In the USA, trade secrets are protected by the following:

• federal trade secret law, the Defend Trade Secrets Act (DTSA);
• individual state laws modelled after the Uniform Trade Secrets Act (UTSA); and
• common law protection in New York, which is the only state that has not yet adopted a version of the UTSA.

Prior to adopting some variation of the UTSA, most states had relied on common law trade secret protection, which was summarised in the Restatement of Torts Section 757. In 1979, the UTSA was promulgated by the Uniform Law Commission (ULC) as a model act that each state could use as a template for enacting its own trade secret legislation. In 1985, the UTSA was significantly amended to resolve issues with the 1979 version and better align it with the variations adopted by the states. In 2016, the DTSA was passed to enhance federal protection of trade secrets.

An individual or corporate entity may bring claims under the DTSA and a state’s trade secret law simultaneously because the DTSA does not pre-empt state trade secret laws. The UTSA, however, contains a pre-emption clause that displaces common law trade secret causes of action.

In general, a trade secret consists of commercially valuable information that is valuable because of its secrecy. A trade secret also has to satisfy a minimum standard of novelty to avoid being unprotected common knowledge.

Under the DTSA, a trade secret includes “all forms and types of financial, business, scientific, technical, economic, or engineering information” (18 USC Section 1839(3)).

Under the UTSA, a trade secret is information in the form of a “formula, pattern, compilation, program, device, method, technique, or process” (UTSA Section 1(4)).

Under the common law, a trade secret is “any formula, pattern, device or compilation of information which is used in one’s business, and which gives [the business] an opportunity to obtain an advantage over competitors who do not know or use it” (Restatement of Torts Section 757, Comment b).

Examples of a trade secret under the DTSA and state trade secret laws modelled after the UTSA include:

• marketing and advertising research (Whyte v Schlage Lock Co, 101 Cal App 4th 1443, 1455–56 (2002));
• process and manufacturing technologies (see above reference);
• formulas and methods (see above reference);
• cost- and pricing-related information (Walker Mfg, Inc v Hoffmann, Inc, 261 F Supp. 2d 1054, 1080 (N.D. Iowa 2003));
• business plans and information, sales strategies and financial information (Avery Dennison Corp v Kitsonas, 118 F Supp 2d 848, 854 (S.D. Ohio 2000));
• source code (Wellogix, Inc v Accenture, LLP, 716 F 3d 867, 875 (5th Cir. 2013));
• internal design and software architecture documents (TouchPoint Solutions, Inc v Eastman Kodak Co, 345 F Supp 2d 23, 28 (D. Mass. 2004)); and
• customer lists (Fireworks Spectacular, Inc v Premier Pyrotechnics, Inc, 86 F Supp 2d 1102, 1106 (D. Kan. 2000)).

Examples of a trade secret under the common law, which is still the applicable law in New York and continues to be persuasive precedent in UTSA states, include “any formula, pattern, device or compilation of information which is used in one’s business”, such as pricing-related information, customer lists, or source code (Restatement of Torts Section 757, Comment b; Laro Maint Corp v Culkin, 700 NYS 2d 490, 492 (1999); E Bus Sys, Inc v Specialty Bus Sols, LLC, 739 NYS 2d 177, 179 (2002); MSCI Inc. v Jacob, 992 NYS 2d 224, 225 (2014)).

DTSA and UTSA

To prevail on a claim of trade secret misappropriation under the DTSA and state trade secret laws, a claimant must prove the following three elements:

• that the claimant owns a trade secret (see discussion below on ownership of trade secrets);
• that the trade secret was misappropriated by the defendant; and
• that the claimant was damaged by the defendant’s misappropriation.

With respect to the first element, a claimant has to prove the existence of a trade secret by showing the following:

• that the owner has taken reasonable measures to maintain the secrecy of the trade secret; and
• that the trade secret derives actual or potential economic value from not being generally known or readily ascertainable through proper means to another who can obtain economic value from the information’s use or disclosure.

Additionally, some state trade secret laws explicitly state that the owner must have taken reasonable measures under the circumstances to maintain the secrecy of the trade secret – for example, see Alta Devices, Inc v LG Electronics Inc, 343 F Supp 3d 868, 877 (N.D. Cal. 2018).

New York

In New York, there are six factors that are generally considered when determining whether a trade secret exists:

• the extent to which the information is known outside of an individual business;
• the extent to which it is known by employees and others involved in their business;
• the extent of measures taken to guard the secrecy of the information;
• the value of the information to the holder and to their competitors;
• the amount of effort or money expended in divulging the information; and
• the ease or difficulty with which the information could be properly acquired or duplicated by others.

Some courts in UTSA states continue to consider these six common law factors in determining whether a trade secret exists, despite having adopted a variation of the UTSA.

In order to prevail on a claim for trade secret misappropriation in New York, a claimant must prove that (i) they own a trade secret, and (ii) the defendant used the trade secret by breaching an agreement, confidential relationship or duty, or through discovery by improper means.

Although ownership is a common element to most state and federal claims, recent trends suggest a claimant may be able to bring a claim for misappropriation under some state trade secret laws where the claimant only demonstrates lawful possession of the trade secret – for example, see Adv Fluid Sys, Inc v Huber, 958 F.3d 168, 177–78 (3d Cir. 2020).

Ownership

Who can “own” a trade secret

In order to bring a trade secret action, one must be an “owner” of the trade secret. The DTSA defines a trade secret owner as “the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed”. 18 U.S.C. § 1839(4). Various states that have adopted the UTSA similarly define trade secret owners. Such a definition may enable both the creator of a trade secret and any assignees or licensees that have rightful possession of the trade secret to bring trade secret misappropriation claims. See – eg, BladeRoom Group Ltd v Facebook, Inc. 219 F. Supp. 3d 984, 990-91 (N.D. Cal. 2017).

