the existence of such a right, claims that corporations cannot be holders of the right, and claims that information is not within the scope of the right. Id. at 284-88.

[14] See, e.g., Rockwell Graphics Sys. v. DEV Indus., 925 F.2d 174, 180 (7th Cir. 1991) (Posner, J.) (stating the importance of trade secrets).

[15] See Victoria A. Cundiff, The Economic Espionage Act and You, 490 PLI/PAT 9, 33-4 (1997).

[16] See Bruce T. Atkins, Trading Secrets in the Information Age: Can Trade Secret Law Survive the Internet?, 96 U. ILL. L. REV. 1151, n.6 (1996) (quoting Melvin F. Jager in classroom discussion at University of Illinois College of Law, Aug. 26, 1995).

[17] See Linda B. Samuels & Bryan K. Johnson, The Uniform Trade Secrets Act: The States’ Response, 24 CREIGHTON L. REV. 49, 52 (1990) (noting that use of trade secret information is permissible if acquired through reverse engineering or independent discovery).

[18] See RESTATEMENT (THIRD) OF UNFAIR COMPETITION, § 39 cmt. f (1988) (requiring secrecy for trade secret status); id. at § 40 (finding defendant liable for misappropriation when she uses trade secret information without owner’s consent).

[19] See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475-76 (1974) ("The protection accorded the trade secret holder is against the disclosure or unauthorized use of the trade secret by those to whom the secret has been confided under the express or implied restriction of nondisclosure or nonuse. The law also protects the holder of a trade secret against disclosure or use when the knowledge is gained, not by the owner's volition, but by some ‘improper means,’ which may include theft, wiretapping, or even aerial reconnaissance.").

[20] American Society for Industrial Security, Trends in Intellectual Property Loss Survey, at 4 (1996) (reporting results of a trade-secret-theft survey).

[21] See id.

[22] See 1 ROGER M. MILGRIM, MILGRIM ON TRADE SECRETS §§ 1.03-.04 (1996). Some states have additional requirements for trade secrets, viz., novelty, continuous use in the plaintiff’s business, or concreteness. Usually, novelty is regarded as probative of secrecy, rather than as a separate requirement. See RESTATEMENT (FIRST) OF TORTS § 757, cmt. b (1939); Forest Lab., Inc. v. Formulations, Inc., 299 F. Supp. 202 (E.D. Wis. 1969). Concreteness is usually regarded as only one factor in determining the limits of a proprietary claim and the commercial value of the trade secret. See JAGER, supra note 1, at § 5.05.

[23] See Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 897 ("[W]ithout the finding of a trade secret, . . . [the court] cannot grant relief. . . .").

[24] See Bone, supra note 5, at 250.

[25] See, e.g., RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 43, ("Independent discovery and analysis of publicly available products or information are not improper means of acquisition."); Gale R. Peterson, Trade Secrets in an Information Age, 32 HOUS. L. REV. 385, 450-56 (1995). Another proper means of discovery is accidental disclosure. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974). ("A trade secret law, however, does not offer protection against discovery by fair and honest means, such as by independent invention, accidental disclosure, or by so-called reverse engineering . . . ." (emphasis added)).

[26] See Colony Corp. of Am. v. Crown Glass Corp., 430 N.E.2d 225, 227 (Ill. App. Ct. 1981) (citing general principle that when "the secret is readily disclosed by the product itself there is no trade secret").

[27] See Morison v. Moat, 68 Eng. Rep. 492, 9 Hare 241 (1851).

[28] See Peabody v. Norfolk, 98 Mass. 452 (1868).

[29] See, e.g., E.I. du Pont deNemours Co. v. Masland, 244 U.S. 100 (1917); E.I. du Pont deNemours Co. v. Christopher, 431 F.2d 1012 (5th Cir. 1970); Fleming Sales Co. v. Bailey, 611 F.Supp. 507 (D. Ill. 1985).

[30] See Hilton, supra note 2, at 287.

[31] See JAGER, supra note 1, at 3.37-.38 ("[T]he Restatement of Torts . . . has become an almost universal starting point for defining the rights and liabilities of the parties in trade secret cases").

[32] See Geoffrey C. Hazard, Jr., Foreword to RESTATEMENT (THIRD) OF UNFAIR COMPETITION at xi (noting that the rapid growth of intellectual property law required a new Restatement instead of a new section in the Restatement of Torts).

[33] See Hilton, supra note 2, at 288.

[34] The National Conference of Commissioners on Uniform State Laws drafted the Uniform Trade Secrets Act. It contains definitions of "trade secret," "misappropriation," and "improper means."

[35] See RESTATEMENT (THIRD) OF UNFAIR COMPETITION §§ 39-45 (1995).

[36] See Hilton, supra note 2, at 288.

[37] 18 U.S.C. §§ 1831-1839.

[38] See Cundiff, supra note 15, at 13.

[39] See 18 U.S.C. § 1836.

[40] Bone, supra note 5, at 245.

[41] See, e.g., RESTATEMENT (THIRD) OF UNFAIR COMPETITION, § 39 cmt. b (1993) (describing early trade secret theory as based on property rights); Carpenter v. United States, 484 U.S. 19, 26 (1987) ("Confidential business information has long been recognized as property."); Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 897 (Minn. 1983) ("In defining the existence of a trade secret as the threshold issue, we first focus upon the "property rights" in the trade secret rather than on the existence of a confidential relationship.") Purpose of Trade Secrets Act is to protect individual property rights in trade secrets and, thereby, to foster development of new products and technology.

