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Abstract

Trade secret literature does not thoroughly consider information asymmetries between companies and employees. This Article visualizes the flows of technical information in and between companies and employees and categorizes two types of information asymmetries in the information transactions. The information asymmetries cannot be effectively governed by contracts and trade secret law. Companies employ covenants not to compete (“CNCs”), non-disclosure agreements (“NDAs”), and trade secret protection to shift the legal risks borne by employees from the disclosure risks borne by the companies, both restraining and aggravating the information asymmetries. The contracts and the law cannot increase employee loyalty to eliminate the information asymmetries. The risk shifting is not only costly to the companies, but it also harms innovation by employees and society due to the inevitable information asymmetries. Moreover, courts are inconsistent in enforcing the contracts and trade secret law for promoting innovation and other policy reasons. This Article revisits the literature that concerns the balance and the efficiency of the contracts and trade secret law for innovation. It argues that courts reward companies for training employees and investing in innovation by enforcing trade secrets and CNCs to supplement the ineffective NDAs used by companies. CNCs are less efficient for innovation than trade secret law. Thus, this Article suggests that courts rely on a strong trade secret regime when distributing training and innovation rewards. The strong trade secret regime adopts the inevitable disclosure doctrine and allows a broad scope of trade secret protection, rather than enforcing broad NDAs or CNCs, which are less efficient for innovation than trade secret law. At least, this regime should not impair employee loyalty.

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