Trade secret
Based on Wikipedia: Trade secret
The Most Valuable Things You've Never Seen
Somewhere in Atlanta, Georgia, there is a vault. Inside that vault sits a recipe worth billions of dollars. The Coca-Cola Company has never patented it. They have never published it. When judges have ordered them to reveal it in court, they have refused—twice.
This is the strange world of trade secrets, where the most valuable intellectual property is often the kind no one ever registers, files, or formally protects at all.
A trade secret is exactly what it sounds like: information that a business keeps confidential to maintain a competitive advantage. The Coca-Cola formula is the most famous example. Kentucky Fried Chicken's blend of eleven herbs and spices is another. The recipe for Chartreuse liqueur, a French herbal drink made by Carthusian monks since 1737, is reportedly known to only two monks at any given time.
But here's what makes trade secrets genuinely weird compared to other forms of intellectual property: there is no government office where you register them. No certificate. No application process. No expiration date.
A patent gives you twenty years of protection, then anyone can use your invention. A copyright lasts for the author's life plus seventy years, then the work enters the public domain. A trade secret? It can last forever—as long as you keep it secret.
What Makes Something a Trade Secret
Not every piece of confidential business information qualifies as a trade secret. The law requires three specific elements, and all three must be present simultaneously. If any one disappears, the legal protection vanishes with it.
First, the information cannot be generally known or easily accessible to people in that business sector. If everyone in your industry already knows how to do what you do, it's not a secret.
Second, the information must derive its commercial value specifically from being secret. This is a crucial distinction. The information has to be valuable precisely because competitors don't have it. If the information would be just as useful to your business whether competitors knew it or not, it doesn't qualify.
Third—and this is where many trade secret claims fail—the holder must have taken reasonable steps to keep the information secret. You cannot leave documents lying around, tell everyone at cocktail parties, and then claim trade secret protection when a competitor uses the information. The law requires you to actually treat it as a secret.
What counts as "reasonable steps" varies depending on the circumstances. Courts consider factors like the type and value of the secret, how important it is to the business, and the company's size and organizational complexity. A multinational corporation is expected to have more sophisticated security measures than a small family business.
The Surprisingly Broad Universe of Protected Information
When most people think of trade secrets, they imagine secret formulas—the Coca-Cola recipe, the Colonel's spices. But trade secret protection extends far beyond recipes.
Technical and scientific data can be protected. Business strategies. Customer lists. Pricing information. Manufacturing processes. Marketing plans. Financial records. Even computer algorithms and source code.
Perhaps most surprisingly, trade secret law can protect what lawyers call "negative information"—knowledge about what doesn't work. If a pharmaceutical company spends ten years and a billion dollars discovering that a particular molecular compound is ineffective against cancer, that failure is itself valuable information. Competitors who don't know about those failed experiments might waste their own resources pursuing the same dead ends. The knowledge that something doesn't work has commercial value precisely because it helps companies avoid repeating costly mistakes.
A Contested History
Where did trade secret law come from? The answer depends on whom you ask, and the debate has produced some colorfully academic arguments.
In 1929, a legal scholar named A. Arthur Schiller published an article in the Columbia Law Review arguing that trade secrets were protected under ancient Roman law. His argument centered on something called the actio servi corrupti, which translates roughly to "an action for corrupting a servant" or "making a slave worse."
The Roman legal system allowed slave owners to sue anyone who corrupted their slaves—for instance, by bribing a slave to reveal the master's business secrets. Schiller argued this represented an early form of trade secret protection, with Roman jurists cleverly using private law actions to address commercial needs.
Not everyone was convinced. Alan Watson, a professor at the University of Georgia Law School, published a paper with the unambiguous title "Trade Secrets and Roman Law: The Myth Exploded." Watson's critique was pointed:
Schiller is sadly mistaken as to what was going on. ... The actio servi corrupti presumably or possibly could be used to protect trade secrets and other similar commercial interests. That was not its purpose and was, at most, an incidental spin-off. But there is not the slightest evidence that the action was ever so used.
Watson went further, noting that by Schiller's logic, you could claim almost any Roman private law action was a precursor to trade secret protection—theft actions, property damage actions, even deposit claims. Just because a legal mechanism could theoretically be used for a purpose doesn't mean it ever was.