[42] See Wendy J. Gordon, A Property Right in Self-Expression: Equality and Individualism in the Natural Law of Intellectual Property, 102 YALE L.J. 1533, 1540 (1993).

[43] JOHN LOCKE, TWO TREATISES OF GOVERNMENT 285-302 (Peter Laslett ed.; 2d ed. 1967) (3d ed. 1698, corrected by Locke) (bk. II, §§ 4-15).

[44] See generally MORTON WHITE, THE PHILOSOPHY OF THE AMERICAN REVOLUTION (1978).

[45] See Gordon, supra note 42.

[46] See, e.g., Whelan Assocs. v. Jaslow Dental Lab., 797 F2d 122, 1235 n.27 (3d Cir. 1986) (noting copyright law’s concern for "just merits" for authors); Harper & Row, Publishers v. Nation Enterprises, 471 U.S. 539, 546 (1985) (noting that authors deserve "fair return" for their labor); Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002-03 (1984) (stating that labor theories of property justify treating trade secrets as property); see also Robert C. Denicola, Copyright in Collections of Facts: A Theory for the Protection of Nonfiction Literary Works, 81 COLUM. L. REV. 516, 519-20, 528, 530 (1981) (suggesting that copyright protection should be granted in part because of "the natural right to the fruits of one’s labor"); EDWARD W. POLMAN & L. CLARK HAMILTON, COPYRIGHT: INTELLECTUAL PROPERTY IN THE INFORMATION AGE 13 (1980).

[47] LOCKE, supra note 43, at 123-24.

[48] Id. at 134.

[49] Id. at 134-35.

[50] Id. at 134.

[51] See Wendy J. Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 VA. L. REV. 149, 208-09 (1992).

[52] See Peabody v. Norfolk, 98 Mass. 452, 457-58 (1868) (referring to patent, trademark, and trade secret law).

[53] Id. at 457.

[54] Id. at 458.

[55] See Carol M. Rose, Possession as the Origin of Property, 52 U. CHI. L. REV. 73, 76 (1985).

[56] See generally Kenneth Vandenvelde, The New Property of the Nineteenth Century: The Development of the Modern Concept of Property, 29 BUFF. L. REV. 325 (1980) (giving historical summary of changes in property conceptions); Morris Cohen, Property and Sovereignty, 13 CORNELL L.Q. 8 (1927) (criticizing the formalistic conception of property of the 19th century).

[57] See Francis Philbrick, Changing Conceptions of Property in Law, 86 U. PA. L. REV. 691, 728-32 (1938) (advocating a property conception that is utilitarian and positivist).

[58] See National Business Lists v. Dun & Bradstreet, Inc., 552 F. Supp. 89, 92 (N.D. Ill. 1982) (noting that it is unjust "to appropriate the fruits of another’s labor"). See also Gordon, supra note 51, at 164 ("[A]t the center of the pro-property wave of cases lies the conviction that it is unjust ‘to appropriate the fruits of another’s labor’ [citing National Business Lists] and its corollary, that one should not reap where another has sown." But Professor Gordon also writes, "unlike most observers, I do not trace the restitutionary claim primarily to natural law or Lockean labor theory.")

[59] See Note, Equitable Protection of Trade Secrets, 23 COLUM. L. REV. 164 (1923) ("A trade secret is property only if the court decides to protect it.").

[60] See, e.g., IMED Corp. v. Systems Engineering Associates Corp., 602 So.2d (Ala. 1992) ("Our conclusion in this regard is consistent with the purpose of the act--to protect individual property rights in trade secrets . . . .").

[61] Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002-03 (1984) (citing Locke’s Second Treatise and other sources to support the finding that trade secrets can be property).

[62] Id. at 1002. See also Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 474-76 (1974) (noting the importance of secrecy to the value of trade secrets).

[63] Envirotech Corp. v. Callahan, 872 P.2d 487, 494 (Utah 1994) (citing Microbiological Research Corp. v. Muna, 625 P.2d 690, 696 (Utah 1981)).

[64] Hudson Hotels Corp. v. Choice Hotels Int'l, 995 F.2d 1173, 1178 (2d Cir. 1993) (citing Murray v. National Broadcasting Co., 844 F.2d 988, 994 (2d Cir.), cert. denied, 488 U.S. 955, (1988)).

[65] See Gordon, supra note 51, at 178-80.

[66] Felix X. Cohen, Transcendental Nonsense and the Functional Approach, 35 COLUM. L. REV. 809, 815 (1935). See also Rochelle Dreyfuss, Expressive Genericity: Trademarks as Language in the Pepsi Generation, 65 NOTRE DAME L. REV. 397, 405 (1990) (identifying the notion of "if value, then right").

[67] 28 U.S. 215 (1918).

[68] Id. at 239.

[69] Id. at 246 (Holmes, J., concurring).

[70] See Gordon, supra note 51, at 178-79.

[71] Cohen, supra note 66, at 815.

[72] See MILGRIM, supra note 22, at § 5.02 [1] (1996) ("The rights and duties arising from the employer-employee relationship are the context of the great majority of reported trade secret cases.").

[73] See Bone, supra note 5, at 245.

[74] E.I. du Pont deNemours Co. v. Masland, 244 U.S. 100, 102 (1917); see also Note, Nature of Trade Secrets and Their Protection, 42 HARV. L. REV. 254 (1928) (noting that property theories of trade secret protection have limitations and that, in the end, it may not matter whether courts regard trade secrets as property, provided they protect them).