Ownership issues may arise in the context of employer-employee relationships where a trade secret was developed by the employee. Many employment contracts provide for the assignment of such trade secrets to the employer under the “work for hire” doctrine. However, states vary in the presumption of assignability of trade secrets developed by employees, and the ”work for hire doctrine” may be limited to cover only those trade secrets that were developed through work performed (i) by the employee for the employer or (ii) using the employer’s information or equipment.

Trade secret owners must generally show that they took reasonable measures to protect their trade secrets. Examples of reasonable measures include:

• warning employees and third parties about the confidential nature of the information through, for example, confidentiality agreements, confidentiality designations on documents, employee training or trade secret policies in an employee handbook;
• password protections and electronic firewalls;
• physically locking confidential information;
• restricting access to physical and electronic areas where trade secrets are stored; and
• minimising the number of people that learn the trade secret.

An employee has an implied duty not to disclose an employer’s trade secret. Disclosing a trade secret to an employee who cannot perform their job without knowledge of the trade secret does not destroy the trade secret. If, however, the trade secret is further disclosed to employees who do not need to know it to perform their jobs, and precautions are not taken to protect the confidentiality of the trade secret, then there may be a risk that trade secret protection will be lost.

Trade secret protection cannot be used against a party who independently discovered or reverse engineered the alleged trade secret. In other words, trade secret misappropriation, unlike patent infringement, is not a “strict liability” offence. Misappropriation would not lie against an independent developer, in part because there was no acquisition from the trade secret owner (nor from another party with an obligation to the trade secret owner).

Similarly, reverse engineering the alleged trade secret from a commercially available product would not be an “improper means” of acquiring the information under trade secret laws (although such activity could violate agreements, such as those imposed by “shrink-wrap” or “click-wrap” licences). Both independent development and reverse engineering suggest that the alleged trade secret is not difficult to properly acquire or duplicate, a factor often considered in evaluating whether trade secret protection is warranted. Independent development and reverse engineering can therefore be valuable defences to a defendant faced with allegations of trade secret misappropriation.

Two parties could conceivably develop the same trade secret independently and without knowledge of the other’s development, and both parties would have independent causes of action against third parties for misappropriation. For the same reasons discussed above, however, neither party would be able to successfully recover against the other for trade secret misappropriation.

Certain aspects of computer software and technology, such as proprietary source code and internal software design and architecture materials, may be protectable trade secrets under the DTSA and various state trade secret laws if the ordinary standards for trade secret protection are met. There are no specific protections that are unique to computer software and/or technology.

Aspects of software that are apparent to an end user, such as the software’s general functionality or user interface, are unlikely to receive trade secret protection unless the end user licence or other agreement imposes an obligation to keep this kind of information secret.

The Computer Fraud and Abuse Act (CFAA) also establishes civil and criminal penalties for knowingly or intentionally either accessing a protected computer (without authorisation) or exceeding the authorised level of access.

Trade secrets may remain protected indefinitely, so long as the trade secret owner maintains the secrecy of the trade secret. Accidental or intentional public disclosure may terminate trade secret protection, but such considerations are generally fact-based inquiries.

Controlled disclosure of a trade secret – eg, for licensing or limited disclosure to third-party vendors and employees for business purposes – generally does not nullify trade secret protection. Owners of trade secrets should accompany any controlled disclosure of their trade secret with non-disclosure agreements, company policies, or alternative safeguards that maintain the confidentiality of the trade secrets.

A trade secret owner has a right to license the trade secret to a licensee through a contract or licensing agreement. The licensee may pay the trade secret owner royalties in exchange for using the trade secret.

The trade secret owner must still take reasonable steps to maintain the secrecy of the trade secret in order to retain trade secret protection. See Turret Labs USA, Inc v CargoSprint, LLC, 2022 WL 701161, at *2–3 (2d Cir. Mar. 9, 2022). For example, the licensing agreement may contain a confidentiality restriction or a non-disclosure provision.

The licensing agreement may require the licensee to pay the trade secret owner royalties even if the licensed information is no longer sufficiently secret to qualify as a trade secret, unless the agreement specifically states otherwise. See Warner-Lambert Pharm Co v John J Reynolds, Inc, 178 F Supp 655 (S.D.N.Y. 1959), aff’d, 280 F 2d 197 (2d Cir. 1960).

One primary difference between patent and trade secret protection is public disclosure. Unlike a trade secret, which does not have to be registered and cannot be publicly disclosed, patents can only be obtained by applying to the United States Patent and Trademark Office. During that process, the patent application and granted patent will be disclosed publicly.

Once the individual’s patent application has been granted, the patent provides a 20-year monopoly right from the filing date of the earliest priority application, after which the patented invention enters the public domain and may be used by anyone.

Because of this mandatory disclosure, protecting information as a trade secret may be preferred to protecting it via patent. One disadvantage, however, is that although they can theoretically be protected indefinitely, trade secrets, unlike patents, can be independently discovered or reverse engineered, after which there may be no further protection.

In the USA, patent, trade mark, copyright, and trade secret are separate and independent forms of legal protection for intellectual property. Plaintiffs can, and do, frequently assert claims under more than one of these legal protections, simultaneously, based on the same or related conduct.

An individual cannot seek both patent and trade secret protection for the same information. They may, however, obtain overlapping rights in a single product, such as protecting the design of the product with a patent, while protecting the composition of the product as a trade secret.

Copyright and trade secret laws may overlap in the computer software field since computer software may receive protection from both.

In addition to federal or state trade secret claims, plaintiffs should consider whether other common law or statutory claims may apply to the conduct at issue, including, for example, breach of contract, tortious interference with contractual relations, unfair competition, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, or unjust enrichment.

That said, many state trade secret laws pre-empt common law and statutory claims to the extent they are based on the same facts and/or underlying conduct as the trade secret claims.

