Founding Fathers (or cases) of Trade Secret Law: A Look Back in Celebration of Independence Day

3 minute read | July.05.2016

Over the last few weeks, TSW has reported extensively on the first few cases brought under the new Defend Trade Secrets Act. But, given our recent celebration of our nation’s birthday and the day Will Smith saved the planet from alien attack, TSW takes a brief look back at the foundation and birth of trade secret law in the United States.

With the Declaration of Independence still in living memory, present-day trade secret law began to take shape in 1837 with the case of Vickery v. Welch, 36 Mass. 523. The case was about a technology that is still close to our hearts, namely the “art or secret manner of making chocolate.” In Vickery, the defendant was the developer of a secret chocolate recipe who sold his chocolate making business to the plaintiff, but afterwards refused to agree to keep the chocolate recipe secret. His stated justification was that “I have no patent or other exclusive right or arts except what I have gained by my skill and experience, and never have professed or claimed to have any other; and I never have, and do not hereby even impliedly covenant not to communicate the results of my experience to others.” The plaintiff then sued the defendant for breach of contract, claiming the plaintiff “should have the exclusive benefit of making chocolate in the mode used by the defendant.”

The court ruled for the plaintiff, finding that the defendant breached the terms of sale and defeated its purpose and intent by refusing to keep the recipe secret. The court rejected arguments invoking restraint of trade, noting it is “of no consequence to the public whether the secret art be used by the plaintiff or by the defendant.” This case established the principle that there is value in commercial secrecy and recognized that intellectual property exists outside of the patent laws.

In another early case, Peabody v. Norfolk, 98 Mass. 452 (1868), the plaintiff developed a business of “perfecting” the manufacture of gunny cloth from jute butts (otherwise known as burlap). As the plaintiff’s business grew, he hired the defendant as an engineer at his factory, requiring that the defendant sign a contract and consider the factory’s machinery “sacred” in order to prevent others from learning how to use it. The defendant eventually left the plaintiff’s employ and, in a tale as old as time, absconded with models and drawings in order to help set up competing factories. The plaintiff sought an injunction to prevent the defendant from divulging his secrets to others.

The court found that the secret was protected in order to protect a “breach of trust,” reasoning: “courts of equity will restrain a party from making a disclosure of secrets communicated to him in the course of a confidential employment; and it matters not, in such cases, whether the secrets be secrets of trade or secrets of title, or any other secrets of the party important to his interests.” Accordingly, the Court granted the plaintiff’s request for injunctive relief.

These early cases are not so different from ones we see today, presenting the very same competitive issues that inventors and entrepreneurs still face in modern high tech hubs. If you enjoyed this bit of history, you may want to revisit a riveting prior post on the history of corporate espionage as well.