Why Markets Work – Uber And Waymo’s Negative Trade Secrets

Uber and Waymo (part of alphabet, or as we all still call it, Google) have been going at it hammer and tongs over trade secrets. Leave the detailed background aside here and consider instead this interesting little lesson – this is why markets work. No, not because of trade secrets themselves, they actually are quite harmful to a market based system. Instead, this interesting concept of negative trade secrets revealed in that abortive trial between Uber and Waymo.

The underlying point being that markets are the best system we’ve as yet discovered for finding these negative trade secrets, they’re actually the point of the system in fact.

The settlement earlier this month of a high-profile trade secret lawsuit between Uber and Waymo, Alphabet’s autonomous vehicle arm, cast light on a little-known corner of intellectual property law: the negative trade secret, or knowledge of what technical approaches do not work well.

Clearly, what we’re all trying to find is what works. That’s a rather difficult task though. We’ve some number of things which can be done. There are, by some calculations, 1 billion things for sale out there. This isn’t 500 screws, 1,000 nuts and 50 flakes (although that’s California for you) that’s 1 billion different types of things. They can be combined in some alarmingly large number of ways (dim memories of school maths say 1,000,000,000! which is a bigger number than we care to think about) and we really don’t know all of them. That number also consistently changes over time. People do keep inventing new things after all. That invention of graphene means we’ve got to work out whether ducks and graphene, corn cobs and graphene, cars and graphene, nail bars and graphene, can be usefully combined. A complex task there.

We’ve also that unfortunate fact that what people want done changes. Fashion moves on after all, who really would have planned, or even planned for, the recent revival of vinyl records?

So, what we need is some system of sorting through what can be done and where that matches what people want done. This is the thing which markets do so well. Everyone scrambles off to try their own thing, some small number work and that’s that, we’ve explored the technological space.

We also have this patents, copyright and trade secrets thing. Our economic problem is that once something has been worked out it’s very easy to copy it. This gives us a public goods problem – no one will do it, or not enough will, given that it’s near impossible to make money. Our solution, possibly not the perfect one but the one we use, is to grant monopolies to people who do the working out. Those copyrights and patents. Yes, OK, we can all talk about alternative systems but let’s not go there right now. But note a very important part of the system. To gain that patent you’ve got to explain what you’ve done. You cannot keep trade secrets that is – this is the trade off. Inform all what does work and you can have that time limited monopoly. Because the designers of the system were very aware that knowing what works is important in geeing up other alternative approaches.

The case we’ve got here is about the opposite though, negative trade secrets. That is, knowledge of what doesn’t work. But consider our markets again. The valuable information from all that experimenting isn’t in fact what does work. It’s what doesn’t. That graphene coated corn cob doesn’t solve any need or desire, is expensive to do and is of no use anyway. That’s valuable information and it’s that negative information which markets really and truly provide. The one thing that planned systems don’t in fact.

That is, this Waymo and Uber fight over trade secrets is over the very thing that makes market based economic systems work in providing technological advance. It’s about the knowledge of what doesn’t work – that very universe which the market economy, like no other, explores for us.