A Tale of the Firm and its Trade Secrets: An Examination of the Theory of the Firm, its Trade Secrets and the Law Uncovers a Tango of Interdependence with Frustrations and Successes

Unlike other forms of intellectual property, trade secrets are considered, in nature, perpetual. Similarly, the corporate form – the firm – is, too, considered, perpetual. Trade secrets, whether they are one part of, or the whole of a firm’s intellectual and proprietary knowledge, they are inherent to a firm’s sustainability and success – they drive a given firm, specifically in its creation of value. Reflective of this point, there, too, is an inherent importance through which the firm’s institutional structure and its accompanying laws, serve, fuel and protects its trade secrets. Hence, in an attempt to truly understand the scope and capacity of trade secrets and its accompanying law, doctrine and precedent, an examination of its relationship to and with the theory of the firm is necessitated. This paper is premised on the perspective that the bodies of law that implicate firms and trade secrets – corporate law, intellectual property and trade secrets – cannot be fully comprehended through separate and singular examinations exclusive of the other. Instead, to fully appreciate the dimensions of each body of law, and the legal spaces they occupy – the firm and its intellectual capital of the trade secrets kind – an examination of this indelible relationship is warranted. This relationship – a tango of codependence, frustration and successes – mirrors the words Witold Rybczynski articulated about the law. He once said, the law is a “very restrained jazz – it involves improvisation [but] this does not mean [] the result is accidental or that there are no rules.” The activities and effects that occur within trade secret and the law are not hermetically sealed from effecting and being affected by the firm, corporate law, theory and governance. Firm make a deliberate and conscious decision in deciding to maintain its intellectual knowledge as a trade secret rather than pursue another form of intellectual property protection. Such decision is reflective of the didactic connection between that firm’s structure and various governance mechanisms, agency costs juxtaposed against the backdrop of how relevant its intellectual capital – its trade secrets – are inherent to its competitive advantage, and how aspects of corporate law and regulations, trade secret rights and protections, impact the firm. Therefore, in order to understand the true scope of trade secret law, this paper is aimed at examining this interdependent relationship between the firm and its trade secret. In order to effectively examine this didactic relationship between the firm and its intellectual capital, this paper is organized in two large sections. Part I of this paper examines how the organizational and institutional structure of the firm impacts its intellectual capital of the trade secret variety. Specifically, it will examine how the theory of the firm, agency and monitoring costs, and corporate social responsibility impacts the management of intellectual capital, protects trade secrets and might secure long-term innovation output. This is followed by Part II, that analyzes and examines how the law related to trade secrets and how a firm’s trade secrets has the potential to both positively and negatively impact the firm’s shareholder wealth and, hence, firm value.