Trade Secrets as Private Property: Their Constitutional Protection

Abstract

Trade secrets are an important form of property that receive constitutional protection against government expropriation under the takings clause. That level of protection is in the first instance determined by the nature of the taking. The common view is that trade secrets as intangible property can only be subject to a regulatory taking, so that the government actions are judged under a lenient rational basis standard. But this analysis is incorrect when the government not only restricts the way in which the holder of a trade secret may use its property, but also requires its disclosure to the world at large, for which a standard of strict scrutiny is appropriate. Once that is done, then the health and safety justifications for the particular disclosure, as well as the compensation, if any, provided have to be looked at more closely. Judged by this standard, the requirements for sharing trade secrets for pesticides governed by federal environmental statutes that was accepted in Ruckelshaus v. Monsanto should pass muster, but the efforts of Massachusetts for force disclosure of trade secrets about flavoring additives in cigarettes was correctly struck down Philip Morris v. Reilly, albeit not by treating it as a government occupation, but by ratcheting up scrutiny for regulatory takings as applied to intangibles.

Keywords: intellectual property