An Introduction to Trade Secrets Law in the United States

An Introduction to Trade Secrets Law in the United States

January 27, 2023
An Introduction to Trade Secrets Law in the United States
Trade secrets—a form of intellectual property comprising
legally circumvent by reverse-engineering or independently
many kinds of confidential information—are widely
discovering the invention. On the other hand, patents
considered to be important assets for U.S. companies and
require public disclosure of the invention and expire after a
the U.S. economy as a whole, with examples as varied as
certain time—typically, about 20 years—whereas trade
search engine algorithms and soft drink formulas. Congress
secrets may be maintained indefinitely.
and the states have enacted laws to protect trade secrets,
and federal and state courts see a steady stream of trade
Trade secrets may also encompass certain financial or
secrets cases, with more than a thousand filed annually in
business information that is not patentable, such as supplier
U.S. district courts in recent years.
lists. The relatively broad scope of potential trade secret (as
compared with patent) protection may have taken on greater
Although historically protected mostly by state law, trade
importance in light of a line of Supreme Court decisions
secrets have more recently come under the protection of
that further restricted the types of inventions that may be
federal civil and criminal laws. Members proposed several
patented, including in the software and biotechnology
bills concerning trade secrets in the 117th Congress, largely
fields. See CRS Report R45918, Patent-Eligible Subject
in an effort to address the potential risk of trade secret theft
Matter Reform: Background and Issues for Congress.
by foreign governments and agents. This In Focus provides
an overview of how trade secrets are defined and protected
What Laws Protect Trade Secrets?
under U.S. law and discusses selected legislation introduced
Trade secrets are protected by a combination of state and
in the 117th Congress.
federal laws, which prescribe a combination of civil and
criminal penalties for trade secret “misappropriation”—the
What Are Trade Secrets?
improper acquisition, disclosure, or use of a trade secret.
Legal Definition
State Laws
State and federal laws generally provide that trade secrets
State laws generally allow trade secret owners to sue and
may encompass many types of information, including
obtain damages or injunctive relief for trade secret
formulas, patterns, compilations, programs, devices,
misappropriation. In most states, the District of Columbia,
methods, techniques, and processes. To constitute a trade
Puerto Rico, and the U.S. Virgin Islands, these civil suits
secret, such information must meet two criteria:
are governed by the Uniform Trade Secrets Act (UTSA), a
statute first published in 1979 and then enacted, with some
 First, the information must derive economic value from
variation, on a state-by-state basis. The only states that have
not being known or “readily ascertainable” by other
not yet adopted UTSA are North Carolina, which has
persons. In other words, a trade secret derives its
enacted a similar statute, and New York, where trade secret
value—for instance, giving its owner a competitive
misappropriation claims are governed by common law.
advantage—from the fact that others cannot easily
discover it.
Although state courts generally have jurisdiction over
UTSA claims, plaintiffs may file certain UTSA lawsuits in
 Second, the owner must keep the information secret
U.S. district courts. As with many other kinds of civil suits,
using measures that are reasonable under the
plaintiffs may file standalone UTSA claims in federal court
circumstances. Such protective measures may involve,
if the requirements for “diversity jurisdiction” are met—i.e.,
for example, restricting access to the information to
the plaintiff and defendant are citizens of different states,
specific individuals on a “need-to-know” basis,
and the lawsuit seeks more than $75,000 in damages. A
including limiting physical access to company facilities
defendant also has the right to “remove” (i.e., transfer) such
and files; requiring employees to sign nondisclosure
a lawsuit from state to federal court if the diversity
agreements; and securing computer networks.
jurisdiction requirements are met and the defendant is not a
citizen of the forum state.
Differences Between Trade Secrets and Patents
Trade secrets may include, but are not limited to, the types
Defend Trade Secrets Acts
of inventive discoveries that are eligible for U.S. patent
In 2016, Congress passed the Defend Trade Secrets Act
protection. For example, the inventor of a new type of
(DTSA) to create a new civil right of action for trade secret
manufacturing equipment—or a new way to use such
misappropriation under federal law. DTSA does not replace
equipment—might have a choice either to apply for a patent
state laws such as UTSA, but rather creates a parallel right
on the invention or to maintain it as a trade secret. One
for plaintiffs to file trade secret misappropriation lawsuits in
advantage of patent protection is that, unlike trade secrets, a
federal court if “the trade secret is related to a product or
patent gives its owner a monopoly that competitors cannot
service used in ... interstate or foreign commerce.”
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An Introduction to Trade Secrets Law in the United States
Supporters contend that DTSA has improved protection for
consists of stealing a trade secret to “injure any owner of
trade secret owners by providing easier access to federal
that trade secret” and may be punished by fines and prison
courts and authorizing expedited seizure of property to
sentences of up to 10 years.
retrieve stolen trade secrets in some circumstances.
The involvement of foreign governments or agents is a
Some critics argue that DTSA is largely duplicative of
factor that the Department of Justice (DOJ) considers in
