What Are Trade Secrets and How to Protect Them

Trade secrets are business information and data that derive economic value from the fact that they are kept confidential and secret. Under both federal and state laws, if an owner takes “reasonable” steps to protect the information/data, then legal action can be taken against anyone who steals — misappropriates — the information/data. Trade secrets can be exotic or mundane. An exotic trade secret might be something like a “secret formula” while a mundane trade secret might be data maintained on a spreadsheet containing client/customer names and contact information. As noted, the key to being legally protected is that there is some commercial value created by the fact that the information/data is kept secret.

In general, trade secret protection does not extend to information/data that is in the public domain. Thus, trade secret protection can be lost if previously secret information is voluntarily disclosed or allows open access to the information/data. For this reason, information/data that forms the foundation for the grant of a patent cannot be a trade secret since the information/data had to be publicly disclosed in the patent application. Allowing free access to trade secrets will also “destroy” a trade secret. In one reported case, the owners of various trade secrets about their business method/model disclosed that information in numerous Zoom teleconference meetings. However, the company had no effective controls on who participated in the Zoom teleconferences. Allowing such free access was considered to be a voluntary disclosure to the public by the court.

How to Protect Trade Secrets

From these principles, several methods of protecting trade secrets become obvious. These include:

Establish protocols for physical security and cybersecurity — an overly lax or laissez faire approach to physical security and/or cybersecurity can be deemed a form of voluntary disclosure or can be deemed as some evidence that the data/information was never considered “secret”
Limit authorized access — obviously, the general public should not have access to trade secrets and neither should every employee at the company; limit the number of people who have authorized access to trade secrets; only those that need access should have access
Use nondisclosure and confidentiality agreements when trade secrets are disclosed — all persons being allowed access to trade secrets should be signing such agreements; this prevents a court from holding that trade secret protection was “lost” due to voluntary disclosure

Within each of these broad categories, there are more specific policies that should be established. For example, with respect to physical security, a company should identify where trade secrets are located like in filing cabinets, in computer systems or on mobile electronic devices. Physical, remote and wireless access to the location of the trade secrets should be controlled and policed. Among other things, this entails knowing to whom a mobile device, for example, has been given and ensuring that the device is returned when the employee no longer needs access to it or if the employee is separated from the company. As another example, confidentiality agreements should include training on how not to accidentally disclose trade secrets to third parties. If you have questions about protecting your trade secrets or if you need to initiate trade secret litigation, contact the trade secret lawyers at Revision Legal at 231-714-0100.

Federal Law: The Defend Trade Secrets Act

Prior to 2016, trade secret claims were governed exclusively by state law — specifically, most states had adopted versions of the Uniform Trade Secrets Act (“UTSA”). The Defend Trade Secrets Act of 2016 (“DTSA”), 18 U.S.C. § 1836, created a federal civil cause of action for trade secret misappropriation for the first time. This was a significant development because it allows trade secret owners to bring claims in federal court without requiring diversity jurisdiction or a separate federal law violation.

The DTSA defines a trade secret broadly to include all forms and types of financial, business, scientific, technical, economic, or engineering information where the owner has taken reasonable measures to keep it secret and the information derives independent economic value from not being generally known. This is consistent with but somewhat broader than the Uniform Trade Secrets Act definitions used in most states.

Under the DTSA, a court may grant an ex parte order — without advance notice to the defendant — to seize property necessary to prevent propagation or disclosure of a trade secret. This is a powerful remedy available in cases where the misappropriating party might destroy or transfer the stolen trade secrets before a hearing can be held. The DTSA also provides for exemplary damages of up to two times the actual damages award and attorneys’ fees in cases of willful and malicious misappropriation.

Employee Mobility and Trade Secret Risk

Employee mobility is the most common vector for trade secret misappropriation. When a key employee leaves to join a competitor — or to start a competing business — the risk that they will take confidential information with them is real and substantial. Forensic investigations of departing employees’ devices frequently uncover large-scale downloads of customer lists, pricing data, technical specifications, and strategic plans in the days and weeks before resignation.

Several legal tools are available to protect against this risk:

Non-compete agreements — Where enforceable under state law, non-compete agreements restrict a former employee from working for competitors for a defined period. Enforceability varies dramatically by state. California, North Dakota, and Minnesota have near-total bans on non-competes. Most other states enforce them if they are reasonable in scope, duration, and geography. The FTC issued a rule in 2024 purporting to ban most non-competes nationally, though that rule has faced legal challenges.
Non-solicitation agreements — These restrict former employees from soliciting the company’s customers or employees for a defined period. They are generally more readily enforceable than non-competes because their scope is narrower.
Non-disclosure agreements (NDAs) — A carefully drafted NDA, signed at the start of employment and reinforced through the employment relationship, is essential. The NDA should define trade secrets with specificity, identify the employee’s obligations during and after employment, and provide for injunctive relief without bond in the event of breach.
Return-of-property obligations — Employment agreements and separation agreements should contain explicit obligations to return all company property — including electronically stored information — upon separation.

Trade Secret Litigation: What to Expect

When trade secret misappropriation is discovered, time is critical. Delay in seeking legal relief can result in further dissemination of the stolen information and can undermine the strength of a claim for injunctive relief. The typical trade secret litigation begins with a demand letter followed by a motion for a temporary restraining order (“TRO”) and preliminary injunction if the defendant does not voluntarily cease the misappropriation.

To prevail on a preliminary injunction, the trade secret owner must demonstrate: (1) a likelihood of success on the merits; (2) a risk of irreparable harm absent an injunction; (3) that the balance of harms favors an injunction; and (4) that the public interest supports an injunction. Courts have generally been willing to grant preliminary injunctions in well-documented trade secret cases involving clear misappropriation and demonstrable competitive harm.

Before filing suit, it is important to clearly identify the specific trade secrets at issue and the specific evidence of misappropriation. Vague or overbroad descriptions of trade secrets will doom a claim. Courts require trade secret plaintiffs to identify their trade secrets with reasonable particularity — general categories will not suffice.

If your business has trade secrets at risk or if you have discovered potential misappropriation, contact the trade secret lawyers at Revision Legal at 231-714-0100 immediately.