There has been an increase in the amount written in the popular press and in professional publications about the importance of intellectual property as a fundamental driver of economic value for companies. In fact, greater than 80% of the economic value of the Standard and Poor’s 500 companies is now linked to intangible assets. ((Bruce Berman, $21 Trillion In U.S. Intangible Assets Is 84% Of S&P 500 Value – IP Rights and Reputation Included, Ip CloseUp (June 4, 2019), https://ipcloseup.com/2019/06/04/21-trillion-in-u-s-intangible-asset-value-is-84-of-sp-500-value-ip-rights-and-reputation-included/.)) Consider as well that the US patent office issuance reached the 10 million level in 2018 and that it took over a century and a half to reach the first 5 million patents and another 27 years to reach the next 5 million. ((Nilay Patel, The US Patent Office has issued 10 million patents, The Verge (June 19, 2018, 12:59 PM), https://www.theverge.com/2018/6/19/17478898/uspto-utility-patents-10-million-issued.)) In corporate circles, the successful development of intellectual capability as a competitive weapon has gone from being something merely interesting to something vital in the battle for superiority. It seems undeniable that the development of intellectual property in the form of patents and trade secrets is fundamental to the development and evolution of a successful company. ((See R. Mark Halligan, Protecting Trade Secret Assets in the 21st Century, Landslide, Sept.-Oct. 2013, at 12, 13.))
Unfortunately, there is an unavoidable part of this whole discussion that is not so aspirational. Beyond the developing of these assets is the quest to protect them – to preserve their value against an onslaught of efforts to undermine or outright steal their value. ((See Daniel Roffman, Shannon Murphy & Steve Grimes, The Reality of Trade Secret Protection, Risk Management (June 1, 2019, 5:59 AM), http://www.rmmagazine.com/2019/06/01/the-reality-of-trade-secret-protection/.)) Certainly, the legal industry focused on defending intellectual property rights is thriving. ((See id.)) Yet, limitations on the boundary of protection continue to exist as protecting value becomes increasingly challenging. For example, a recent Bloomberg survey revealed that although “the majority of companies perceive protecting trade secrets as a ‘high’ or ‘very high’ priority, most respondents indicated that their companies face impediments to doing so effectively.” ((Roffman, Murphy & Grimes, supra.)) 70% of respondents believed their organizations’ trade-secret risk is will increase in the next half-decade given technological advances. ((Id.))
Trade secret quandary:
The reality of technology’s boom-bust positive potential and high risk is possibly most vivid in the arena of trade secrets. Trade secrets represent proprietary knowledge, content, or procedure that drives financial value for a business. ((See, e.g., Halligan, supra, at 13-14; Halligan, Roffman & Grimes, supra.)) By definition, they are unknown to the public and, unlike a patent, have no time limitation as long as it remains secret to the public. ((Rob Shwarts, Blockchain: Not Just a Platform for Cryptocurrency but a Potential Method for Protecting Trade Secrets and Other IP, Orrick: Trade Secrets Watch (Feb. 16, 2018), https://blogs.orrick.com/trade-secrets-watch/2018/02/16/blockchain-not-just-a-platform-for-cryptocurrency-but-a-potential-method-for-protecting-trade-secrets-and-other-ip/.))
It is estimated that trade secret loss over the years has reached close to $250 billion a year and that over 30% of companies have endured some form of trade secret loss over the last decade. ((Halligan, supra, at 14; Roffman, Murphy & Grimes, supra.)) While trade secrets are often closely guarded (e.g., Coca Cola formula), there are limited solutions for defense or economic recovery if they are stolen or if ownership is in dispute. ((See Halligan, supra, at 14; Shwarts, supra.)) Without pristine documentation and management, resolution of a trade secret dispute is often challenging and unpredictable. ((See, e.g., id.))
Consider a recent case:
Entire bodies of statutory law have been developed by legislatures, years of litigation has clogged the court systems, and private actors and potential innovators have been hampered by law suits that could be preventable by way of protecting trade secrets with blockchain.
Take any case in which there is some sort of dispute over a trade secret. Logically, without the ability to simply consult a record, courts have to establish whether there is actually a trade secret. This takes a lot of time and energy that could be better spent elsewhere – for the parties and the courts.