The scholarly consensus now generally traces modern trade secret law to Anglo-American common law, with roots in early nineteenth-century English courts.
The First Cases
The earliest recorded trade secret case was Newbery v. James in 1817. It involved something rather unglamorous: a secret formula for treating gout, that painful inflammatory condition that has plagued the wealthy since ancient times. The case established that secret commercial information could have legal value, though the court only awarded monetary damages for losses—it didn't issue an order preventing the defendant from continuing to use the secret.
Three years later, Yovatt v. Winyard became the first English case to grant what lawyers call injunctive relief—a court order actually prohibiting someone from doing something. The facts were straightforward: a former employee had secretly copied recipes from his employer's veterinary medicine practice. The court issued an injunction preventing him from using or disclosing what he had stolen.
In the United States, the first recognition came in Vickery v. Welch in 1837, involving the sale of a chocolate factory. The seller had agreed to keep the secret chocolate recipe confidential as part of the sale agreement. When he didn't, the court found he had breached that obligation.
But the case that really established the foundational principles of American trade secret law was Peabody v. Norfolk, decided by the Massachusetts Supreme Court in 1868. The court ruled that Peabody's confidential manufacturing process was a protectable trade secret and issued an injunction preventing former employees from using or disclosing it after they had shared it with a competitor. The legal reasoning in Peabody influenced trade secret law for generations.
From Court Cases to Systematic Rules
For most of the nineteenth and early twentieth centuries, trade secret law developed case by case, with each court decision adding to a growing body of precedent. But in 1939, an organization called the American Law Institute—a group of lawyers, judges, and legal scholars that tries to clarify and systematize American law—published the Restatement of Torts.
Among many other things, the Restatement offered one of the first formal definitions of what constitutes a trade secret. According to Section 757, Comment b, a trade secret could consist of "any formula, pattern, device, or compilation of information which is used in one's business, and which gives the business an opportunity to obtain an advantage over competitors who do not know or use it."
This definition became enormously influential. Courts across the United States adopted it as the primary authority. For decades, it was virtually impossible to find a reported trade secret case that didn't cite the Restatement.
Then, in 1979, an organization called the Uniform Law Commission introduced something called the Uniform Trade Secrets Act, which was amended slightly in 1985. The Uniform Law Commission doesn't make actual laws—it drafts model legislation that state legislatures can choose to adopt. The goal is to create consistency across different states, so that businesses don't face wildly different legal rules depending on which state they're operating in.
The Uniform Trade Secrets Act defined what information qualifies for trade secret protection, created a legal claim for misappropriation (that is, the improper taking or use of trade secrets), and outlined remedies including injunctions, monetary damages, and in some cases, attorneys' fees. It was remarkably successful. Today, forty-eight states have adopted some version of it, along with the District of Columbia, Puerto Rico, and the United States Virgin Islands. Only New York and North Carolina remain holdouts.
Going Federal
For most of American history, trade secret law was primarily a state matter. Each state had its own statutes and court decisions governing how trade secrets were protected. If someone misappropriated your trade secret, you sued them in state court under state law.
That changed in 2016 with the Defend Trade Secrets Act. For the first time, Congress created a federal civil cause of action for trade secret misappropriation. This meant that if your trade secret "is related to a product or service used in interstate or foreign commerce"—which covers essentially any business operating across state lines—you could now file your case directly in federal court.
Why does this matter? Federal courts are sometimes preferred for complex commercial litigation. They tend to have more consistent procedures, their judges often have more experience with intellectual property disputes, and for companies operating nationally, having a single federal forum can be more efficient than navigating the varying rules of multiple state courts.
The Defend Trade Secrets Act also introduced an extraordinary remedy: in certain circumstances, a court can order the seizure of property to prevent the spread of a trade secret, and it can do so ex parte—legal Latin meaning "from one side only." In practical terms, this means a company can ask a court to seize evidence or materials without first notifying the other party, preventing them from destroying evidence or further disseminating secrets before they know they're being sued.
International Standards
Trade secret law is fundamentally national—each country has its own rules. But in 1995, international standards emerged as part of something called the Agreement on Trade-Related Aspects of Intellectual Property Rights, mercifully abbreviated as TRIPS.