Responsibility for enforcing criminal laws directed to trade secret theft and related activity rests with prosecutors at both the federal and state levels. While trade secret owners cannot pursue criminal claims as of right, they should consider whether to refer suspected or known trade secret theft to the Department of Justice or a state agency for investigation. The EEA imposes criminal liability, including substantial fines and imprisonment, for intentional or knowing theft of trade secrets. As with many federal criminal statutes, attempts to commit trade secret misappropriation as well as conspiring with others in furtherance of stealing trade secrets are themselves criminal activities, even if the theft is not ultimately successful. Fines for organisations that commit an offence under the EEA can reach up to three times the value of the stolen trade secrets to the organisation, including avoided R&D expenses.

Defendants may avail themselves of defences unique to trade secret law. For example, the DTSA includes a “whistle-blower immunity” provision that shields a person from criminal liability under trade secret laws for disclosing a trade secret in confidence to a government official or an attorney solely for the purpose of reporting or investigating a suspected violation of law.

Separately, the CFAA establishes criminal penalties for knowingly or intentionally either accessing a protected computer (without authorisation) or exceeding an authorised level of access. Penalties include fines and imprisonment, the severity of which may be enhanced if the offence is committed for commercial advantage or financial gain.

The DTSA appears to carry over the EEA’s applicability to conduct outside the USA under certain circumstances. The simplest hook for extraterritorial application is if the misappropriator is a person who is a citizen or lawful permanent resident of the USA or an organisation that is organised under the laws of the USA or one of its states.

The DTSA may also have extraterritorial reach even if the misappropriator does not meet either criteria, as long as an act in furtherance of the offence was committed in the USA. Courts are just beginning to grapple with the contours of extraterritorial application of the DTSA, so the precise parameters are not entirely clear. So far they have been willing to apply the DTSA to misappropriation occurring overseas based on “acts in furtherance” that occurred in the USA, including marketing of products embodying the stolen trade secrets at trade shows within the USA and travel to the USA for the purpose of hiring a competitor’s engineers. See Motorola Solutions Inc v Hytera Communications Corp, 436 F Supp 3d 1150, 1157–66 (N.D. Ill. 2020); Micron Technology Inc v United Microelectronics Corp, 2019 WL 1959487, at *3–4 (N.D. Cal. May 2, 2019). 

On the other hand, loss of domestic revenues from entirely extraterritorial activity may not be alone sufficient to bring alleged misappropriation within the reach of the DTSA. See Luminati Networks Ltd v BIScience Inc, 2019 WL 2084426, at *9–10 (E.D. Tex. May 13, 2019). The ability of domestic trade secret owners to redress theft by foreign companies and those in their employ will therefore depend greatly on the facts of each particular case.

The DTSA and UTSA both define misappropriation as the “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means or disclosure or use of a trade secret of another without express or implied consent” (18 USC Section 1839(5); Uniform Trade Secrets Act Section 1(2)).

Improper means include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means,” but do not include lawful means of acquisition such as reverse engineering or independent discovery (18 USC Section 1839(6); Uniform Trade Secrets Act Section 1(1)).

There is an implied confidential relationship between employers and employees, such that the employee is obligated not to disclose the employer’s confidential information (Restatement (Third) of Unfair Competition Section 42, Comment b (1995)).

Disclosing a trade secret to employees does not typically constitute public disclosure resulting in the termination of the trade secret, given that employees have a fiduciary duty to maintain the secrecy of the trade secret. Even if there is no express contractual term in an employment agreement prohibiting the employee from disclosing the trade secret, the employee still has an implied duty to maintain the secrecy of the trade secret.

If, however, the trade secret is disclosed to employees who do not need knowledge of it in order to perform their jobs, and precautions are not taken to prevent those employees from disclosing the trade secret, then the trade secret protection may be terminated. Thus, it is a beneficial precaution to require an employee, in express contractual terms, not to disclose the employer’s trade secrets.

Entities that participate in a joint venture owe each other a fiduciary duty not to disclose their trade secret during the joint venture. Nevertheless, it is best practice to create a contract between the owners of the joint venture that requires them to maintain the secrecy of the trade secret both during the joint venture and after its dissolution. Alternatively, a joint venture might involve a company licensing its trade secret to a third-party company. Again, in this scenario, it is best practice for the company with the trade secret to require the third party to sign a contract stating that the third party will not disclose the company’s trade secret, rather than relying on any implied duty of confidentiality.

When a company possesses valuable confidential information, industrial espionage is a likely threat. Companies should take as many security measures as practically feasible to restrict access to trade secrets and confidential information. Even internally, the trade secrets should only be available to a limited number of need-to-know employees, and those employees should frequently be reminded of the confidential nature of the trade secret and be required to sign non-disclosure agreements.

If an individual commits an act of industrial espionage, they may be subject to criminal prosecution under the EEA (18 USC Sections 1831–1839), which provides a cause of action against domestic and foreign misappropriation of trade secrets.

The Federal Bureau of Investigation’s Economic Espionage Unit can investigate instances of trade secret theft. There are dedicated units in the US Attorney’s Offices that have the ability to prosecute trade secret espionage.

Common approaches for safeguarding trade secrets include physical, technological and personnel-related means, as follows.

• Physical steps:
1. building access controls;
2. ID security check;
3. security guard monitoring;
4. visitor logs;
5. supervised tours; and
6. labelling confidential information.
• Technological protection:
1. dedicated VPN networks;
2. password protection;
3. multi-factor authentication;
4. access and security audits;
5. penetration testing;
6. spam and phishing email filters; and
7. mobile device management software.
• Personnel:
1. pre-employment screening including determining whether new hires are subject to any non-compete agreements;
2. training;
3. employee handbook that describes the policies on confidentiality and trade secrets; and
4. non-disclosure agreements for each new hire, visitor and third-party vendor/consultant.

