Trade secrets fail.

Lawsuits are not always successful even when claims are meritorious, leading to suboptimal deterrence. Misappropriators know there is at least some chance that they will escape detection or, if caught, will avoid liability. 145 Trade secret owners are thus likely to lobby both for criminal penalties for misappropriation and for prosecutors to bring charges against alleged infringers. Law enforcement resources are relatively static. If reliance on trade secrecy does increase, prosecutions will likely remain mostly constant in the short run, which means that criminal enforcement would decrease relative to the level of misappropriation. Trade secret owners will respond by pressing for more resources to be devoted to the problem, in an absolute sense and as a share of a prosecutor's time and budget. This prediction mirrors what has happened in other areas of IP, where rightsholders have pressed successfully for more resources to battle infringement. For example, the PRO IP Act of 2008 created dedicated federal positions in the executive branch and in embassies to combat violations of IP rights.'4 Politically, it is likely palatable to go after misappropriation, given the roots of trade secrecy in policing unethical commercial behavior. 147 Prosecutions for trade secrets offenses are likely to rise over time. As innovators shift to trade secret, they face the risk that outsiders, such as shareholders, will be unable to value correctly their advances.1 48 Indeed, underpricing is likely to occur. Because claims of having a secret invention are cheap talk, markets will rationally discount those claims, and innovators will be unable to realize fully the value of their secret advances. Firms are likely to try to overcome Arrow's paradox to realize the full value of their innovation. 149 There are a number of standard valuation models, but all rely on access to information-precisely the problem with a secret. 50 The most likely answer is to use a third-party certifier, where the certifier is under a duty of confidentiality to the trade secret owner, but is sufficiently trustworthy that its estimate of the secret's value will be credible.15 1 Unfortunately, the history of third-party certifiers is mixed at best. Certifiers must constantly balance credibility, which protects their reputation and makes their signals valuable, against appealing to clients, who want the highest possible rating for their secrets. There can be adverse selection, as with services that rate the privacy protections provided by Web sites. 15 2 Firms can set up their own certifiers, a practice known informally as "greenwashing."i 5 3 Companies may be selective about the information they disclose to certifiers. And, the time lag between the certifier's estimate and the eventual revelation of the secret's value (as embodied in products and services) may make it hard to gauge how accurate those calculations were. One can expect firms to try to gain credit in the marketplace for their secret innovations, but it will be challenging to do so.