An example of a case where blockchain could have saved a lot of time, energy, and money for all involved is Rivendell Forest Prods. v. Georgia-Pacific Corp., 28 F.3d 1042 (10th Cir. 1994). Rivendell insisted that it developed a computer software system over the course of a decade that allowed it “to provide its customers with special service, and to manage its distribution centers as no competitor could do.” ((Rivendell Forest Prods., 28 F.3d at 1043, 1046.)) The lawsuit was triggered after an employee, Cornwell, who “was not a computer expert,” was hired by Georgia Pacific. ((Id., at 1044.)) In fact, the only relevant customer service computer software program to which Cornwell had been exposed was Rivendell’s. ((Id.)) Nevertheless, seven months later Georgia Pacific developed a computer program to consolidate its previously hap-hazard, inefficient system. ((Id., at 1044, 1046.)) With Cornwell’s help, what Georgia Pacific came up with “was for all practical purposes the same as the one at Rivendell.” ((Id., at 1044.))
The central issue with which the tenth circuit deal was whether the computer software system was actually a trade secret. The court diplomatically highlighted that the trial court bungled its handling of this question. ((Id., at 1045-46.)) However, as Rivendell demonstrates, there are so many factors to consider in trade secrets cases that it is easy to see why things might be missed.
As is the case in most jurisdictions, when a trade secrets case gets into the court systems in Colorado – where Rivendell was tried – there is an entire procedure followed to determine whether the thing being protected is actually a trade secret. ((See id., at 1045.)) As Rivendell highlights, statutory construction, common law case precedent, and the record created by the trial court was what the Tenth Circuit had to work through.
In considering everything courts weigh in cases like Rivendell – as parties urge and courts interpret how to interpret stautes and use cases – it is easy to lose perspective. At its core, the question the parties needed answered was whether Rivendell’s software program was a trade secret that Georgia Pacific violated when it hired Cornwell to overhaul its computer system. Further, Rivendell needed the answer fast because the computer system was one that “no other wholesaler” had and “gave Rivendell a large advantage over its competitors including G[eorgia] P[acific]. It is this software system that Rivendell asserts was its trade secret.” ((Id. at 1043.)) Instead, Georgia Pacific was able to use the virtually identical software system and Rivendell lost its competitive advantage in the years between its filing suit and the resolution of litigation.
Consider what is missing in Rivendell that would have led to a clear unambiguous outcome. Imagine there was 1) definition, 2) time stamped documentation, and 3) an undisputed independent platform to maintain the documentation. ((See Shwarts, supra; see also, How to Protect Ideas with Blockchain Technology, slide deck on protecting ideas with blockchain technology (Dec. 2018) (last visited Oct. 6, 2019), https://iprhelpdesk.eu/sites/default/files/events/04_THOR_How%20to%20protect%20ideas%20with%20Blockchain%20technology.pdf (especially slides 3, 13-16).)) If it were certain that a trade secret had been defined with no means for future modification, filed on a specific date that was forever unchangeable, and held on a platform that is independent of the company, then resolution is unambiguous. ((See, e.g., How to Protect Ideas with Blockchain Technology, supra, at slides 14-16.))
The mechanics of this process are streamlined – especially when compared to the hoops the court jumped through in Rivendell, which would have been resolved without drama. Ironically, this platform is foreseeable with application of existing blockchain technology. Practitioners say the same thing. Rob Shwarts explained the whole process as follows:
If a business inserts its trade secrets into a blockchain, the technology will encrypt the information . . .. The only piece of information that gets publicly displayed, therefore, is the fixed-length code and the timestamp indicating when the transaction of information occurred. . . . Once the information is entered into the blockchain, it can no longer be modified . . . [and] should be more secure than normal encryption processes. ((Shwarts, supra.))
Advancing the cause:
On many levels, the basics behind this approach are relatively straightforward, starting with the classic definition of a trade. In addition to the basic definition, a translation is made of the trade secret’s components into a definition for documentation. This uses descriptive data that outlines the components of the trade secret without revealing the proprietary information. At this point, the company’s trade secret can be entered into an established and encrypted blockchain database. Blockchain technology provides a series of attributes uniquely positioned to strengthen the legal case for ownership, protection, and defense. In particular, the blockchain establishes an unchangeable definition. The trade secret “is what it is” and stays locked forever. Any future changes become, in fact, a different trade secret. Therefore, certainty of definition is established. In addition, the timestamp of the entry is also locked and unchangeable. Finally, if this process were completed on an independent platform it becomes even stronger.
Consider again the Rivendell case. The Tenth Circuit repeatedly called the existence of a trade secret a question of fact. ((See, e.g., Rivendell Forest Prods., 28 F.3d at 1045.)) Instead of enduring the usual rigmarole, parties could simply consult the blockchain record. The concern over who developed the trade secret and when is no longer in question. Potentially, if Rivendell had the option to use this approach, they would have kept their competitive edge by quacking establishing they in fact owned the secret – developed and filed on a specific date.
In short, blockchain technology creates the potential to dramatically streamline the legal defense process, and to create a stronger basis for protecting and defending trade secrets – an ever-increasing category of value in the form of intangible assets.