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trade secrets

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 Texas, a trade secret is defined as information that has economic value from not being generally known, has value to others who cannot legitimately obtain it, and is subject to efforts to maintain its secrecy. This definition aligns with both state and federal law. The Economic Espionage Act of 1996 criminalizes the theft of trade secrets, especially if it benefits a foreign entity or if it relates to products or services used in commerce. The Defend Trade Secrets Act of 2016 (DTSA) allows for a private civil cause of action for trade secret misappropriation and does not preempt state laws, allowing owners the choice of state or federal venues for their cases. U.S. courts can issue various orders to protect trade secrets, including injunctions and damages. Trade secrets differ from patents in that they do not expire and do not require disclosure, but they do not protect against independent discovery like patents do. Texas, along with most states, has enacted the Uniform Trade Secrets Act (UTSA), which has a similar definition of trade secrets. However, the DTSA explicitly rejects the inevitable disclosure doctrine, which some states' courts have used to prevent former employees from joining competitors when there is a risk of trade secret disclosure.

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