What is a Trade Secret in the U.S.

A trade secret is any information that provides a business with a competitive advantage and is kept confidential. Trade secrets can be a wide variety of information, from formulas and processes to business strategies, customer lists, or software code. They are protected by law as long as the business takes reasonable steps to maintain their secrecy.

In the U.S., trade secret protection is governed by both state laws and the federal Defend Trade Secrets Act (DTSA), which was passed in 2016.

Key Elements of a Trade Secret

For information to qualify as a trade secret, it generally must meet the following criteria:

1. Economic Value:
   The information provides the owner with a competitive advantage because it is not generally known or easily accessible by others in the industry.
2. Secrecy:
   The trade secret is kept confidential and is not disclosed to the public. The owner must take reasonable measures to maintain its secrecy, such as using non-disclosure agreements (NDAs) or restricting access to the information.
3. Reasonable Efforts to Maintain Secrecy:
   The owner must take reasonable steps to protect the secrecy of the information, such as using physical, technical, and administrative safeguards. These may include:
   • Restricting access to certain employees.
   • Implementing cybersecurity measures.
   • Marking documents as confidential.
   • Using confidentiality agreements.

Legal Protection for Trade Secrets in the U.S.

1. State Law (Uniform Trade Secrets Act – UTSA):
   Most U.S. states have adopted some form of the Uniform Trade Secrets Act (UTSA), which provides a uniform set of rules for the protection of trade secrets. Under state law, if someone misappropriates a trade secret (e.g., stealing or disclosing it without permission), the owner can sue for damages.
2. Federal Law (Defend Trade Secrets Act – DTSA):
   The DTSA, passed in 2016, provides a federal remedy for trade secret theft, making it easier for businesses to bring trade secret misappropriation cases in federal court. The DTSA allows for:
   • Civil lawsuits: Companies can sue for the misappropriation of trade secrets in federal court.
   • Injunctions: Courts can issue injunctive relief to stop the theft or disclosure of trade secrets.
   • Ex parte seizure: In certain cases, the court can seize trade secret material before the defendant is notified, to prevent further damage.
3. Criminal Penalties:
   Under both the Economic Espionage Act (EEA) and the DTSA, trade secret theft can result in criminal penalties:
   • Individuals may face up to 10 years in prison and fines.
   • Corporations can face fines of up to $5 million.

Examples of Trade Secrets

• Formulas and Recipes: Famous examples include the Coca-Cola formula and KFC’s secret blend of herbs and spices.
• Manufacturing Processes: Information on how to produce a product efficiently or at a higher quality.
• Business Strategies: Marketing strategies, customer data, or pricing plans that give a business a competitive edge.
• Software Code: Proprietary algorithms, source code, or design elements that are kept confidential.

Trade Secret vs. Patents

• Trade Secrets: Trade secrets provide protection for as long as the information remains secret. They are not disclosed publicly, which means the owner does not need to file with the government, but once disclosed, the protection is lost.
• Patents: In contrast, patents provide exclusive rights for a limited period (usually 20 years) but require the invention to be publicly disclosed. A patent owner must file an application with the USPTO, and the information becomes publicly available once granted.

Misappropriation of Trade Secrets

If someone steals or discloses a trade secret without authorization, it can be considered misappropriation, and the trade secret owner may take legal action. Misappropriation can occur in many ways, such as:

• Employee Disloyalty: Employees who take trade secrets when leaving a company or starting a new job.
• Industrial Espionage: Competitors who unlawfully acquire trade secrets through hacking or other means.
• Breach of Confidentiality: Someone who discloses trade secrets to third parties in violation of a non-disclosure agreement (NDA).

Key Takeaways

• A trade secret is confidential information that gives a business a competitive edge.
• Trade secrets are protected by state law (through the Uniform Trade Secrets Act – UTSA) and federal law (the Defend Trade Secrets Act – DTSA).
• To qualify as a trade secret, the information must be valuable, kept secret, and subject to reasonable efforts to protect it.
• Misappropriation of trade secrets can result in civil lawsuits and criminal penalties.

Trade secrets are an important form of intellectual property, especially for companies in competitive industries like technology, manufacturing, and food and beverage. Maintaining their secrecy is critical to preserving the value of the business.