[75] See, e.g., Structural Dynamics Research Corp. v. Engineering Mechanics Research Corp., 673 F.2d 1045 (9th Cir. 1982); American Chain & Cable Co., Inc. v. Avery, 143 U.S.P.Q. 126 (1964).

[76] See Electro-Craft Corp. v. Controlled Motion, Inc. 332 N.W.2d 890, 897 (Minn. 1983) (stating that confidentiality agreement would not be enforced if court found that information was not a trade secret); American Paper & Packaging Prod., Inc. v. Kirgan, 228 Cal. Rptr. 713, 717 (Cal. Ct. App. 1986) ("An agreement between employer and employee defining a trade secret may not be decisive in determining whether the court will so regard it.").

[77] See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974). ("This necessary element of secrecy is not lost, however, if the holder of the trade secret reveals the trade secret to another 'in confidence, and under an implied obligation not to use or disclose it.'") (citing Cincinnati Bell Foundry Co. v. Dodds, 10 Ohio Dec. Reprint 154, 156, 19 Weekly Law Bull. 84 (Super. Ct. 1887)).

[78] See National Tube Co. v. Eastern Tube Co., 3 Ohio Cir. Ct. R., N.S., 459, 462 (1902). (noting that defendants may include the trade secret owner’s "employees to whom it is necessary to confide it, in order to apply it to the uses for which it is intended.")

[79] See Lear, Inc. v. Adkins, 395 U.S. 653 (1969) (noting that defendant is licensee of plaintiff).

[80] See, e.g., Mercer v. C. A. Roberts Co., 570 F.2d 1232 (5th Cir. 1978) (noting that agreement not to disclose information is implied because employee knew or should have known employer desired secrecy); MILGRIM, supra note 22, at § 3.01.

[81] See Weitzenkorn v. Lesser, 256 P.2d 947, 959 (Cal. 1953) ("[Q]uasi-contracts, unlike true contracts, are not based on the apparent intention of the parties to undertake the performances in question, nor are they promises. They are obligations created by law for reasons of justice.")

[82] See Thermo-Trim, Inc. v. Mobil Oil Corp., 194 U.S.P.Q. 450 (W.D.N.Y. 1977).

[83] See Carpenter Found. v. Oakes, 103 Cal. Rptr. 368 (1972) (holding confidential relationship barred disclosure of material embodied in letters); Radium Remedies Co. v. Weiss, 217 N.W. 339 (Minn. 1928) (holding that qualified or partial secrecy is sufficient to invoke the confidentiality theory).

[84] See Pioneer Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d 1226, 1239 (8th Cir. 1994).

[85] See, e.g., American Can Co. v. Mansukhani, 216 U.S.P.Q. 1094 (E.D. Wis. 1982); Hilton, supra note 2, at 295.

[86] Filmways Pictures, Inc. v. Marks Polaroid Corp., 552 F. Supp. 863, 867 (S.D.N.Y. 1982).

[87] Id. at 867-68.

[88] Roy Export Co. v. Columbia Broad. Sys., Inc., 672 F.2d 1095, 1105 (2d Cir. 1982).

[89] See Gale R. Peterson, Trade Secrets in an Information Age, 32 HOUS. L. REV. 385, 390 (1995).

[90] Filmways Pictures, Inc. v. Marks Polaroid Corp., 552 F. Supp. 863, 867-68 (S.D.N.Y. 1982) (quoting Roy Export Co. v. Columbia Broad. Sys., Inc., 672 F.2d 1095, 1105 (2d Cir. 1982)).

[91] See Gordon, supra note 51 at 157. Professor Gordon terms this a "misappropriation explosion." Id. at 150.

[92] 431 F.2d 1012, 1016-17 (5th Cir. 1970). Cf. Interox v. PPG Indus., Inc., 736 F.2d 194, 201 (5th Cir. 1984) (finding that the configuration of equipment visible from a highway was not kept sufficiently secret).

[93] See E.I. du Pont deNemours Co. v. Christopher, 431 F.2d 1012, 1014, 1017 (5th Cir. 1970).

[94] Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475-76 (1974).

[95] See, e.g., Hilton, supra note 2, at 292; MICHAEL A. EPSTEIN, MODERN INTELLECTUAL PROPERTY (1989).

[96] E.I. du Pont deNemours Co. v. Christopher, 431 F.2d 1012, 1017 (5th Cir. 1970).

[97] See, e.g., Hunter v. Shell Oil Co., 198 F.2d 485, 488-89 (5th Cir. 1952); Nye v. Lovelace, 228 F.2d 599, 603 (5th Cir. 1956).

[98] See, e.g., Hunter v. Shell Oil Co., 198 F.2d 485, 488-89 (5th Cir. 1952).

[99] Smith v. Robinson, 343 F.2d 793, 797 (4th Cir. 1965); Teren v. Howard, 322 F.2d 949 (5th Cir. 1963).

[100] First Nat’l Co. v. Commissioner of Internal Revenue, 289 F.2d 861, 867 (6th Cir. 1961); DePinto v. Landoe, 411 F.2d 297, 300 (9th Cir. 1969).

[101] Knapp v. First Nat’l Bank & Trust Co., 154 F.2d 395, 398 (10th Cir. 1946).

