In America, dealing with the legal system isn't cheap If you find yourself in court, chances are that you'll spend a fortune hiring the best lawyer you can afford. But while good legal counsel costs a bundle, access to the law itself is supposed to be free. In other words, although you may need a professional to help you understand the legal code, you are supposed to be able to find out what the laws are without paying for the privilege.
But that's not the case with all laws. For some, you have to pay a stiff price just to take a peek.
Codes and standards -- the rules governing everything from fire safety in your office to your home electrical system -- occupy a twilight area between private information and public law. On the one hand, some of these rules are part of the legal system, and a failure to abide by them can result in stiff penalties. On the other, many of them were developed and updated by private organizations like the U.S. Green Building Council, the National Fire Protection Association or the Society of Automotive Engineers. Having produced these codes and standards, these nonprofit organizations are legally allowed to charge for access to them.
A Battle For Democratic Ideals
According to Jerry Goldman, research professor of law and director of the Oyez Project at the Chicago-Kent College of Law, this poses a serious challenge to some of America's most deeply-held ideals. "In a democracy, our laws are our operating system," he argues. "The operating system has to be free if we want a vibrant democracy."
By denying access to the law, Goldman claims, standards-setting organizations have created a "barrier to entry" for people who want to know the rules governing many aspects of their lives: "A layperson who wants to understand building code -- who wants to lift up the hood and see what's going on, as it were -- will be stuck with the full price of the code, and will be deterred from pursuing the issue further."
One group has faced the code issue head-on. Public.Resource.Org, a nonprofit organization dedicated to free access to the law, has spent the last five years posting state safety codes online. Recently, the group upped the stakes with their decision to copy and distribute 73 safety standards manuals that are integrated into federal law. In a largely symbolic move, they sent out 25 copies of the code books to a variety of groups, including the National Archives, the White House, and Harvard Law School.
But while Public.Resource.Org's actions were symbolic, the costs -- and potential consequences -- are far more tangible. All told, those 73 manuals cost the group $7,416.26, and the fines for reproducing them could total more than $273 million.
Every company promises a better product -- a better burger, a better search engine, a better hotel room. For the companies to follow, the secret to a superior product is worth millions -- or even billions. To protect their secrets, companies have built vaults, hired detectives and gone to court. And as the technologies used to protect trade secrets advance, so do the technologies of the secrets themselves. Once, the Carthusian monks' blend of 130 mystical herbs gave Chartreuse a distinctive flavor and a valuable brand. Today, the ones and zeroes of Google's superior search algorithm reside in a virtual reality that is less tangible, but no less valuable.
Click next to find 10 of the most valuable and representative trade secrets today.
On the surface, it doesn't seem that hard to reverse-engineer Thomas' recipe; after all, the famous nooks and crannies are basically the product of flour, water, and yeast, with assorted other well-known ingredients thrown in for flavor and texture. Yet the company takes its trade secrets very seriously, and recently went to court to protect them. In January 2010, Chris Botticella -- one of only seven Thomas' executives who knows the exact combination of dough, humidity and baking technique necessary to reproduce the muffins -- left Thomas' for a new job at competitor (and Wonder Bread manufacturer) Hostess. The case is currently on appeal, and Botticella has been barred from accepting his new job until the case is settled.
It's common knowledge that the world's most famous secret recipe once contained cocaine; what's less known is that Coke still uses a coca leaf extract made by the Stepan Company (SCL), the only company in the U.S. that is allowed to process cocaine. Coca Cola (KO) also admits to using African kola nuts, lime extract and vanilla, and various reports suggest other exotic ingredients, including lemon extract, orange extract, nutmeg and neroli. The true recipe remains a mystery, as Coke decided against patenting it. A risky move, the soft drink behemoth's decision has paid off, protecting its distinctive taste from competitors, who could have made their own version when the patent information was made public, 20 years after its filing. Unfortunately, the decision to avoid a patent didn't protect Coke from two of its own employees who tried to sell the formula to Pepsi. Luckily, they were turned in by Coke's competitor.
Many factors contribute to Google's (GOOG) position as the top search tool for the Web, but the biggest is its proprietary search algorithm, PageRank. Rather than simply ordering sites based on their mention of a particular search term, PageRank factors in the number of links to and from a site; in so doing, it considers not only the site's content, but also its place in the Web. Google's founders Larry Page and Sergey Brin developed PageRank while students at Stanford and the university still owns the algorithm, which it has licensed to Google in return for stock in the company.
