Trade Secret Definition

Under state and federal law, a trade secret generally:

• is information that has either actual or potential independent economic value by virtue of not being generally known;

• has value to others who cannot legitimately obtain the information; and

• is subject to reasonable efforts to maintain its secrecy.

All three elements are required; if any element ceases to exist, then the trade secret will also cease to exist. Otherwise there is no limit on the amount of time a trade secret is protected.

Protection of Trade Secrets under Federal Law

The federal Economic Espionage Act of 1996 criminalizes trade theft under two sets of circumstances. Economic espionage refers to the theft of a trade secret “intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent.”

The second offense—the theft of trade secrets—addresses theft “that is related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret.”

These crimes are prosecuted by the Department of Justice (DOJ) and are punishable by imprisonment and fines. The Economic Espionage Act is located in the United States Code, beginning at 18 U.S.C. §1831.

The federal Defend Trade Secrets Act of 2016 (DTSA) amended the Economic Espionage Act to establish a private civil cause of action for the misappropriation of a trade secret. See 18 U.S.C. §1836. This cause of action provides trade secret owners with a uniform, reliable, and predictable way to protect their valuable trade secrets anywhere in the country.

The DTSA does not preempt existing state trade secret law—giving trade secret owners the option of state or federal venues.

U.S. courts can protect a trade secret by (a) ordering that the misappropriation stop; (b) ordering that the secret be protected from public exposure; and (c) in extraordinary circumstances, ordering the seizure of the misappropriated trade secret. At the conclusion of a trade secret case, courts can award damages, court costs, reasonable attorney fees, and a permanent injunction, if warranted.

Trade Secrets v. Patents

Trade secret protection is a complement to patent protection. Patents require the inventor to provide a detailed and enabling disclosure about the invention in exchange for the right to exclude others from practicing the invention for a limited period of time. Patents expire, and when that happens the information contained within is no longer protected.

But unlike trade secrets, patents may protect against independent discovery. Patent protection also eliminates the need to maintain secrecy.

While the definition of protectable “information” is very broad under trade secret law, there are more limitations on what can be protected by a patent. If a given invention is eligible for either patent or trade secret protection, then the decision on how to protect that invention depends on business considerations and weighing the relative benefits of each type of intellectual property protection.

State Laws

Most states have enacted the Uniform Trade Secrets Act (UTSA) and it is located in each state’s statutes. The UTSA’s definition of a trade secret is similar but not identical to the definitions in the federal statutes.

Inevitable Disclosure Doctrine

Even among states that have adopted the UTSA, the courts in some states have adopted the inevitable disclosure doctrine, which allows a trade secret owner to prevent a former employee from working for a competitor if there is a risk the trade secrets could be disclosed. But some states—such as California—have rejected the inevitable disclosure doctrine.

And under federal law, the DTSA expressly rejects the inevitable disclosure doctrine.

In South Dakota, a trade secret is defined as information that is not generally known or readily ascertainable, has economic value from not being generally known, and is the subject of reasonable efforts to maintain its secrecy. This definition aligns with the general criteria for trade secrets recognized nationally. Under federal law, the Economic Espionage Act of 1996 criminalizes the theft of trade secrets, particularly when benefiting foreign entities or any economic benefit other than the owner's. The Defend Trade Secrets Act (DTSA) of 2016 further allows for civil action in cases of trade secret misappropriation and provides for legal remedies such as injunctions and damages, while still respecting state laws. Unlike patents, which require public disclosure and have a limited term, trade secret protection does not expire as long as the secrecy is maintained. South Dakota, like most states, has adopted provisions similar to the Uniform Trade Secrets Act (UTSA), which offers a framework for legal recourse in cases of trade secret misappropriation. The state does not necessarily adhere to the 'inevitable disclosure doctrine,' which is not recognized under the DTSA, and its application can vary significantly from one state to another.