Intellectual Property Using Trade Secrets

By Hannah Walton

What is a trade secret?

According to the Uniform Trade Secrets Act (UTSA), “a trade secret is defined as information that derives independent economic value because it is not generally known or readily ascertainable, and it is the subject of efforts to maintain secrecy”.[1] Examples of trade secrets include a special sauce recipe, a software algorithm, or a client list.

The United States Patent and Trademark Office, requires that significant effort be made by trade secret owners to keep the information confidential. Limiting access to the trade secret, requiring confidentiality agreements, and reviewing employee activity related to the trade secret are all examples of reasonable effort that trade secret owners could take.4

It is important to note that trade secrets can be stolen or misused by employees or competitors. “If a competitor, journalist, or blogger gets hold of the trade secret, the information may be put to use immediately. Once a trade secret becomes public, its status as a trade secret may be lost”.1

State vs Federal Trade Secret Laws

State courts have jurisdiction over trade secret claims and the USTA provides protection for trade secrets at the state level. Under the USTA, trade secret owners have the ability to sue and receive damages for stolen and misappropriated trade secrets.[2] Despite the fact that most states have adopted the USTA, each state enforces trade secret laws differently.

One specific example of the way that states enforce trade secret laws differently, is how each state applies the inevitable disclosure doctrine. The inevitable disclosure doctrine allows a company to stop a former employee from taking a new job with a competing company because of a fear of exposing trade secrets.[3] In Arkansas courts, the company must show evidence that the former employee will “in all probability” reveal trade secrets.3 On the other hand, the state of California does not uphold the inevitable disclosure doctrine because of public policies that promote employees moving between jobs.

On the federal level, trade secrets are protected through the Economic Espionage Act (EEA). Under the EEA, the theft of a trade secret can result in fines and prison sentences of up to fifteen years.[4] State and federal trade secret laws overlap through the EEA and the USTA by allowing cases that meet the diversity jurisdiction requirement the ability to be argued in federal court.

Examples of a diversity jurisdiction include lawsuits that amount to more than $75,000 in damages and cases with citizens living in two different states.2 In addition to this, trade secret claims that deal with interstate or foreign commerce can be argued at the federal level.

Trade Secret Protection vs Patent Protection 

Inventors have the option to secure their work under trade secret protections or patent protections. “A fundamental function of a patent is to disclose information to the public, but depending on the innovation in question and the needs of the trade secret owner, patent and trade secret protections can be complementary”.4

Patent owners with inventions that cannot be patented but still need to be protected and confidential, for example software codes or operating manuals, might find that trade secret protections are more beneficial. While patent protection expires after twenty years, trade secret protections do not expire. Another benefit of trade secret protections for patent owners is that trade secrets do not need to be registered and accepted by a government agency.

Finally trade secrets are very broad, while patent laws follow strict requirements about what can be patented.4 In conclusion, both state and federal trade secret laws create important protections for businesses and are a significant part of intellectual property arsenal of owners and inventors.

[1] https://www.justia.com/intellectual-property/trade-secrets/

[2] https://sgp.fas.org/crs/secrecy/IF12315.pdf

[3] https://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1187&context=iplr

[4] https://www.uspto.gov/sites/default/files/documents/tradesecretsiptoolkit.pdf