It can be useful for an employer to conduct exit interviews of departing employees. Such interviews often incorporate some or all of the following:

• reminding the employee not to disclose any trade secret information;
• reminding the employee to return all company property, including badges, access cards and electronic devices such as laptops or cell phones;
• asking the employee about the nature of their new position, such as any responsibilities, the name of the new employer, and the new employer’s address (although the employee does not have to provide such information);
• asking the employee if they have returned or destroyed electronic and physical copies of company materials;
• asking the employee to sign an affidavit of compliance or a written statement that they will not disclose confidential information or company trade secrets and that they have searched for, located and returned or destroyed all company property; and
• asking the employee if they have any questions regarding the confidentiality of any trade secrets.

An employee’s general knowledge and skills, including those already possessed or learned from a prior job, do not count as trade secrets that the employee is prohibited from using at a subsequent position. When an individual accepts new employment with a competing entity, however, the employee needs to ensure that they only rely on such general knowledge and skill, and do not disclose any trade secrets or confidential information to the new employer.

In some situations, it may be difficult to separate the trade secrets from an employee’s general skills, experience and knowledge. To account for those instances, the common law developed an “inevitable disclosure” doctrine, which recognises that there may be scenarios where the duties of the employee’s new position inevitably require the disclosure of the trade secret from the employee’s former employment. In such a situation, the previous employer may seek an injunction to prevent the employee from working with a subsequent employer at all (or in a directly competitive role) for a specified time (eg, one year).

However, even if such a risk of inevitable disclosure exists, many courts will deny injunctive relief on this basis alone, absent actual proof of misappropriation, preferring a policy of free employee mobility at the early stage of any litigation. These same courts nevertheless often entertain a cause of action for trade secret misappropriation – and even grant permanent injunctions – on a fully developed factual record proving elements of the claim.

When hiring a new employee, there are a number of steps that an employer can take to minimise the risk of a trade secret claim, including the following:

• performing an analysis of the risk of litigation before hiring the employee;
• ensuring that the employee is not placed in a position where they will inevitably rely on and use a former employer’s trade secrets;
• requiring the new employee to sign a non-disclosure agreement and explaining the trade secret confidentiality policy;
• reminding the employee not to disclose any trade secrets or confidential information from prior positions;
• training the employee on trade secret policies;
• requiring a new employee to sign a contract preventing them from disclosing trade secrets and/or confidential information from a previous employer; and
• assessing whether the new employee is subject to a non-compete agreement.

There are no procedural prerequisites or requirements for filing a trade secret misappropriation lawsuit, although a lawsuit may be preceded by a cease-and-desist letter or a period of prior communication between the parties. Whether in anticipation of litigation or not, a trade secret owner may find it useful to send notices to former employees that go on to work for the trade secret owner’s competitors, reminding the former employee of their confidentiality obligations.

The trade secret owner may likewise benefit from sending a notice to the former employee’s new employer, to put the new employer on notice that the former employee had access to the trade secret owner’s confidential information and remains under an obligation to maintain its secrecy.

A complaint alleging trade secret misappropriation under the DTSA, like any pleading in federal court, requires the submitting attorney to conduct a reasonable inquiry before filing, and courts may impose sanctions if the pleading is found to have been presented for an improper purpose, such as harassing the defendant, or if the factual contentions are unlikely to have evidentiary support after a reasonable opportunity for further investigation or discovery; see FRCP 11(b). Most state courts impose similar obligations.

According to both the DTSA and the UTSA, a misappropriation claim must be brought within three years after the misappropriation was discovered or should reasonably have been discovered. The particular facts that can put a trade secret owner on notice of a trade secret misappropriation claim vary but, generally, a trade secret owner should diligently investigate any objectively reasonable suspicions that its trade secrets have been disclosed improperly or used without consent. Another factor to consider when bringing DTSA claims is the timeline of the misappropriation and use of the trade secrets at issue.

Although there is uncertainty in this area, some courts have found that pre-enactment misappropriation may still be redressed by the DTSA if there are instances of use of the trade secrets occurring after enactment. For example, the DTSA is likely still available if the theft of a trade secret occurred prior to 11 May 2016 but the use or disclosure of the misappropriated trade secret occurred after the effective date of the DTSA. See Syntel Sterling Best Shores Mauritius Ltd v TriZetto Grp, Inc, 2021 WL 1553926 (S.D.N.Y. Apr. 20, 2021). If all of the activity constituting the trade secret misappropriation occurred prior to 11 May 2016, however, the trade secret plaintiff may be limited to bringing claims under the UTSA.

An owner of a trade secret may file a complaint under either the DTSA or state trade secret laws (most of which conform to the UTSA) in federal or state court. The DTSA’s jurisdictional element requires the asserted trade secret to be related to a product or service that is used or intended for use in interstate or foreign commerce.

The DTSA and most forms of the UTSA permit three theories of misappropriation: (i) unconsented use, (ii) acquisition, or (iii) disclosure of a trade secret by a party who used improper means to acquire the trade secret, or who knows or has reason to know that the trade secret was acquired by improper means. New York law more narrowly requires that the defendant uses the trade secret in order for a claim to be established.

Another option is to bring a claim of trade secret misappropriation in the United States International Trade Commission (ITC) if products embodying a misappropriated trade secret are imported into the USA. While the ITC cannot award damages for trade secret misappropriation, it does have the authority to exclude imported goods that are produced through the exploitation of misappropriated trade secrets as an “unfair method of competition” or “unfair acts” in violation of the Tariff Act (19 USC Section 1337).

ITC investigations often proceed much faster than district court litigation, and trade secret owners should consider whether the benefit of securing a speedy remedy is offset by the constrained timeline in which to develop the evidence needed to support a finding of misappropriation.

A trade secret claim may be initiated in federal court under the DTSA if the court is capable of exercising personal jurisdiction over the defendant in the chosen forum, and if the venue is proper. State law claims may be appended to a DTSA claim, or brought on their own in federal court if there is complete diversity of citizenship between parties (ie, no plaintiff shares the citizenship of any defendant and vice versa) and the plaintiff alleges an amount in controversy of more than USD75,000. State law claims may also be brought in the state in which the claims arose.