TRIPS was negotiated as part of the creation of the World Trade Organization and sets minimum standards for intellectual property protection that member countries must provide. Article 39 specifically addresses what TRIPS calls "undisclosed information"—essentially the international law term for trade secrets.
Under Article 39, member countries must protect undisclosed information from unauthorized use "in a manner contrary to honest commercial practices." This covers actions like breach of contract, breach of confidence, and unfair competition. To qualify for protection, the information must not be generally known or easily accessible, must derive value from its secrecy, and must be subject to reasonable steps to keep it secret—essentially the same three-part test used in American law.
The TRIPS framework doesn't create uniform global trade secret law, but it does establish a baseline that member countries must meet.
The Invisible Asset
Here's a paradox that keeps corporate lawyers and business valuators up at night: trade secrets may be among the most valuable assets a company owns, yet by their nature, they are almost impossible to measure.
When a company has a patent, you can look up the patent. You can analyze what it covers, assess the market for products it protects, and estimate its value. When a company has a trademark, you can see it on products and in advertising. When a company has copyrights, you can identify the specific works protected.
But trade secrets? Their value comes precisely from the fact that outsiders don't know what they are. The Coca-Cola formula is valuable because no one outside the company knows exactly what's in it. If the company disclosed it for valuation purposes, it would no longer be a trade secret.
Research shows that changes in trade secret laws do affect business behavior—companies adjust their spending on research and development and their patent filing strategies in response to stronger or weaker trade secret protection. This provides indirect evidence that trade secrets have real economic value. But putting a dollar figure on that value for any specific company remains extraordinarily difficult.
Why Choose Secrecy Over Patents?
If you invent something genuinely new and useful, you have a choice. You can patent it, which requires disclosing how it works to the world in exchange for twenty years of exclusive rights. Or you can keep it secret and hope no one figures it out.
Why would anyone choose secrecy?
Duration is one reason. Twenty years sounds like a long time, but for some innovations, it's not. The Coca-Cola Company has kept its formula secret for well over a century—far longer than any patent could have protected it. For products with extremely long commercial lives, trade secret protection can be far more valuable than patent protection.
Another reason is the nature of the innovation itself. Patents require disclosure; you have to explain your invention in enough detail that someone skilled in the field could replicate it. For some types of competitive advantages, this disclosure itself destroys the value. Customer lists, business strategies, pricing algorithms—these might not even qualify for patent protection, and even if they did, disclosing them would hand valuable intelligence to competitors.
There's also the cost and complexity of patent prosecution. Obtaining a patent requires filing detailed applications, navigating examination procedures, responding to rejections, and often takes years. For some businesses, especially smaller ones, maintaining secrecy is simply more practical.
But trade secret protection has a significant weakness that patents don't share: there is no protection against independent development. If a competitor figures out your secret on their own, without any improper conduct, they can use it freely. They can even patent it themselves, potentially blocking you from using your own invention.
Reverse Engineering: The Great Exception
This brings us to reverse engineering—the practice of taking apart a product to figure out how it works. In most jurisdictions, reverse engineering is perfectly legal. If you buy a competitor's product on the open market and disassemble it to learn its secrets, you haven't done anything wrong.
This creates interesting strategic calculations for businesses. Some secrets are inherently protected by the difficulty of reverse engineering. Even if you obtained a can of Coca-Cola and sent it to the world's best chemistry lab, you probably couldn't determine the exact formula—the process of making the beverage transforms the original ingredients in ways that obscure their identity.
But for other products, reverse engineering is straightforward. A mechanical device can be disassembled and measured. A semiconductor chip can be examined under an electron microscope. Software can be decompiled. For these types of products, trade secret protection may be relatively weak because competitors can legally discover the secret through their own analysis.
Some companies try to address this by including terms in their purchase agreements that prohibit reverse engineering. Whether such terms are enforceable varies by jurisdiction and context, but they represent an attempt to extend trade secret protection through contract law.
The Employee Problem
The most common trade secret disputes don't involve corporate espionage or sophisticated hacking. They involve something much more mundane: employees leaving one company to work for a competitor.
This creates genuine tension. Employees develop skills and knowledge through their work. They learn how things are done, what approaches work, what approaches fail. When they change jobs, they inevitably bring some of that knowledge with them. How do you distinguish between legitimate skills and experience—which employees are entitled to take—and trade secrets belonging to their former employer?
