Unlike patent law, which has had a statutory framework in the United States since 1790, trade secret protection finds its origins in common law. The first real effort to harmonize the protection of trade secrets came in the 1939 rendition of the Restatement of Torts, which defined a “trade secret” as:
[A]ny formula, pattern, device, or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.1
The Restatement made clear the rather obvious notion that “[t]he subject matter of a trade secret must be secret.”2 Importantly, however, the Restatement clarified that not all secrets constitute “trade secrets:”
It differs from other secret information in a business in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid for a contract or the salary of certain employees, or the security investments made or contemplated, or the date fixed for the announcement of a new policy or for bringing out a new model or the like.3
The limitation on trade secret protection to non-ephemeral events may well have had a chilling effect on seeking such protection for inventions, which are, by definition, ephemeral. In other words, one does not continuously invent the same subject matter. Nonetheless, companies such as the Coca-Cola Company did occasionally buck the trend in opting to protect inventions via trade secret status. These instances were, however, the exception.
In 1979, the Uniform Law Commission promulgated the first version of the Uniform Trade Secrets Act (“UTSA”), which was subsequently amended in 1985. The UTSA defines “trade secrets” as:
[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 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 circumstances to maintain its secrecy.4
Missing from this definition is the requirement of an ephemeral character from the Restatement. The definition also specifies that a “trade secret” can indeed be a “program, device, method,” etc., making it clear that inventions otherwise amenable to patent protection may also be protected by the trade secret regimen.
The purpose of the UTSA, as with other uniform laws, was purportedly to provide states with what amounted to a turnkey legislative approach to a particular legal issue with an aim toward standardization on a state-by-state basis. States were at liberty to adopt the UTSA as they saw fit, and New York, an obviously important jurisdiction, opted against the adoption of the Act.
Even where a state has adopted the UTSA, the iteration adopted can yield very different results when a trade secret theft dispute is litigated. For example, in the version of the UTSA adopted in the majority of jurisdictions, damages could be mitigated or eliminated where the defendant did not have prior knowledge of the misappropriation.5 Under the version adopted in California, however, prior knowledge, or lack thereof, is immaterial.6
Concurrent with the promulgation and amendment of the UTSA, but not specifically within the context of that Act, the Supreme Court held that trade secrets are property rights as long as they are maintained as such.7 This takes trade secret theft out of the realm of tort law, thereby obviating the need of showing a specific duty that a misappropriator of trade secrets owes the owner thereof. Further, trade secrets can be transferred in the same manner as, e.g., a patent, as long as such transfer does not result in public disclosure.
In 2016, Congress enacted the Defend Trade Secrets Act (“DTSA”),8 thereby creating a federal cause of action for trade secret misappropriation. One obvious change from the network of state trade secret laws under the UTSA was that the DTSA comprised a single statutory framework to be theoretically applied uniformly throughout the United States. However, the DTSA by its own express provisions does not preempt, inter alia, existing state trade secret law.9
The DTSA defines “trade secret” in a manner similar to that contained in the UTSA:
[T]he term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—
(A) the owner thereof has taken reasonable measures to keep such information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information.10
As with the definition contained in the UTSA, the DTSA makes clear that subject matter otherwise capable of patent protection, e.g., “technical information,” can be the subject of trade secret protection. And, as this definition is contained in a federal statute, the definition is not subject to the whims of any particular state legislature.
Despite the various iterations trade secret protection has taken in the United States, such protection has tended to be more advanced than elsewhere around the world. By way of example, the European Union, recognizing that Europe did not have a consistent framework for trade secret protection, issued Directive No. 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. Under that Directive, “trade secrets” are defined as:
(a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) it has commercial value because it is secret; (c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
This Directive forced member states to revisit their respective national legislations, such as they were, thereby ensuring the promulgation of legislation designed to ensure the protection of trade secrets at least to the extent provided for in the Directive. By way of example, Germany enacted its Gesetz zum Schutz von Geschäftsgeheimnissen (Trade Secret Law), which replaced the previous piecemeal network of laws, several with only a tangential nexus to trade secrets. This law provides a definition of “trade secrets” for the first time in Germany.11 Further, the definition of “infringing product” makes clear that trade secret misappropriation can manifest in a product, its concept, features, functionality, and/or manufacturing process.12 Thus, this statute and others like it throughout the world demonstrate an emerging commitment to protect trade secret information in the form of inventions.
The ability of the ITC to apply United States trade secret laws extraterritorially adds to the strength of trade secret protection. 13 In TianRui Grp. Co. v. Int’l Trade Comm’n, the United States Court of Appeals for the Federal Circuit affirmed an ITC determination to apply U.S. trade secret law to exclude articles from importation that incorporated trade secret information that had been misappropriated in China.14 Thus, a trade secret owner can protect its domestic market even where trade secret misappropriation has occurred overseas.
Logically, these developments serve to make trade secrets manifesting in the form of inventions more valuable. Domestic and foreign legislation directed to trade secret protection makes such protection a viable alternative to patent protection. It is, therefore, worth comparing the strengths and weaknesses of both.
1 Restatement of Torts (1939), § 757.
4 UTSA, § 1(4).
5 UTSA, § 3(a).
6 See Cal. Civ. Code, § 3426.3.
7 Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003–04 (1984).
8 18 U.S.C. § 1831, et seq.
9 18 U.S.C. § 1838 (“Except as provided in section 1833(b), this chapter shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret . . . .”).
10 18 U.S.C. § 1839(3).
11 Gesetz zum Schutz von Geschäftsgeheimnissen, § 2(1).
12 Id., § 2(4).
13 On the other hand, courts have an often inconsistent approach to the extra-territorial application of domestic trade secret law. Compare Horne v. Adolph Coors Co., 684 F.2d 255, 259 (3d Cir. 1982) (applying state trade secret law under a locus of injury theory), and BP Chemicals, Ltd. v. Formosa Chemical & Fibre Corp., 229 F.3d 254, 266–68 (3d Cir. 2000) (applying Taiwanese trade secret law where misappropriation occurred in Taiwan).
14 TianRui Grp. Co. v. Int’l Trade Comm’n, 661 F.3d 1322 (Fed. Cir. 2011).