The choice of forum (either the state court or federal courts within the forum state) available to a plaintiff will depend on factors such as where the defendant lives, is incorporated or has significant business operations, and where the alleged acts of misappropriation occurred. A trade secret owner faced with acts of misappropriation by a foreign corporation may need either to sue a local subsidiary of the foreign corporation or to be prepared to show that the foreign corporation has sufficient minimum contacts with the chosen forum state, such as transacting business within the state or competing with the trade secret owner in that state.

Prospective trade secret claimants should also analyse any relevant contracts in order to be aware of any agreements related to specific jurisdictional requirements or admissions or the applicability of any arbitration clauses.

In federal courts, the pleading standards for trade secret misappropriation claims are expressly governed by the notice pleading requirements of the Federal Rules of Civil Procedure. Under those pleading requirements, a trade secret plaintiff will likely be able to survive a motion to dismiss in federal court as long as it alleges sufficient facts to plausibly demonstrate that the information misappropriated constitutes a protectable trade secret, the information derives value from being secret, and the owner took reasonable measures to keep it secret.

An increasing number of state and federal courts have imposed a heightened pleading standard, which requires that the plaintiff identify the asserted trade secret with reasonable particularity before proceeding to discovery. See Torsh, Inc v Audio Enhancement, Inc, 2023 WL 7688583 (E.D. La. 2023). While only California and Massachusetts impose statutory reasonable particularity requirements, the growing consensus among courts towards demanding greater detail in pre-discovery pleadings may expose a plaintiff to unique strategic challenges in terms of articulating the trade secrets that it believes have been misappropriated.

In the growing number of jurisdictions where the plaintiff must identify the misappropriated trade secrets with reasonable particularity before the commencement of discovery, a defendant may argue that the plaintiff’s identification is insufficiently particular, such that the defendant cannot defend against the allegations of trade secret misappropriation and the court will be unable to determine the appropriate scope of discovery.

In such circumstances, a defendant may be able to extract increasingly specific disclosures that narrow the scope of the trade secrets asserted, while staying discovery into the trade secret claims as well as other causes of action based on the same factual allegations. In some jurisdictions a plaintiff may be able to proceed well into discovery with a trade secret identification that is more general, but courts that follow the reasonable particularity standard will generally require a narrative description that provides the defendant sufficient detail to investigate how, if at all, the alleged trade secret differs from information that is publicly known or well-known within the relevant industry. The degree of particularity required is highly context-specific and fact-dependent, and courts have discretion to require a more exacting level of particularity for more complex technologies.

Parties should therefore be prepared to submit sufficient evidence and, in some cases, declarations by expert witnesses to support their contentions as to the sufficiency of the description of the claimed trade secrets.

Although the reasonable particularity requirement is not meant to function as a mini-trial on the merits, a plaintiff who is unable to adequately describe the trade secrets at issue would doubtless encounter difficulties at the summary judgment stage, and therefore the process of obtaining the court’s approval to proceed with discovery can provide a useful stress test of the plaintiff’s misappropriation theories.

The DTSA provides access to a new ex parte civil seizure provision, which allows a court to order seizure of property in order to prevent the further dissemination of the trade secrets at issue (18 USC Section 1836(b)(2)). The movant must demonstrate that extraordinary circumstances justify the seizure, which requires showing – in addition to the elements that ordinarily justify a preliminary injunction or temporary restraining order – that an injunction or other equitable relief would be inadequate to ensure compliance, and if the enjoined party were provided notice it would destroy or render inaccessible the property to be seized.

As part of the merits of the application, the movant must succeed in showing that the information sought to be protected is a trade secret and that the potential subject of the seizure order misappropriated or conspired to misappropriate the trade secret. Although the demanding burden for an ex parte civil seizure under the DTSA suggests this will be an infrequently used tool, the scope of property that may be seized is potentially quite broad compared to civil seizures in other intellectual property enforcement regimes, which are generally limited to the infringing or counterfeit goods themselves.

If the movant succeeds in obtaining an ex parte civil seizure order, the court should hold a hearing within seven days after the order issues. The burden remains on the movant to prove the facts necessary to support the seizure; if the movant fails to meet its burden, the order will be dissolved or modified.

In federal court, once litigation has commenced, the parties can obtain discovery from each other pursuant to the Federal Rules of Civil Procedure. Each state also has its own rules governing discovery. Discovery methods in both state and federal courts typically include the following:

• interrogatories;
• requests for the production of documents and other evidence;
• requests for admissions; and
• pre-trial depositions under oath, either of individuals or of employees designated to testify on behalf of a corporate entity.

In trade secret litigation where the misappropriation of competitively sensitive documents or source code is at issue, the trade secret owner may wish to seek forensic inspection of devices in the possession of the alleged misappropriator or its employees. Moreover, as companies embrace distributed workforces and increasingly rely on novel tools for managing and distributing information, parties seeking discovery should think creatively about information repositories where proof of misappropriation might exist. For example, discovery requests may need to go beyond traditional email and documents and consider cloud storage services, “chat” or other synchronous communication tools such as Slack, collaboration tools or “wikis” such as Confluence or Trello, issue and project tracking tools such as Jira, source code management tools such as GitHub, and virtual meeting recordings such as those generated in WebEx or Zoom.

Plaintiffs will need to strike a careful balance between under-disclosure and over-disclosure regarding the claimed trade secrets. For example, a plaintiff must provide sufficient detail in its complaint to survive a motion to dismiss (see 5.5 Initial Pleading Standards) but must also avoid disclosing trade secret information in a publicly filed complaint or other pleading. Prior to exchanging any sensitive business, technical or financial information, the parties should stipulate to a protective order that limits disclosure of such information to the attorneys of record for each party as well as certain designated persons (such as senior in-house counsel or expert witnesses).