[102] See Ramon A. Klitzke, Trade Secrets; Important Quasi-Property Rights, 41 BUS. LAW 555, 569-70, (1986).

[103] See William E. Hilton, What Sort of Conduct Constitutes Misappropriation of a Trade Secret, 30 IDEA 287, 294 (1990).

[104] See Franke v. Wiltschek, 209 F.2d 493 (2d Cir. 1953) (Defendants’ conduct was improper when they used pretext to become salesmen for plaintiff in order to steal a trade secret.)

[105] See Solo Cup Co. v. Paper Mach. Corp., 240 F. Supp. 126 (E.D. Wis. 1965) ("[A]ctual theft of plaintiff’s production drawings by defendant would, patently, be an improper means.")

[106] See Hilton, supra note 103, at 288.

[107] See, e.g., E.I. du Pont deNemours Co. v. Christopher, 431 F.2d 1012, 1017 (5th Cir. 1970).

[108] 18 U.S.C. §§ 1831-39 (1996).

[109] See Victoria A. Cundiff, The Economic Espionage Act and You, 490 PLI/PAT 9, 15 (1997).

[110] See generally Robert G. Bone, A New Look at Trade Secret Law: Doctrine in Search of Justification, 86 CAL. L. REV. 241 (1998).

[111] Id.

[112] See HANOCH DAGAN, UNJUST ENRICHMENT, 9 (1997).

[113] See Jane Stapleton, A New Seascape for Obligations: Reclassification on the Basis of Measure of Damages, in THE CLASSIFICATION OF OBLIGATIONS (Peter J. Birks ed., 1997).

[114] "Unjust enrichment" or "restitution" is a judicially developed area of law that expresses corrective justice. See Wendy J. Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 VA. L. REV. 149, 164 (1992). The principle of unjust enrichment posits that wrongly secured gains must be annulled. See Jules L. Coleman, Intellectual Property and Corrective Justice, 78 VA. L. REV. 283, 284 (1992).

[115] See DAGAN, supra note 112, at 1-49.

[116] The Uniform Trade Secrets Act provides for injunctive relief from actual or threatened misappropriation. See UNIFORM TRADE SECRETS ACT § 2. It also allows plaintiffs to recover damages for actual loss caused by the misappropriation, as well as any unjust enrichment gained by the defendant. See UNIFORM TRADE SECRETS ACT § 3 (a). Finally, exemplary (punitive) damages are available for "willful and malicious misappropriation." See UNIFORM TRADE SECRETS ACT § 3 (b).

[117] See, e.g., JOHN P. DAWSON, UNJUST ENRICHMENT--A COMPARATIVE ANALYSIS 38-39 (1951).

[118] See UNIFORM TRADE SECRETS ACT § 3 (a).

[119] RESTATEMENT OF RESTITUTION § 1 (1937).

[120] This paradigm follows HANOCH DAGAN, UNJUST ENRICHMENT, 3-4 (1997).

[121] See BLACK’S LAW DICTIONARY 1311 (6th ed., 1990).

[122] See DAGAN, supra note 112, at 4.

[123] See Jack Beatson, The Nature of Waiver of Tort, in THE USE AND ABUSE OF UNJUST ENRICHMENT: ESSAYS ON THE LAW OF RESTITUTION, 206, 208 (1991). But see contra SAMUEL J. STOLJAR, THE LAW OF QUASI CONTRACTS 5-7, 93, 100 (2nd ed. 1989) (espousing a narrow, property-based approach to restitution).

[124] This paper deals with trade-secret injunctions in Part VI. infra. For a discussion of injunctions and specific restitution, see Peter Birks, Property in the Profits of Wrongdoing, 24 WEST. AUST. L. REV. 9, (1994); Douglas Laycock, The Scope and Significance of Restitution, 67 TEXAS L. REV. 1277, 1279-81, 1283, 1291-93 (1989).

[125] See UNIFORM TRADE SECRETS ACT § 2.

[126] See HANOCH DAGAN, UNJUST ENRICHMENT, 5 (1997). Under waiver of tort, the main advantages of restitution were procedural, including issues such as the statute of limitations.

[127] See Jack Beatson, The Nature of Waiver of Tort, in THE USE AND ABUSE OF UNJUST ENRICHMENT: ESSAYS ON THE LAW OF RESTITUTION, 206, 208.

[128] See RESTATEMENT (SECOND) OF RESTITUTION § 1 cmt. a (Tentative Draft, 1983-84).

[129] See DAGAN, supra note 126, at 12-14.

[130] In this paradigm, assume that the defendant has not inflicted emotional harms upon the plaintiff.

[131] The defendant may incur costs from the time and labor spent in obtaining his proceeds, as well as out-of-pocket expenses.

[132] See BLACK’S LAW DICTIONARY 597 (6th ed. 1990).

[133] For example, assume the defendant’s proceeds from his use of the appropriated resource equal 100, the market value of that use is 30, and the defendant’s costs are 20. The plaintiff could recover the following possible measures: profits of 80, fair market value of 30, or proportional profits of 60.

[134] Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules and Inalienability Rules: One View from the Cathedral, 85 HARV. L. REV. 1089 (1972).

[135] Id. at 1089.

[136] Inalienability rules do not apply to this discussion, so they will be ignored here.

[137] Calabresi, supra note 134, at 1090.

[138] Id. at 1092.

[139] Id. at 1092.