Every fast food ad promises a special sauce or the best burger in the business, but when it comes to secret recipes, KFC (YUM) has the lock -- literally. The company's still uses Colonel Sanders' original, hand-written list of eleven herbs and spices, and its security precautions put the Pentagon to shame. In 2008, when the company updated its headquarters, it gave reporters a glimpse behind the curtain. The ingredient list is kept in a computerized vault with two separate locks, alongside vials of the eleven seasonings, and only two executives have access to the full recipe. By comparison, when McDonald's (MCD) substituted a cheaper version of its classic Big Mac "special sauce" in the 1980's, it lost the original recipe, only finding it in 2004, when it decided to switch back to the original.
When Norm Larsen invented WD-40 in 1953, he was looking for a compound that would protect Atlas rockets from rust. The ultimate creation, Water Displacer-40th attempt, has never been patented; the company, like Coca-Cola, wants to protect its formula from the prying eyes of competitors. A few years after he started selling WD-40 directly to consumers, Larsen sold the recipe along with the rest of his company for $10,000. Today, the distinctive spray, with thousands of uses, is used by an estimated 80% of all American homes.
In continuous publication since 1942, TheNew York Times' (NYT) best seller list is the top book-rating system in the U.S. While it is known that the paper polls thousands of chain bookstores, independent bookstores and wholesalers, the actual mechanics of the list are unknown, as release of the details could enable publishers to manipulate sales data. Over its history, the best seller list has run into a few battles with authors and retailers: in 1983, Exorcist author William Peter Blatty unsuccessfully sued the Times for $9 million, citing lost revenues when the list refused to acknowledge his novel Legion. Sixteen years later, the Times again found itself in court when online retailer Amazon began using the list to promote its sales. The two ended up settling: in return for sharing its sales figures with the Times, Amazon got to use the best seller list.
When engineer Andy Hildebrand originally developed software for mapping underground oil deposits, he had no idea that it could correct pitch a musical recording. Yet, since its the 1990's, the program has become a popular tool for producers. Originally employed for creative effects -- as in Cher's 1998 hit, "Believe" -- it is now largely used to perfect the pitch of off-key singers. Some musical acts, including Loretta Lynne and Death Cab for Cutie, have refused to use pitch correction, but Auto-Tune has become almost ubiquitous in the music industry, yielding huge revenues for its owner, Antares Audio Technologies.
Secret recipes often inspire urban legends: Coke, for example, has been said to contain bugs, while McDonald's once had to deal with a rumor that they used chopped worms in its burgers. One of the most persistent rumors, however surrounds Mrs. Fields' cookies: according to the tale, a customer asked for the company's recipe and was told that she would have to pay "two fifty" for it. She agreed, assuming that she would have to pay $2.50, only to find that she was actually billed $250. In revenge, she allegedly passed the recipe around in order to devalue it. Later, the company's owner, Debbie Fields, publicly denounced the rumor, stating that she has never sold her recipe and it remains secret. Today, the urban legend has shifted slightly, claiming that Neiman Marcus is the overcharging culprit.
Many alcoholic beverages claim a unique recipe, but few have the complexity or history of Chartreuse, the pale green liqueur produced by France's Carthusian monks. Made from distilled alcohol and 132 secret extracts, Chartreuse dates back to 1605, although the recipe has changed over the years. The monks' biggest competitor has probably been the French government, which expelled them in 1793 and again in 1903. The second time, the monks moved to Spain and began making a version of their famous liqueur; meanwhile, a corporation took over the monastery and began churning out an ersatz "Chartreuse" before going out of business. In 1935, the monks came back to France, and have been making Chartreuse continuously since then. To this day, only two monks are allowed to know the recipe at any given time.
Sometimes, a secret recipe isn't a single ingredient, but rather the perfect balance of hundreds of little details. At least, that's the claim of Starwood Hotels and Resorts (HOT): the company, which owns the upscale Westin hotel chain, filed suit in April 2009 when two of its former employees jumped ship to work for competitor Hilton. According to the suit, which is still in court, the two executives stole over 100,000 files that would enable Hilton to duplicate Westin's luxury style.
Why do standards-setting organizations charge so much for code books -- and why do they threaten such high fines for copying? To Goldman, the answer is simple: "As far as I can tell, there's no reason, apart from profiteering on the part of the organizations that render this service."
But not everybody sees the problem in such black-and-white terms. Thomas Bruce, director of Cornell's Legal Information Institute, notes that creating codes and standards isn't cheap: "The standards-setting organizations develop these codes at some expense to themselves," he explains. "They have to do extensive testing, writing and editing."