More stringent requirements may be sought for particularly sensitive material, such as software source code or technical schematics. In all circumstances, the trade secret owner should take care to properly designate the material it deems a trade secret, and any descriptions thereof, under the appropriate degree of confidentiality provided by the stipulated protective order. Litigants should pay careful attention to jurisdiction and judge-specific rules for filing materials under seal or with redactions.

Defendants accused of trade secret misappropriation have several strategies available to them, depending on the facts of the case. One particularly strong defence is independent development: if the defendant can show that it relied entirely on its own information or publicly available information in developing the relevant product or service, the plaintiff will not be able to establish that any use of its trade secrets occurred. An advantage of this defence is that the plaintiff’s definition of its own trade secrets is largely immaterial to developing the defence, giving the defendant greater control over the themes and evidence it chooses to present at trial.

In relation, defendants should investigate whether information claimed as part of the plaintiff’s trade secret is already in the public domain, as such information is by definition not protectable as a trade secret. Another possible defence is to show that the plaintiff did not take proper precautions to maintain the confidentiality of the information alleged to be a trade secret. For example, if the information was shared without requiring entry into a non-disclosure agreement, or if the information was widely dispersed without adequate technological controls to keep it secure, the information may not be entitled to trade secret protection.

Parties may bring dispositive motions at several stages of the litigation, including prior to trial and, in some cases, prior to engaging in discovery. Defendants may wish to bring a motion to dismiss at the outset of the litigation if the plaintiff has not met the initial pleading standards (see 5.5 Initial Pleading Standards). If the defect in the plaintiff’s complaint is simply that the trade secrets have not been identified with the requisite degree of particularity, courts often permit the plaintiff to amend its complaint or provide a confidential statement identifying its trade secrets in greater detail.

After discovery has concluded, parties often move for summary judgment on claims or issues for which there are no material facts in dispute and the movant would be entitled to judgment as a matter of law. Motion practice at this stage has the effect of simplifying the issues for trial, if not avoiding trial altogether. If the case proceeds to trial, a party may seek judgment as a matter of law after the opposing party has presented its case at trial if the opposing party has failed to introduce evidence supporting a reasonable conclusion in its favour.

Litigation costs arise at every stage of the case, from the filing of a complaint to discovery to trial. Litigation costs will vary depending on the types and complexity of the trade secrets at issue, the amount and types of discovery required, the number of witnesses to depose or to prepare for depositions, the number of expert witnesses involved, and many other factors.

Costs tend to be high in trade secret cases. For example, a 2021 survey by the American Intellectual Property Law Association discovered that the median cost of trade secret cases with USD10 million to USD25 million at risk is USD2.75 million. For trade secret cases with over USD25 million at risk, median litigation costs rise to USD4.5 million. A trade secret plaintiff (or potential plaintiff) with compelling facts may wish to consider available sources of third-party contingent litigation financing.

The litigation finance industry has seen substantial growth in recent years, although this approach is not without some controversy. A party considering third-party contingent litigation financing should also stay apprised of the fast-moving legal landscape regarding the discovery and disclosure of third-party financing arrangements.

Although trade secret plaintiffs seeking damages are generally entitled to a jury trial, they should consider the likely composition of the jury pool and the pros and cons of jury trials before demanding a jury trial. Trade secret cases involving exceptionally complex technologies within narrow industries run the risk of confusing a jury, so plaintiffs should take into account the range of educational backgrounds and industry affiliations of potential jurors.

In cases involving alleged misappropriation by a former employee, jurors may be more sympathetic to typical defensive themes such as the employee’s right to take their expertise to a new job without fear of reprisal. Nevertheless, due to the comparatively higher damages awarded by juries, jury trials will often be preferable to bench trials for most trade secret plaintiffs. In certain jurisdictions, however, measures of damages such as unjust enrichment may not be triable to a jury and will instead by submitted for adjudication by the court.

After the close of discovery and the resolution of any dispositive motions, the case will proceed to trial on any remaining claims or issues. Depending on the jurisdiction and individual practices of the court or judge, a trial may be scheduled near the outset of the litigation at a case management conference, or it may be scheduled on relatively short notice after it is clear to the judge that the case is “trial-ready”.

As in any other civil litigation, the party with the burden of proof is given the opportunity to present its case, which may consist of an opening statement, testimony of fact and expert witnesses, and a closing argument. The opposing party will generally have the opportunity to cross-examine each witness after they provide direct testimony. After the party with the burden of proof rests, the opposing party presents its case, consisting largely of the same elements. The case is then submitted to the jury to render a verdict, or to the judge for an opinion and order in a bench trial.

Trial length can vary considerably. While courts tend to allot a minimum of three to five days for trade secret trials, an exceptionally complex trial involving numerous fact and expert witnesses or novel technologies could stretch to three months or more.

Expert testimony is often important in trade secret misappropriation cases as a means of explaining complex issues to the finder of fact, especially where the trade secrets at issue are technical in nature. Experts may be used for a variety of purposes, including to support or rebut the contentions that a party possesses protectable trade secrets and takes reasonable steps to protect them, and that the defendant misappropriated and used the trade secrets in its own products or services.

Computer forensic experts may also provide valuable opinions and testimony related to the access and misappropriation of trade secrets and computer systems and networks. As in other types of litigation, economic and financial experts to support damages remedies may be useful to estimate or forecast liability for the misappropriation of the trade secret(s) under any number of potential damages theories.

To obtain a preliminary injunction, a trade secret plaintiff generally must establish that:

• it is likely to succeed on the merits of its trade secret misappropriation claim;
• it is likely to suffer irreparable harm in the absence of preliminary relief;
• the balance of equities tips in its favour; and
• an injunction is in the public interest.

