Trade secrets are often the most underused (and most accidentally lost) form of IP. This guide explains what qualifies, how the Defend Trade Secrets Act (“DTSA”) and state law work, and how to keep secrets “secret” in a way courts will respect.
A trade secret is valuable information that stays valuable because it is not generally known. That sounds simple, but trade secret law is practical: if you don’t take reasonable steps to keep information secret, the law often won’t rescue you later. The upside is powerful. Unlike patents, trade secrets can potentially last indefinitely. There is no registration, no examination, no filing fee, and no publication requirement. The downside is also powerful: once the secret is out, your protection may be gone forever (unless you can prove misappropriation and obtain a remedy quickly enough to matter).
I know. The engineers out there are thinking, “I can reverse engineer it”. Maybe. But when you realize that the formula for Coca-Cola remains a trade secret, you realize that trade secrets can be enduring in the right circumstances.
If you want a short primer first, see Trade Secrets in 60 Seconds. If you’re thinking about real‑world implementation—especially for startups using cloud tools—read Storing Proprietary Information in the Cloud.
What qualifies as a trade secret?
Most U.S. trade secret law uses a similar definition: information that (1) derives independent economic value from not being generally known or readily ascertainable, and (2) is subject to reasonable measures to maintain its secrecy. “Information” can include formulas, source code, customer lists, pricing, business methods, manufacturing know‑how, training data, product roadmaps, vendor terms, and negative know‑how (what you tried that failed).
Trade secrets can protect information that has no other IP protection. For example, a simple compilation of data is often not expressive enough for copyright protection. An algorithm might not be patent-eligible.
The “reasonable measures” requirement is key. Courts don’t usually require perfection, but instead require that secrecy be a true operational priority. The more valuable the information, the more a court expects you to behave like it matters.
Federal vs state trade secret law: DTSA + UTSA
Trade secret protection comes from a mix of state and federal law.
State law. Most states have adopted some version of the Uniform Trade Secrets Act (UTSA), sometimes with local variations. State law typically governs claims between private parties within the state, and it’s still the backbone of trade secret litigation.
Federal law. In 2016, the U.S. enacted the Defend Trade Secrets Act (DTSA), which created a federal civil cause of action for trade secret misappropriation. The DTSA is codified at 18 U.S.C. § 1836. The DTSA does not replace state law; it generally coexists with it. Practically, the DTSA gives you access to federal court, more uniform procedure, and (in limited circumstances) a unique remedy: civil seizure to prevent dissemination.
Since the patent system in the United States has weakened, many inventors consider whether their inventions should be held as trade secrets rather than patents. One factor that they should but often do not consider is that trade secrets have two layers of protection — state and federal — while patent law “preempts” state laws, leaving only the single, federal layer of protection.
The DTSA also includes a whistleblower immunity provision and a notice requirement for certain agreements. If you use employee or contractor NDAs, you should make sure your templates include DTSA‑compliant notice language so you don’t accidentally waive certain remedies.
What counts as misappropriation?
Misappropriation generally includes (1) acquiring a trade secret by improper means (theft, bribery, breach of a duty of confidentiality, or hacking), or (2) disclosing or using a trade secret without consent when you knew (or had reason to know) it was obtained by improper means or under a duty of confidentiality.
Two points matter in practice. First, “improper means” is broader than “someone literally stole a file.” It can include a departing employee who downloads documents in violation of policy, or a vendor who reuses confidential knowledge outside the contract. Second, independent development is a complete defense. If someone legitimately invents or develops the same thing without using your secret, trade secret law does not stop them. This is why trade secret strategy must be aligned with how easy it is for competitors to reverse engineer your product.
Reasonable measures: what courts expect you to do
There is no one checklist that guarantees trade secret status, but courts tend to look for consistent behavior that matches the story “we treated this as a secret.” Common measures include:
• Written NDAs with employees, contractors, and business partners (and a process for storing and retrieving them).
