What Is a Trade Secret?

• Author: Joanna H. Kim-Brunetti - Jeffrey K. Riffer - Gregory S. Bombard - Emily J. Friedman
• Pages: 1-27

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CHAPTER 1

What Is a

Trade Secret?

The law of trade secrets is distinguished by the amount of effort that

is spent defining its very subject: what is a trade secret? A trade secret

has been called “one of the most elusive and difficult concepts in the

law to define.” Tewari De-Ox Systems, Inc. v. Mountain States/Rosen,

L.L.C., 637 F.3d 604, 613 (5th Cir. 2011) (quoting Lear Siegler, Inc. v. Ark-

Ell Springs, Inc., 569 F.2d 286, 288 (5th Cir. 1978)); Vesta Corp. v. Amdocs

Management Ltd., 80 F. Supp. 3d 1152, 1165 (D. Or. 2015) (same).1

There are a number of different definitions of “trade secret”—

statutory and common law, state and federal. Case law explores the

nuances and distinctions between them a nd in their application, but

certain funda mental principles stand out.

“In many cases, the ex istence of a trade secret is not obvious; it

requires an ad hoc evaluation of all the surrounding ci rcumstances.

For this reason, the question of whether certain information consti-

tutes a trade secret ordinarily is best ‘resolved by a fact finder after

full presentation of evidence from each side.’” Learning Curve Toys, Inc.

v. PlayWood Toys, Inc., 342 F.3d 714, 723 (7th Cir. 2003); MicroStrategy

Inc. v. Li, 268 Va. 249, 264, 601 S.E.2d 580, 589 (Va. 2004); Kaib’s Roving

R.PH. Agency, Inc. v. Smith, 237 Or. App. 96, 103, 239 P.3d 247, 250 (Or.

App. 2010).

The inquiry centers around secrecy—a trade secret must not be

generally known to others and this secrecy must be sa feguarded by its

owner’s reasonable efforts. A trade secret must also be valuable, and this

also arises from secrecy : a trade secret provides a competitive advan-

tage when competitors and prospective competitors do not know it.

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Guide to Protecting and Litigating Trade Secrets

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I. Sources of Applicable Law

Trade secrets were historically governed by state law. See, e.g., OROS,

Inc. v. Dajani, 2019 WL 2361047, at *2 (E.D. Va. 2019) (“Traditionally,

trade secret protections were entirely a matter of state law.”).

While all states, with the exception of New York, have now adopted

the Uniform Trade Secrets Act (UTSA), a variation of the UTSA, or a

trade secret statute,2 state trade secrets laws are far from uniform.3

Many states that have enacted the UTSA have done so with important

modifications, and there is significant va riance between jurisdictions

as to the application of common elements. A primary concern when-

ever counsel addresses trade secrets will be what law applies.

A. The Uniform Trade Secrets Act

The UTSA was approved by the National Conference of Commissioners

on Uniform State Laws in 1979, with amendments approved in 1985. It

has been adopted in some form by 48 states and the District of Colum-

bia.4 It defines a trade secret as:

information, including a formula, pattern, compilation, program,

device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from

not being generally known to, and not being readily ascer tainable

by proper means by, other persons who can obtain economic

value from its disclosure or use; and

(ii) is the subject of efforts that are reasonable under the circum-

stances to maintain its secrecy.

UTSA § 1(4).

The UTSA also defines trade secret mis appropriation at section

1(2) (as discussed in Chapter 2 of this book); provides for remedies in

sections 2 through 4 (as discussed in Chapter 6); and addresses pro-

cedural issues arising in trade secret litigation in the remain ing sec-

tions (as discussed in Chapter 5). Section 8 of the UTSA provides that

it “shall be applied and construed to effectuate its general purpose to

make uniform the law with respect to the subject of [the UTSA] among

states enacting it,” but even in the states that have adopted the UTSA,

we are far from having a nationally “uniform” law of trade secrets.

Many state legislatures have tinkered with the “uniform” Act. A prac-

titioner needs to be aware that there are many differences among the

enacting states’ versions of the UTSA,5 as well as the di fferences in the

interpretation of the UTSA’s the “uniform” language.6

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