To show irreparable harm, a plaintiff will need to demonstrate that monetary damages would be inadequate, which is more likely where the trade secret owner previously had market exclusivity and therefore the misappropriation results in reduced market share, lost customers, lost business opportunities and/or price erosion.

Whereas lost sales alone may be insufficient to establish irreparable harm if such losses can readily be calculated, damage to the trade secret owner’s good will, reputation or other intangible factors, and any other harms that result in a decrease in revenue available for employee attraction and retention, or for research and development activities on which the business relies for continued profitability, may be relevant to establishing the inadequacy of monetary damages.

In some jurisdictions, a party moving for a preliminary injunction must also show that there is a risk of further dissemination of its trade secrets beyond the misappropriation already complained of. In addition, an unreasonable delay in bringing a trade secret misappropriation claim or the motion for a preliminary injunction will weigh against granting the injunction. Courts are increasingly moving towards requiring sufficient precision in the identification of the trade secret such that defendants receive fair and precise notice of what the injunction actually prohibits. See Carl Zeiss Meditec, Inc v Topcon Medical Sys., Inc, 2022 WL 1530491 (Fed. Cir. May 16, 2022).

Damages available to a trade secret plaintiff will vary depending on the federal and state claims asserted and the theories of recovery. Under the DTSA, damages for trade secret misappropriation can be calculated in at least three ways:

• actual loss caused by the misappropriation;
• unjust enrichment caused by the misappropriation, which may be sought in addition to actual loss to the extent that damages calculations do not overlap, or in lieu of either actual loss or unjust enrichment; and
• a reasonable royalty.

Damages under the UTSA similarly include actual loss in addition to unjust enrichment not taken into account in computing actual loss, but a reasonable royalty is only available under exceptional circumstances. However, some state trade secret laws do not require putting a trade secret to commercial use before royalty damages may be obtained. See AirFacts, Inc v Amezaga, 30 F.4th 359, 369 (4th Cir. 2022).

In some situations, lost profits may be shown by directly establishing that certain sales expected by the plaintiff were lost to the defendant as a result of trade secret misappropriation. More commonly, however, a plaintiff will argue that the defendant’s entire revenue from sales of products or services based on the misappropriated trade secret constitutes the damages base, at which point the burden shifts to the defendant to demonstrate which costs should be deducted to arrive at the net profit.

In addition, a plaintiff may need to consider pursuing other damages theories, such as the expenses the plaintiff incurred in developing its trade secrets, the reduction in market share and/or erosion in price attributable to the defendant’s entry into the market, disgorgement of the defendant’s profits, or the value of the defendant’s avoided research and development costs.

In cases where the defendant has not yet released (or has only recently begun selling) a product or service based on the misappropriated trade secret, expert analysis and testimony may be invaluable in forecasting future lost profits or unjust enrichment. As an example, a technical expert may be able to offer an opinion concerning the length of the “head start” a trade secret misappropriator obtained as a result of using the plaintiff’s trade secret, which a damages expert can take into account when forecasting damages. Defendants should prepare their expert witnesses to offer opinions rebutting the damages calculations offered by the plaintiff.

If other measures of damages are inadequate, the plaintiff may seek a reasonable royalty. This measure is generally seen as a theory of last resort and can result in lower recovery than other measures. As in patent cases, courts have applied the “Georgia-Pacific” factors in order to reach a reasonable estimate of a royalty rate to which the parties would agree in a hypothetical negotiation.

Punitive damages may be available under the DTSA and for most state law claims if the defendant’s conduct was gross, wilful or malicious. There are certain exceptions involving whistle-blower immunity for which punitive damages against a current or former employee may be unavailable.

Under the DTSA, a court may issue an injunction that places some limits on an employee’s subsequent employment in order to protect the plaintiff’s trade secrets, but the scope of the injunction may not be so broad as to prevent an employee from entering into any employment relationship or conflict with applicable state laws prohibiting restraints on the lawful practice of a profession. Moreover, the trade secret owner must base its request for a permanent injunction on evidence of threatened misappropriation and not merely on the information that the employee knows.

As a result, a trade secret owner may have limited recourse to injunctions in states such as California or Louisiana that disfavour non-competition agreements or that have rejected the inevitable disclosure doctrine. In practice, courts have issued injunctions restricting former employees in possession of sales and marketing-related trade secrets from soliciting former clients or bidding on certain contracts.

Where the misappropriated trade secret has been used to develop a competing product or service, the trade secret owner should consider seeking a permanent injunction requiring the misappropriator to cease offering or recall the product or service. In order to succeed, the trade secret owner will likely need to show irreparable injury by putting forward evidence that other remedies, such as monetary damages, would be inadequate to compensate for the misappropriation. A finding of irreparable injury can be supported by harms that are impossible or difficult to quantify, such as a loss of good will.

Under the DTSA and most state trade secret laws, reasonable attorneys’ fees may be awarded to the prevailing party on a showing of wilful and malicious misappropriation by the defendant or a bad-faith claim of misappropriation by the plaintiff.

Under the DTSA and most state trade secret laws, costs may be awarded to the prevailing party on a showing of wilful and malicious misappropriation by the defendant or a bad-faith claim of misappropriation by the plaintiff.

The Circuit Split on Damages Under a Theory of Unjust Enrichment

Currently, circuit courts are split over whether avoided costs can be awarded as unjust enrichment damages in a trade secret case where those costs bear no relationship to the plaintiff’s harm or the defendant’s gain. In, for example, the Third and Seventh Circuits, damages for avoided costs can be awarded under a theory for unjust enrichment. See Epic Sys. Corp. v Tata Consultancy Servs., No 22-2420 (7th Cir. 2023); PPG Indus. v Jiangsu Tie Mao Glass Co, 47 F.4th 156, 164 (3d Cir. 2022). However, other circuits, such as the Second Circuit, have explicitly rejected the idea that avoided costs can be awarded as unjust enrichment damages. See Syntel Sterling Best Shores Mauritius Ltd v The Trizetto Grp., 68 F.4th 792 (2d Cir. 2023). The Supreme Court declined a petition for a writ of certiorari for a case that would have resolved the circuit split, and thus the circuit split on this issue remains. See Tata Consultancy Servs. Ltd v Epic Sys. Corp., 144 S. Ct. 425, 217 L. Ed. 2d 237 (2023). Therefore, practitioners should consider whether avoided costs under a theory of unjust enrichment are available in their jurisdiction when filing suit.

