A trade secret is a business’s specialized, confidential knowledge that has commercial value. A trade secret may include knowledge about a business process, formula, design or pattern that gives a business an advantage over competitors. An example of a trade secret is a customer list or a product formula.

A business must fully disclose the details of a patent in order to obtain legal protection of a process or work. However, a business obtains legal protection for a trade secret by keeping its details private. While state unfair competition law is the prime source of protection for trade secrets, federal law protects trade secrets as well.


How Businesses Protect Trade Secrets

Many businesses require employees to sign nondisclosure agreements or noncompete agreements to avoid disclosure of their trade secrets. Many times, the intellectual property that an employee develops during employment becomes the property of his employer under these agreements.

Businesses seeking to maintain the confidentiality of their trade secrets often require businesses with whom they must share information to likewise sign nondisclosure agreements. If a business does not take reasonable steps to keep the details of a trade secret private, it may lose trade secret protection, even if the trade secret information is obtained illegally.

How Trade Secrets are Discovered

A competitor sometimes discovers a trade secret through reverse engineering, that is, taking a finished product and teasing out its components or processes. Generally speaking, reverse engineering does not violate trade secret law. A competitor may also try to discover a trade secret through the unlawful means of industrial espionage. A trade secret holder is entitled to sue a person or business that unlawfully obtains and uses his trade secret.

Litigating Trade Secret Violations

All but five states have adopted the Uniform Trade Secrets Act, a state law that protects trade secrets. As well, state unfair competition law governs trade secrets. A business that wishes to sue for trade secret violations must prove that it took reasonable steps to keep the trade secret private, that the trade secret confers a business advantage upon its holder, and that a person used the trade secret for his own benefit. A trade secret holder may seek monetary damages, attorneys’ fees, and an injunction prohibiting use of the trade secret.

Additionally, federal law criminalizes the theft of trade secrets. It prohibits the theft of trade secrets for foreign or domestic use. A conviction under federal law can result in a fine up to $5,000,000.


A trade secret is a business process, formula, or design that confers an economic advantage upon the holder. The holder must reasonably attempt to keep the details of a trade secret private. If the owner of trade secret fails to do so, a person who obtains and uses the trade secret may escape liability even if the trade secret was unlawfully discovered. However, a person who unlawfully misappropriates a trade secret can face federal criminal penalties as well as liability for monetary damages under state unfair competition laws.