On the other hand, Bruce also admits that there is a definite problem with denying public access to the law. As he puts it, "A very real problem is that people can find themselves being held legally accountable for access to information for which they have to pay a fee."
To make things worse, the cost to access many codes has gone up, raising questions about where the money is going. Ideally, standards-setting groups like the NFPA or the SAE would use the money generated by their publishing wings to fund their testing and development programs, with little cash left over. In reality, though, Bruce notes, "It's reasonable to ask how many of these standards-setting organizations are becoming profit centers."
Commerce vs. Democracy
Ultimately, the question of access to codes translates into a battle between the democratic ideal of free access to the law and the very real -- and very high -- cost of developing these codes. If standards-setting groups were forced to publish their work for free, then there would be little economic reason for them to continue the high-cost process of developing codes. Or, as Thomas Bruce puts it, "If we take an ideological position and assume that we want total access to these standards, we have to ask how we shift the cost of producing them."
The obvious answer is that, if private organizations were no longer able to produce standards, the federal government would fill the gap, at some expense to taxpayers. But Jim Shannon, president and CEO of the NFPA, argues that the financial costs would be the least of the problems with federally-produced standards. A much bigger concern, he claims, would be the loss of an efficient, independent, and highly responsive standards-setting body.
The National Fire Protection Agency, Shannon's group, brings together more than 5,000 employees and volunteers to produce and test its standards. Representatives of all interested parties -- including manufacturers, consumers, the government, and other groups -- take part in the code-creation process. But while the NFPA draws from a wide variety of shareholders, it isn't dependent upon any of them for its funding, which means that it can maintain complete independence.
That's radically different from government organizations, like the FDA and the SEC, whose regulations generally bear the fingerprints of an army of well-paid lobbyists. And, unlike the food, drug and financial industries, which have been riddled with scandals and corruption, the NFPA's standards have proven quite successful, at least for the 150 countries -- including the United States -- that have adopted them. "It's a classic example of a public/private partnership that works," Shannon argues.
Much Ado About Nothing?
But what about access to the law? According to Shannon, the issue has been greatly overblown. Far from the high-priced barrier to legal access that Public.Resource.Org claims, he notes that the NFPA actually goes to great lengths to ensure that the public is able to access all of its codes at low cost: "We have put our codes and standards on the Internet in a read-only format. People can access them for free, but can't download or print them out."
Shannon argues that the NFPA's system works well for all of its shareholders.
"We don't get complaints from states, experts, agencies, or really even the public," he says. "We do hear complaints from third-party groups that want free information in the abstract." But while their argument is abstract, Public.Resource.Org's push for free publication of standards, Shannon notes, would have very real impacts: "It would destroy a system that has worked for 100 years. The consequences would be huge."
A Bad Example
In some ways, the NFPA represents an ideal example of a standards-setting body. The Fire Code, their main publication, is an exhaustive, 668-page compendium of fire protection requirements, updated every three years. It costs $82, but -- as Shannon notes -- is available online for free. What's more, it is self-funding: Proceeds from its sale pay for its development, as well as public education, advocacy work and lobbying for stricter safety standards.
But the practices of some standards-setting bodies are a bit more questionable. For example, the U.S. Green Building Council, a nonprofit group that creates the standards for environmentally-sustainable buildings, charges quite a bit more for its materials. For example, the group's main publication -- the 645-page LEED Reference Guide for Green Building Design and Construction -- costs $195, more than twice the price of the Fire Code, and the data isn't available for free online.
This wouldn't be a major problem, if not for the fact that all new work on every federal building must meet the LEED gold standard. In other words, if an engineer, architect, contractor -- or even Public.Resource.Org's ideal civilian who wants to take a peek under the hood of America's laws -- would like to know about the legal requirements for a government building, he or she would have to pay a premium for the information. Tristan Roberts, editorial director of BuildingGreen, points out the basic rules are available online for free, but they lack a lot of key information. "You'd be crazy to try to certify or construct a LEED building without the reference guide," he says
Surprisingly, Public.Resource.Org has not chosen to target the USGBC. They have, however, taken aim at Underwriters Laboratories, an organization whose standards aren't actually codified into the law.
Ultimately, Public.Resource.Org's quest for the disclosure of all our laws is certainly worthwhile, but their targets seem to be cherry-picked for maximum political impact, regardless of whether or not the groups involved are actually obscuring the law. And, with organizations like NFPA working to balance ease of access with protection for their intellectual property, it's worth asking if Public.Resource.Org's quest is a constitutional crusade or a bit of political positioning.
Public.Resource.Org refused our request for comment.
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at email@example.com, or follow him on Twitter at@bruce1971.