Trade Secrets

Introduction

Trade secret law protects confidential business information that provides a competitive advantage. Unlike patents, copyrights, and trademarks —which are based on federal statutes —trade secret law is primarily state law, though the Defend Trade Secrets Act (DTSA) of 2016 created a federal civil remedy. Trade secret protection extends to formulas, processes, methods, compilations, programs, devices, and business information that derive independent economic value from not being generally known.

Definition of a Trade Secret

The Uniform Trade Secrets Act (UTSA) , adopted by most states, defines a trade secret as information that: derives independent economic value from not being generally known or readily ascertainable; and is the subject of reasonable efforts to maintain its secrecy. The DTSA adopted a similar definition, adding that the information must be related to a product or service used in or intended for use in interstate or foreign commerce.

Reasonable measures to protect secrecy include confidentiality agreements, restricted access, password protection, employee training, and physical security. There is no fixed standard for what constitutes reasonable measures; the analysis depends on the nature of the information and the circumstances of the business.

Misappropriation

Misappropriation under the UTSA includes: acquisition of a trade secret by improper means; or disclosure or use of a trade secret without consent by a person who used improper means to acquire it, knew or had reason to know it was derived from improper means, or had a duty to maintain its secrecy.

Improper means include theft, bribery, misrepresentation, breach of duty to maintain secrecy, and espionage. Reverse engineering and independent discovery are proper means of acquiring information and do not constitute misappropriation.

The Defend Trade Secrets Act

The DTSA (18 USC §§ 1836-1841) created a federal civil cause of action for trade secret misappropriation. The DTSA does not preempt state law; plaintiffs may choose to bring claims under either federal or state law. The DTSA provides for ex parte seizure orders to prevent the dissemination of misappropriated trade secrets.

The DTSA also includes whistleblower immunity provisions that protect individuals who disclose trade secrets to the government in confidence for the purpose of reporting a violation of law. Employers must provide notice of this immunity in any agreement that governs the use of trade secrets.

Inevitable Disclosure Doctrine

The inevitable disclosure doctrine allows a court to enjoin a former employee from working for a competitor when the employee’s new position would inevitably lead to the disclosure of trade secrets. The doctrine is controversial because it effectively imposes a noncompete obligation without an express agreement.

Courts that recognize the doctrine require proof that the former employee possesses trade secrets, that the new position is substantially similar to the old one, and that the employee cannot perform the new job without relying on the trade secrets. The doctrine is applied most frequently in cases involving highly specialized technical knowledge.

Remedies for Misappropriation

Remedies for trade secret misappropriation include injunctive relief (including preliminary and permanent injunctions), damages for the actual loss caused by the misappropriation and the unjust enrichment caused by the misappropriation, and, in cases of willful and malicious misappropriation, exemplary damages up to twice the compensatory damages and attorney’s fees.

Conclusion

Trade secret law protects valuable confidential business information through a framework that emphasizes reasonable secrecy measures and remedies for misappropriation. The DTSA provides a federal cause of action, complementing state law under the UTSA. The inevitable disclosure doctrine and the availability of ex parte seizure orders provide powerful tools for trade secret protection.