• Access controls: least‑privilege permissions, strong authentication, logging, and prompt deprovisioning when someone leaves.
• Clear labeling and segmentation: confidential folders, separate repositories, watermarks for sensitive decks, and “need to know” distribution.
• Policies and training that are actually used, not just posted in a handbook.
• Practical security for prototypes and labs (badges, locked cabinets, visitor logs).
• Distributed knowledge, ensuring that no single person has all of the information necessary to steal the full trade secret.
The details vary by company size and industry. A two‑person startup can’t implement the same program as a Fortune 100, but it still must do the basics. If you are using cloud services for confidential information, see Storing Proprietary Information in the Cloud for a pragmatic approach.
Remedies: what you can get if you win
Trade secret remedies can include injunctions (to stop use or disclosure), monetary damages (actual loss and unjust enrichment), reasonable royalty damages in some cases, and exemplary (punitive) damages and attorneys’ fees for willful and malicious misappropriation. Courts are often willing to enjoin use of stolen secrets, but they will also try to avoid injunctions that effectively operate as “noncompetes by court order” unless the facts justify it.
One reason companies like trade secrets is that trade secret claims can also fit early in a dispute: you can seek temporary restraining orders or preliminary injunctions to prevent a secret from being spread widely, where waiting for a final judgment would be too late.
One thing to keep in mind is the value of the trade secret compared to the amount of money that the person stealing the secret has. You may be able to get a $100 million court judgment for theft of the trade secret that underpins your company, but if the judgment is against a startup with debt instead of assets, that judgment is worthless.
Employees, contractors, and the “leaky bucket” problem
Most trade secret losses happen through people, not hackers. If someone can walk out the door with your core know‑how, the foundation is fragile. The legal tools here are a mix of contracts (NDAs, invention assignment agreements, non‑solicit clauses), operational controls (access, logging, offboarding), and culture (people understanding what is actually confidential).
Noncompetes are a separate (and politically active) topic that varies dramatically by state. Even where noncompetes are limited or banned, strong confidentiality obligations can still be enforced. The important principle is that contracts should match real behavior: if everyone in the company can access the crown jewels, it is harder to claim you treated them as secrets.
Trade secrets vs patents: when each makes sense
The choice between patents and trade secrets is one of the most important early IP decisions. A patent gives you an exclusion right but forces publication, and it expires. A trade secret can last indefinitely, but it protects only against misappropriation, not independent development or reverse engineering.
Trade secrets often fit best when (1) the information is hard to reverse engineer, (2) the advantage lasts longer than a patent term, (3) you can realistically keep it secret, and (4) the market will not force disclosure (for example, through regulatory filings). Patents often fit best when (1) the invention can be reverse engineered, (2) you need a public exclusion right to attract investment or deter competitors, or (3) licensing requires a clear, recordable right.
If you want to explore the patent side, see the companion cornerstone guide: Utility Patents, plus the deeper strategy pieces on provisionals and disclosure quality.
I’ve personally developed and used a mechanism where the choice between holding an invention as a trade secret or a patent can be postponed by years even as your patent application moves through the system. Intrigued? Reach out if you’re curious.
A trade secret playbook
If trade secrets matter to you, build a simple program now rather than later. Identify your top several secret assets, define who needs access, and implement basic controls and contracts. Make sure your NDAs and contractor agreements are coherent and consistent, and that your company can prove it did the right things (logs, signed agreements, policies that were actually distributed).
The biggest shift is mental: treat confidentiality as a process, not a document. When you do that, trade secret protection stops feeling mystical and becomes another part of good business operations.
Internal references: Trade Secrets in 60 Seconds, Storing Proprietary Information in the Cloud, Utility Patents, Intellectual Property Overview.
Legal notice: This article is educational information, not legal advice. Copyright rules can change, and outcomes depend heavily on facts (and sometimes the jurisdiction). If you need advice about a specific situation, talk to a qualified attorney.
AI Disclosure: This article was researched and some of the prose improved using AI.