A federal district court decision (including final judgments and orders on dispositive motions) may be appealed as of right to the circuit court of appeals in the circuit in which the case was initially decided. Appeals from final ITC actions may be taken only to the US Court of Appeals for the Federal Circuit. If the ITC issues an exclusion order, an appeal cannot be filed until after a 60-day review period, during which the US President may veto the exclusion order. If the ITC does not issue an exclusion order, any adversely affected party may immediately file a notice of appeal.

It is not unusual for the federal appellate process to take anywhere from several months to several years. The process involves substantive briefing by both parties, which itself can take several months. Circuit court appeals often involve oral arguments before a panel of appellate judges. Circuit courts have discretion in scheduling the oral argument date for an appeal. Once the briefing and oral argument have been completed, the court has discretion in the timing of issuing a decision.

A party that is dissatisfied with the panel’s decision may seek a rehearing of the proceeding en banc – ie, a rehearing before all (or a substantial number) of the judges of the circuit court. En banc hearings are typically reserved for novel questions of law or issues of exceptional importance and are more likely to be granted if the panel decision conflicts with those of other panels or circuits.

A decision of a regional circuit court of appeals or of the Federal Circuit may be appealed by filing a petition for certiorari with the United States Supreme Court, which has broad discretion to hear appeals and generally grants fewer than one hundred out of the several thousand it receives annually.

The civil court systems in each of the states consist of trial courts, intermediate courts of appeal, and a highest court of appeal, which is often, but not always, called the state Supreme Court. As with the federal judicial system, the intermediate court of appeal’s decision may be appealed to the highest court of the state, which has discretion to hear the case. Even if a case begins in state court, an out-of-state defendant may be able to “remove” the case to federal court at the outset if federal jurisdictional requirements are met.

Issues on appeal are limited to those properly raised in the district court proceedings – claims, defences, and/or arguments not raised in the district court may be deemed “waived” and the appeals court will ordinarily refuse to consider them. A court of appeals defers to the district court’s factual findings unless they are clearly erroneous, which only requires the district court’s account of the evidence to be plausible in light of the record. Conclusions of law are reviewed de novo, which means the appellate court reviews the issues with no deference to the district court’s legal analysis. This also enables a court of appeals to uphold or overturn a district court’s ruling on alternative legal grounds that were not considered by the district court.

Civil trade secret misappropriation claims often involve conduct that overlaps not only with the federal EEA but also with state and federal statutes related to criminal mail and wire fraud, digital theft or unauthorised access to protected computers. Trade secret owners should consider whether to reach out to the Department of Justice or state investigative agencies in cases of suspected or known misappropriation, especially since the trade secret owner is likely to have conducted a thorough investigation and will have access to unique information regarding its own trade secrets that would not be apparent to government authorities initiating their own investigation.

The involvement of state or federal authorities may offer the benefit of bringing additional resources to bear, although there may be some loss of control over the investigation and the timeline of the case. For a defendant in a civil trade secret misappropriation action, it is important to evaluate the likelihood that a parallel criminal case could be initiated, which may affect the strategy for responding to discovery requests and could increase the potential for self-incrimination during depositions.

The parties may settle their civil dispute at any time. Depending on the jurisdiction and the judge’s individual practices, a court may require the parties to engage in one or more settlement conferences or other alternative dispute resolution (ADR) procedures prior to trial, or may offer voluntary procedures for accessing ADR resources. The parties may also voluntarily choose to engage in mediation, a non-binding ADR process whereby the parties and their attorneys meet with a neutral third party who is trained to facilitate settlement discussions.

A mediator typically helps the parties reach their own voluntary settlement by assessing the strengths of the parties’ positions and identifying potential areas of agreement or disagreement. Even if the parties are not likely to reach a complete settlement, the ADR process may assist by “stress testing” a party’s case and identifying any potential areas of weakness before proceeding to trial.

ADR can sometimes offer advantages over traditional litigation. For example, parties frequently resolve disputes more quickly through ADR than they would in court, which can also save costs. The parties are largely in control of the ADR schedule and therefore have more flexibility to tailor the process to their unique needs. Many types of ADR are confidential, which can be appealing to parties who do not want the details of their dispute made public through court records.

The most common forms of ADR used in trade secret disputes are mediation and arbitration. Whereas mediation is non-binding, in arbitration a neutral third party – known as an “arbitrator” – will typically issue a written decision resolving the case on the merits. Parties may agree to arbitrate after a conflict arises, although occasionally the parties will have agreed in a prior contract (such as a licensing, subcontracting or joint venture agreement) to resolve future disputes through arbitration.

However, if the parties have not entered into any contract containing an arbitration clause, courts are unlikely to mandate arbitration between litigants on the basis of arbitration clauses found in contracts with a party’s employees, even if those employees may have been involved in acts of misappropriation.

In an arbitration proceeding, the parties present evidence and arguments supporting their positions to the arbitrator(s). The applicable procedural and evidentiary rules are usually determined by the parties’ arbitration agreement. Arbitration is generally less rigid than litigation but more formal than mediation. Depending on the type of arbitration, the arbitrator’s decision can be either binding or non-binding.

In non-binding arbitration, the parties are usually bound by the decision unless one of them rejects it and requests a trial. In binding arbitration, the parties agree that the arbitrator’s decision will be the final resolution of the case, and the parties will generally not have the opportunity to appeal the merits of the dispute.