UTSA and that it has failed to achieve national uniformity
deciding whether to file charges under EEA. For example,
in trade secrets law. For example, federal courts have
in January 2023 an ex-General Electric employee was
disagreed on whether DTSA authorizes them to restrain
sentenced to two years in prison for conspiring to steal the
employees from taking new positions that would allegedly
company’s trade secrets regarding gas and steam turbines to
result in the “inevitable disclosure” of their former
benefit the People’s Republic of China. DOJ has focused
employers’ trade secrets, reflecting a split in various states’
largely on addressing intellectual property theft and
laws. This issue may have new salience given the January
espionage by China’s government and associated actors,
2023 notice of proposed rulemaking by the Federal Trade
although it has cautioned that this focus should not give the
Commission (FTC) that would ban most non-compete
impression of intolerance or bias against Chinese people or
agreements. See CRS Legal Sidebar LSB10905, The FTC’s
chill legitimate academic and research collaborations.
Proposed Non-Compete Rule.
Considerations for Congress
One potential difference between DTSA and UTSA is their
The 117th Congress considered several bills concerning
extraterritorial reach (i.e., applicability to conduct outside
trade secrets, including the two noted above (H.R. 4327 and
the United States). A leading district court opinion held
S. 2067). Such bills largely addressed the perceived threat
that, under DTSA, plaintiffs could recover damages for
of misappropriation by non-U.S. persons. One such bill, the
foreign acts of misappropriation so long as “an act in
Combating Chinese Purloining (CCP) of Trade Secrets Act
furtherance” of the misappropriation—such as marketing
(S. 1245), stated that “China has expansive efforts in place
knock-off products at a trade show—took place in the
to acquire United States technology, including sensitive
United States. See Motorola Solutions, Inc. v. Hytera
trade secrets and proprietary information.”
Communications Corp., 436 F. Supp. 3d 1150 (N.D. Ill.
2020). By contrast, the court held that Illinois’s UTSA did
A number of bills introduced in the 117th Congress would
not reach such extraterritorial conduct. See id. A bill
have authorized penalties, including immigration
introduced in the 117th Congress, the Protect American
restrictions, against non-U.S. persons who steal trade
Trade Secrets Act of 2021 (H.R. 4327), could have further
secrets. The CCP Act and the Stop Theft of Intellectual
expanded DTSA’s extraterritorial scope by codifying that
Property Act of 2021 (S. 1409) would have rendered aliens
DTSA “shall apply to conduct occurring outside the United
who violate EEA and certain other laws inadmissible and
States and impacting United States commerce.”
deportable under U.S. immigration law. Similarly, the
Protecting American Intellectual Property Act of 2022 (S.
Section 337 of the Tariff Act of 1930
1294) would have denied or revoked U.S. entries and visas
In addition to state and federal courts, trade secret owners
to individuals the President found to have knowingly
may file certain misappropriation claims at the U.S.
engaged in, benefited from, or provided support to trade
International Trade Commission (ITC) under Section 337
secret theft posing “a significant threat to the national
of the Tariff Act of 1930. See 19 U.S.C. § 1337. The ITC
security, foreign policy, or economic health or financial
may issue injunctions to stop the importation of products
stability of the United States.” That bill and the CCP Act
that harm U.S. industry and are made using misappropriated
also would have authorized several additional sanctions
trade secrets. The ITC may order such relief even if the acts
against foreign entities that misappropriate trade secrets,
of misappropriation take place outside the United States.
including trade restrictions, ineligibility for Export-Import
See CRS In Focus IF12295, An Introduction to Section 337
Bank and other financial assistance, and exclusion of
Intellectual Property Litigation at the U.S. International
certain corporate officers from the United States.
Trade Commission; CRS Report RL34292, Intellectual
Property Rights and International Trade. A bill introduced
Some bills from the 117th Congress also sought further fact-
in the 117th Congress, the SECRETS Act of 2021 (S. 2067),
finding on trade secret misappropriation by other countries.
would have created a separate procedure allowing the ITC
The Countering Chinese Espionage Reporting Act (H.R.
to investigate and bar the importation of articles produced
7325) would have required the Attorney General to submit
using trade secrets misappropriated “by a foreign agent or
annual reports on efforts to counter “Chinese national
foreign instrumentality” on national security grounds.
security threats and espionage in the United States,
including trade secret theft.” Similarly, the CCP Act would
Economic Espionage Act
have required the Attorney General to submit an annual
The Economic Espionage Act of 1996 (EEA) made it a
report on trade secret misappropriation by foreign countries.
federal crime to misappropriate trade secrets for either
foreign espionage or commercial purposes. Under this law,
Looking ahead, Congress may also consider whether DTSA
the crime of economic espionage consists of stealing a trade
should be amended based on the federal courts’ early years
secret to “benefit any foreign government, foreign
of experience deciding cases brought under this statute.
instrumentality, or foreign agent” and may be punished by
fines on both individuals and organizations and prison
Christopher T. Zirpoli, Legislative Attorney
sentences of up to 15 years. The crime of commercial theft
IF12315
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An Introduction to Trade Secrets Law in the United States

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