[140] These goals may also be termed social "goods." See JULES L. COLEMAN & JODY KRAUS, RETHINKING THE THEORY OF LEGAL RIGHTS, IN MARKETS, MORALS AND THE LAW 28 (1988); ROBERT NOZICK, ANARCHY, STATE AND UTOPIA 57-73 (1974).

[141] See ROBERT C. ELLICKSON, ORDER WITHOUT LAW: HOW NEIGHBORS SETTLE DISPUTES 170-72 (1991). The term "objective" is used here to emphasize that the utility does not include any "psychological utility which an owner may produce by the mere fact of her control over the resource. Otherwise the concepts of control and well-being would converge." DAGAN, supra note 126, at 15, n. 9.

[142] See Calabresi, supra note 134, at 1105-06.

[143] See DAGAN, supra note 126, at 15.

[144] This is not to suggest that these rationales are the only factors that dictate the available remedies. Procedural and institutional considerations may also play a role in the judicial determination of a remedy.

[145] See Jeremy Waldron, Criticizing the Economic Analysis of Law, 99 YALE L. J. 1441, 1444-49 (1990).

[146] See RICHARD A. BREALEY & STEWART C. MYERS, PRINCIPLES OF CORPORATE FINANCE 73, 96 94th ed. 1991)

[147] See DAGAN, supra note 126, at 16-18; NOZICK, supra note 140, at 6-65.

[148] See DAGAN, supra note 126, at 17. It should be noted that, contrary to Professor Dagan’s statement, not all the other available remedies focus exclusively on the plaintiff’s interests: profits and proportional profits take into consideration the defendant’s contribution to the gain.

[149] See Robert J. Sharp & S. W. Waddams, Damages for Lost Opportunities to Bargain, 2 OXFORD J.L. STUD. 290 (1982).

[150] See DAGAN, supra note 126, at 17-19.

[151] See, e.g., Taylor v. Merrick, 712 F.2d 1112, 1120 (7th Cir. 1983); Richard A. Epstein, The Ubiquity of the Benefit Principle, 67 S. CAL. L. REV. 1369, 1389 (1994).

[152] See Daniel Friedmann, Restitution of Benefits Obtained Through Appropriation of Property or the Commission of a Wrong, 80 COLUM. L. REV. 504, 551 (1980) (describing the features of various restitutionary schemes).

[153] See DAGAN, supra note 126, at 19-20.

[154] But see Walker v. Forbes, Inc., 28 F.3d 409, 412 (4th Cir. 1994) (suggesting a deterrence rationale for proportional profits).

[155] Like fair market value, proportional profits in this case will restore the plaintiff at least to the status quo ante economic position.

[156] See David Charney, Hypothetical Bargains: The Normative Structure of Contract Interpretation, 89 MICH. L. REV. 1815, 1823-24 (1991); DAGAN, supra note 126, at 19-20.

[157] Cf. Joseph W. Singer, The Reliance Interest in Property, 40 STAN. L. REV. 611, 627-28 (1988).

[158] See DAGAN, supra note 126, at 31.

[159] Id. at 33.

[160] Professor Dagan uses the term "goods" following JOHN RAWLS, A THEORY OF JUSTICE, 62, 92 (1971).

[161] See DAGAN, supra note 126, at 33.

[162] Id. at 47.

[163] Id. at 47.

[164] See Margaret J. Radin, Property and Personhood, 34 STAN. L. REV. 957, 960 (1982).

[165] DAGAN, supra note 126, at 48.

[166] Id. at 106.

[167] Id. at 48.

[168] This can occur in cases of efficient breach of contract. See id. at 102-03.

[169] Id. at 49. Cf. Russell W. Belk, Possessions and the Extended Self, 15 J. CONSUMER RES. 139, 152 (1988).

[170] See UNIFORM TRADE SECRETS ACT § 3. See also RESTATEMENT (THIRD) OF UNFAIR COMPETITION, § 45 (1995). The exception to the plaintiff’s right to these monetary damages, which exception refers to transferees of the misappropriator, is not relevant to this paradigm. See id. at 457.

[171] "[A] complainant can request" the "reasonable royalty" measure as a "general option." UNIFORM TRADE SECRETS ACT § 3, cmt.

[172] The UTSA clearly allows deduction of the defendant’s costs, as indicated in UNIFORM TRADE SECRETS ACT § 3, cmt. Whether deduction of the defendant’s contribution of profits is allowed is not clear. The UTSA is silent on the subject, and the few common law cases dealing with the subject appear to follow the attribution rules shaped by trademark and copyright law. See USM Corp. v. Marson Fastener Corp., 467 N.E. 2d 1271, 1277 n.3 (Mass. 1984); See also RESTATEMENT (THIRD) OF UNFAIR COMPETITION, § 45 cmt. f (1995). For a description of the attribution rule in copyright law, see infra note 182.

[173] See UNIFORM TRADE SECRETS ACT § 3 (a).

[174] See DAGAN, supra note 126, at 101-02.

[175] Id. at 102.

[176] See, e.g., RESTATEMENT (THIRD) OF UNFAIR COMPETITION, § 43 (1995) ("Independent discovery and analysis of publicly available products or information are not improper means of acquisition").

[177] See DAGAN, supra note 126, at 107-08.

[178] See id. at 102. See also discussion, supra Part V.

[179] See id. at 33.

[180] See Charney, supra note 156, at 1823-24 (1991); DAGAN, supra note 126, at 19-20.

