What Is a Trade Secret?

• Pages: 1-24

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? It

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

the law to define.’” Learning Curve Toys, Inc. v. Playwood Toys, Inc.,

342 F.3d 714, 723 (7th Cir. 2003) (quoting Lear Siegler, Inc. v. Ark-Ell

Springs, Inc., 569 F.2d 286, 288 (5th Cir. 1978)). Similarly, it has been

said that “the concept of a trade secret is at best a nebulous one and

has been variously defined by case and text authority.” Van Pro ds .

Co. v. General Welding & Fabricating Co., 213 A.2d 769, 775 (Pa. 1965).

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 and in their application,

but certain fundamental principles stand out. All of the definitions

and tests are intensely fact-specific. The inquiry centers around

secrecy—a trade secret must not be generally known to others and

this secrecy must be safeguarded 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 advantage when

competitors and prospective competitors do not know it.

I. Sources of Applicable Law

Trade secrets are generally governed by state law. See, e.g., Leggett

& Platt, Inc. v. Hickory Springs Mfg. Co., 285 F.3d 1353, 1360 (Fed. Cir.

2002); Thermodyne Food Serv. Prods., Inc. v. McDonald’s Corp., 940 F.

1

Guide to Protecting and Litigating Trade Secrets

2

Supp. 1300, 1304 (N.D. Ill 1994). While 46 states have adopted the

Uniform Trade Secrets Act (UTSA), the state law of trade secrets is

far from uniform. For starters, four states making up close to 20

percent of the U.S. Gross Domestic Product1 have not enacted it:

Massachusetts, New York, North Carolina, and Texas.2 Many states

that have enacted the UTSA have done so with important modifi-

cations, and there is significant variance between jurisdictions as

to the application of common elements.3 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 Commis-

sioners on Uniform State Laws in 1979, with amendments approved

in 1985.4 It has b een ado pted i n some f orm by 4 6 state s and t he Dis -

trict of Columbia.5 It defines a trade secret as

information, including a formula, pattern, compilation, pro-

gram, device, method, technique, or process, that:

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

from not being generally known to, and not being readily

ascertainable 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 cir-

cumstances to maintain its secrecy.

UTSA § 1(4).

The UTSA also defines trade secret misappropriation 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

procedural issues arising in trade secret litigation in the remain-

ing sections (as discussed in chapter 5). Section 8 provides that

the UTSA “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 46 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. The variances have led a leading commentator

to refer to the UTSA as the “non-Uniform Trade Secrets Act.”6 A

practitioner needs to be aware of the many differences among the

enacting states’ versions of the UTSA.7