[181] Section 35 of the Trademark Act of 1946 prescribes that a trademark owner is entitled, "subject to the principles of equity," to the infringer’s profits. In determining profits, the plaintiff is "required to prove defendant’s sales only; defendant must prove all elements of cost or deduction claim." 15 U.S.C. § 1117 (1984).

[182] The Copyright Act of 1976 states that a plaintiff is entitled to recover either "the owner’s actual damages and any additional profits of the infringer," or "statutory damages." The profits include "any profits of the infringer that are attributable to the infringement and are not taken into account in computing actual damages. . . . [T]he infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work." 17 U.S.C. § 504 (1984).

[183] See discussion supra Part IV. D.

[184] See DAGAN, supra note 126, at 100-101.

[185] Id. at 48.

[186] Id. at 48.

[187] "In patent nomenclature what the infringer makes is ‘profits,’ what the owner of the patent loses by such infringement is ‘damages.’" Duplate Corp. v. Triplex Safety Glass Co., 298 U.S. 448, 451 (1936) quoting Diamond Stone-Sawing Mach. Co. of New York v. Brown, 166 F. 306 (C.C.A.2 (N.Y.) 1908).

[188] See 35 U.S.C. § 284 (1984).

[189] See Aro Manufacturing v. Convertible Top Replacement Co., 377 U.S. 476, 502-513 (1964) (gain-based recovery disallowed). "By the 1946 amendment . . . the [patent] statute was changed to approximately its present form, whereby only ‘damages’ are recoverable. The purpose of the change was precisely to eliminate the recovery of profits as such and allow recovery of damages only." Id. at 505. See also King Instruments Corp. v. Perego, 65 F.3d 941, 948 (1995) ("The 1946 amendment eliminated the patentee's right to recover the infringer's ‘profits as such and allow recovery of damages only.’" (citing Aro Manufacturing v. Convertible Top Replacement Co., 377 U.S. 476, 505-07 (1964))).

[190] See, e.g., Nickson Industries Inc. v. Rol Manuf. Co. Ltd., 847 F.2d 795, 798 (Fed. Cir. 1988).

[191] Prior to the 1946 Amendment to the Patent Act (Act of August 1, 1946, 35 U.S.C. § 70 (1946)) courts allowed gain-based recovery, based on infringer’s profits, for patent infringement. Courts deducted defendant’s costs and apportioned profits, allowing plaintiffs to receive a proportional-profits measure of recovery. See Georgia Pac. Corp. v. U.S. Plywood Corp., 243 F.Supp. 500, 516-546 (SDNY 1965) (historical review of Patent statutory schemes) "It is the court's considered opinion that, under the 1946 amendment and section 284 of the 1952 Act, the patent owner's sole measure of recovery, other than a reasonable or established royalty, was to be his lost profits resulting from the invasion of his patent right." Id. at 528-529.

[192] See DAGAN, supra note 126, at 88-89.

[193] See id. at 107.

[194] Note that both patent and trade-secret remedies can include punitive damages for outrageous conduct by a defendant. Punitive damages vindicate society’s condemnation for intolerable behavior. In patent law, a patentee may recover attorney’s fees and treble damages if she proves that the infringement is willful. See 35 U.S.C. § 285 (1984). Regarding punitive damages in trade secret law, see discussion Part VI infra; UNIFORM TRADE SECRETS ACT § 3(b) (1990).

[195] See Friedman et al., supra note 9, at 62-63.

[196] Such an analysis is implicit in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 482-90 (1974).

[197] See Friedman et al., supra note 9, at 62-64.

[198] In this case, the cost of patent protection may exceed the cost of keeping the invention secret, which should be roughly proportional to the value of the secret to potential appropriators. Here, that value is only modest, so it may well be cheaper to keep the invention secret than to obtain patent protection. Furthermore, while the patent-seeker incurs the cost of obtaining a patent in every case, the secret-invention owner incurs trade-secret protection costs only if the invention turns out to be valuable enough to incite someone to try to steal it. See Friedman et al., supra note 9, at 63.

[199] In this case, "the inventor’s choice is between patenting the invention for stronger protection and keeping it a trade secret, with luck for a longer time." Id. at 63.

[200] See DAGAN, supra note 126, at 19. See also supra Part IV. D.

[201] See UNIFORM TRADE SECRETS ACT § 3. See also RESTATEMENT (THIRD) OF UNFAIR COMPETITION, § 45 (1995).

[202] See DAGAN, supra note 126, at 5.

[203] See id. at 16.

[204] See UNIFORM TRADE SECRETS ACT § 2.

[205] See Jeremy Waldron, Criticizing the Economic Analysis of Law, 99 YALE L.J. 1441, 1444-49 (1990) (reviewing JULES L. COLEMAN, MARKETS, MORALS, AND THE LAW (1998)).

[206] See DAGAN, supra note 126, at 33.

[207] See Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules and Inalienability Rules: One View from the Cathedral, 85 HARV. L. REV. 1090, 1105-06 (1972).

[208] See UNIFORM TRADE SECRETS ACT § 3(b).

[209] See Peter Birks, Civil Wrongs: A New World, 1990-91 BUTTERWORTH LECTURES 55, 86 (1992); Jeff Berryman, The Case for Restitutionary Damages over Punitive Damages: Teaching the Wrongdoer that Tort Does Not Pay, 73 CAN. B. REV. 320 (1994).

[210] See Robert G. Bone, A New Look at Trade Secret Law: Doctrine in Search of Justification, 86 CA. L. REV. 243, 296-304 (1998).

[211] See American Paper & Packaging Prod., Inc. v. Kirgan, 228 Cal. Rptr. 713, 717 (Cal. Ct. App. 1986) ("An agreement between employer and employee defining a trade secret may not be decisive in determining whether the court will so regard it.").

[212] 332 N.W.2d 890, 897 (Minn. 1983).

[213] See UNIFORM TRADE SECRETS ACT § 3(b) (1985).

[214] See Thomas C. Galligan, Contortions Along the Boundary Between Contracts and Tort, 69 TUL. L. REV. 457, 471-72 (1994). In the 1970s and 1980s there was a trend toward granting punitive damages in contract cases, especially in cases that could be characterized as either contract or tort, such as insurance bad faith cases. See Henderson v. United States Fidelity & Guar, Co., 620 F.2d 530, 536 (5th Cir.) (holding that punitive damages are not recoverable absent a showing of gross negligence or willful misconduct), cert. denied, 449 US 1034 (1980).

[215] See, e.g., U.C.C. § 1-106(1) (1978) (Remedies "shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed . . . .")

[216] See RESTATEMENT OF RESTITUTION § 3 (1937) ("A person is not permitted to profit by his own wrong at the expense of another.")

[217] See E. Allan Farnsworth, Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of Contract, 94 YALE L.J. 1339, 1341-1342 (1985).

[218] The other meaning of restitution, not meant here, is "the return of what has been subtracted from the plaintiff’s resources through the operation of such factors like mistake." See Ernest J. Weinrib, The Juridical Classification of Obligations, in THE CLASSIFICATION OF OBLIGATIONS, 37, 47 (Peter J. Birks ed., 1997). A better term than restitution in this context may be disgorgement. See E. Allan Farnsworth, Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of Contract, 94 YALE L.J. 1339, 1341-42 (1985). ERNEST J. WEINRIB, THE IDEA OF PRIVATE LAW, 207 (1995).

[219] See, e.g., Medema Homes, Inc. v. Lynn, 647 P.2d 664 (Colo. 1982) (home buyer not entitled to damages where market price was same as contract price at date for conveyance, although seller later sold home for higher price). See also E. Allan Farnsworth, Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of Contract, 94 YALE L.J. 1339, 1341-42 (1985).

[220] See RESTATEMENT OF RESTITUTION § 1 (1937) ("[A] person who has been unjustly enriched at the expense of another is required to make restitution to the other.")

[221] Wendy J. Gordon, Of Harms and Benefits: Torts, Restitution, and Intellectual Property, 21 J. LEGAL STUD. 449, 472 (1992).

[222] See Wendy J. Gordon, Of Harms and Benefits: Torts, Restitution, and Intellectual Property, 21 J. LEGAL STUD. 449, 472 (1992). ("Intentional torts have both characteristics: they encourage consensual bargains but, when someone disregards an owner’s right to withhold consent, they give the owner at least a market-like payment via the tort damage remedy. Punitive damages and criminal law "kickers" further encourage the consensual route.") See also Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules and Inalienability Rules: One View from the Cathedral, 85 HARV. L. REV. 1089 (1972).

[223] See Wendy J. Gordon, Of Harms and Benefits: Torts, Restitution, and Intellectual Property, 21 J. LEGAL STUD. 449, 472, n.92 (1992). ("[T]he restitutionary species of right [compared to the liability-for-harms species] is the more fundamental.")

[224] See Weitzenkorn v. Lesser, 256 P.2d 947, 959 (Cal. 1953) ("Quasi-contracts, unlike true contracts, are not based on the apparent intention of the parties to undertake the performances in question, nor are they promises. They are obligations created by law for reasons of justice." (quoting RESTATEMENT OF CONTRACTS § 5 cmt. a))

[225] See UNIFORM TRADE SECRETS ACT § 3(a).

[226] See discussion supra Part VI.

[227] See UNIFORM TRADE SECRETS ACT § 3(a).

[228] See Wendy J. Gordon & Sam Postbrief, On Commodifying Intangibles, 10 YALE J.L. & HUMAN. 135, 135-40 (1998).

[229] See WESLEY NEWCOMB HOHFELD, FUNDAMENTAL LEGAL CONCEPTIONS AS APPLIED IN JUDICIAL REASONING AND OTHER LEGAL ESSAYS (W. Cook ed. 1923); Wesley Newcomb Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning, 23 YALE L.J. 16 (1913).

[230] See Wesley Newcomb Hohfeld, Fundamental Legal Conceptions as Applied in Judicial Reasoning, 26 YALE L.J. 710, 746-47 (1917). See also Wendy J. Gordon & Sam Postbrief, On Commodifying Intangibles, 10 YALE J.L. & HUMAN. 135, 135-40 (1998); Ian Ayres & J.M. Balkin, Legal Entitlements as Auctions: Property Rules, Liability Rules, and Beyond, 106 YALE L.J. 703, 704 n.1 (The classification of an entitlement depends on who holds it. If the entitlement is in the hands of a toxic waste dumper, it is a privilege to pollute; if the neighboring landowner holds the entitlement, it is a right to be free from toxic waste.)

[231] IMMANUEL KANT, THE METAPHYSICS OF MORALS 63, 237 (Mary Gregor, trans., 1991).

[232] See Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 STANFORD L. REV. 1343, 1356-58 (1989).

[233] See generally 4 MORRIS COHEN, PROPERTY AND SOVEREIGNTY 155 (1927) ("The essence of private property is always the right to exclude others."). See also Carpenter v. United States, 484 U.S. 19, 26-27 (1987) ("exclusivity is an important aspect of confidential business information and most private property for that matter");

[234] See Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 STAN. L. REV. 1343, 1358-1359 (1989).

[235] See id. at 1359-60.

[236] See Richard A. Posner, A Theory of Negligence, 1 J. LEGAL STUD. 29, 32-33 (1972).

[237] ARISTOTLE, THE NICOMACHEAN ETHICS 84-86 (Hippocrates G. apostle trans., 1975).

[238] Susan Randall, Corrective Justice and the Torts Process, 27 IND. L. REV. 1, 2 (1993).

[239] See Nancy A. Weston, The Metaphysics of Modern Tort Theory, 28 VAL. U. L. REV. 919, 956-57 (1994).

[240] See Susan Randall, Corrective Justice and the Torts Process, 27 IND. L. REV. 1, 50 n.1 (1993).

[241] Professor Weinrib has written extensively on corrective justice’s coherence and its "immanent rationality," i.e., its ability to operate and be understood entirely from within its own principles. "[C]orrective justice is the locus of an immanent rationality. In this connection, two points must be recognised: that corrective justice embodies a distinctive rationality and that this rationality is an immanent one." Ernest J. Weinrib, The Juridical Classification of Obligations, in THE CLASSIFICATION OF OBLIGATIONS, 37, 43 (Peter J. Birks ed., 1997.)

[242] ERNEST J. WEINRIB, THE IDEA OF PRIVATE LAW, 12 (1995).

[243] Id. at 207.

[244] See ARISTOTLE, THE NICOMACHEAN ETHICS 84-88 (Hippocrates G. apostle trans., 1975).

[245] See Ernest J. Weinrib, The Juridical Classification of Obligations, in THE CLASSIFICATION OF OBLIGATIONS, 37, 43 (Peter J. Birks ed., 1997). Weinrib says, "[C]orrective justice admixes no considerations originating in positive law. Corrective justice is not itself something posited. Rather, it is a moral concept signifying the regulation of an interaction by reference to the correlatively of doing and suffering injustice." Id.

[246] ERNEST J. WEINRIB, THE IDEA OF PRIVATE LAW, 210 (1995).

[247] Id. at 134-36.

[248] See Fontainebleau Hotel Corp. v. Forty-Five Twenty-Five, Inc., 114 So. 2d 357, 359 (Fla. Dist. Ct. App. 1959) (holding that defendant was not liable for building a structure that cast an afternoon shadow on plaintiff’s bathing area. The court remarked that the law does not require "that one must never use his property in such a way as to do an injury to his neighbor . . . . It means only that one must use his property so as not to injure the lawful rights of another.")

[249] See Palsgraf v. Long Island Railroad, 162 N.E. 99, 100 (N.Y. 1928) (J. Cardozo: "The plaintiff sues in her own right for a wrong personal to her, and not as the vicarious beneficiary of a breach of duty to another.")

[250] One implication of this statement is that under corrective justice damages are compensatory, not punitive. Another implication is that, because corrective justice goes to the nature of the obligation and not the means by which that obligation is discharged, the use of liability insurance is compatible with corrective justice.

[251] See Wendy J. Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 VA. L. REV. 149, 164 (1992).

[252] See Jules L. Coleman, Intellectual Property and Corrective Justice, 78 VA. L. REV. 283, 284 (1992).

[253] See Jules L. Coleman, Moral Theories of Torts: Their Scope and Limits: Part II, 1 J.L. & PHIL. 5, 12-13 (1983)

[254] See Ernest J. Weinrib, The Juridical Classification of Obligations, in THE CLASSIFICATION OF OBLIGATIONS, 37, 44-45 (Peter J. Birks ed., 1997). Professor Weinrib defines juridical classifications as those legal classifications that express the "distinctive right-based rationality implicit in the interaction of the . . . parties," one that "transcends the contingencies of positive law, and that gives rise to a rationality that is immanent to the parties’ relationship." Id. at 40. Also, "A classification is juridical to the extent that it reflects the distinctive moral rationality of private law. . . . Corrective justice allows us to see tort, unjust enrichment, contract, and the fiduciary relationship as the moral categories implicit in the interaction of plaintiff and defendant." Id. at 54.

[255] Ernest J. Weinrib, The Juridical Classification of Obligations, in THE CLASSIFICATION OF OBLIGATIONS, 37, 44 (Peter J. Birks ed., 1997).

[256] Id. at 45.

[257] For a definition of "juridical classifications", see discussion, supra note 253.

[258] ERNEST J. WEINRIB, THE IDEA OF PRIVATE LAW, 136 (1995).

[259] See id. at 136.

[260] See id. at 136.

[261] Id.

[262] By "owner", I mean the person who possesses a trade secret and employs reasonable safeguards to keep it secret. In using the term "owner", I do not mean to presume the conclusion that the possessor of a trade secret has proprietary, or "ownership" rights. That is a question for society to decide. Today, however, the law does in fact accord proprietary rights to trade secret owners.

[263] See discussion, supra Part VI.

[264] See e.g., E.I. duPont deNemours & Co. v. Christopher, 431 F.2d 1012, 1014, 1017 (5th Cir. 1970).

[265] See UNIFORM TRADE SECRETS ACT § 3.