The legal system has developed several tools to manage this tension. Non-disclosure agreements, commonly called NDAs, require employees to promise not to reveal confidential information. Work-for-hire provisions establish that intellectual work products created during employment belong to the employer, not the employee. Non-compete clauses prevent employees from working for competitors for a specified period after leaving.
These protections can be powerful. Violating an NDA can result in substantial financial penalties. Non-compete clauses can effectively lock employees out of their industry for years.
But these tools have significant limitations. Proving that a former employee actually disclosed trade secrets to a new employer can be extremely difficult, especially if the new employer is doing similar work where the information would naturally be relevant. And non-compete clauses are controversial—California, for instance, generally refuses to enforce them, on the theory that they improperly restrict employee mobility and harm innovation.
What Counts as Misappropriation
Trade secret "misappropriation" is the legal term for improperly acquiring, disclosing, or using a trade secret without the owner's consent. To prove misappropriation, the trade secret owner generally must show two things.
First, the information the defendant acquired or used actually matches the trade secret. This might seem obvious, but it can be surprisingly complicated. The owner must identify the trade secret with enough specificity that a court can determine whether the defendant's conduct actually involved that information.
Second, the methods used must have been improper, dishonest, or unlawful. This covers things like breaching confidentiality agreements, violating duties arising from special relationships like employer-employee, engaging in industrial espionage, hacking into computer systems, using coercion, or inducing others to breach their own confidentiality obligations.
The second element is crucial because not all acquisition of secret information constitutes misappropriation. Independent discovery is legal—if you figure out a competitor's secret through your own research without any improper conduct, you've done nothing wrong. Reverse engineering, as discussed, is generally permissible. An employee's general skills and experience, even if developed while working with trade secrets, generally belong to the employee.
There are also public policy exceptions. Whistleblowers who reveal trade secrets to expose misconduct, wrongdoing, or illegal activity may be protected. National security considerations can override trade secret protection. These exceptions vary significantly across jurisdictions.
The Commonwealth Approach
Trade secret law in the United Kingdom and other Commonwealth countries developed somewhat differently from American law. The key distinction lies in how courts characterize the legal interest being protected.
In American law, trade secrets are generally treated as a form of property—you own your trade secret the way you might own a patent or a piece of land. In Commonwealth jurisdictions, confidentiality and trade secrets are typically regarded as an equitable right rather than a property right.
What's the difference? Equitable rights arise from principles of fairness and good conscience, not from ownership. The Court of Appeal of England and Wales, in a case called Saltman Engineering Co Ltd v. Campbell Engineering Ltd, held that the action for breach of confidence is based on a principle of preserving "good faith."
The practical test for a claim of breach of confidence in Commonwealth countries was established in Coco v. A.N. Clark (Engineers) Ltd. Three elements must be present. The information itself must have the necessary quality of confidence about it—meaning it must actually be confidential, not public knowledge. The information must have been shared in circumstances that created an obligation of confidence—for instance, during a business negotiation where both parties understood the information was being shared confidentially. And there must be unauthorized use of that information to the detriment of the party who communicated it.
The "quality of confidence" element captures an important truth about trade secrets: they are a legal concept, not a physical reality. With sufficient effort, or through illegal means like breaking and entering, competitors can usually obtain almost any trade secret. The question isn't whether perfect secrecy was maintained—it's whether the owner took reasonable efforts to maintain confidentiality. If so, the information retains its protected status even if it was improperly obtained.
The Economic Paradox
Trade secrets create a genuine economic tension that policymakers continue to wrestle with.
Strong trade secret protection encourages investment in research and development. If companies know their innovations will be protected, they have greater incentive to invest in creating them. This is the same logic that underlies patent protection—without the ability to capture the value of innovation, companies would underinvest in creating new products and processes.
But there's a counterargument. Knowledge spillovers—the spread of technical knowledge from one firm to another—can be economically beneficial. When employees move between companies, when researchers publish findings, when inventors disclose their methods in patent applications, knowledge spreads through the economy. This diffusion can accelerate overall technological progress, as each inventor builds on the work of others rather than duplicating effort.
Trade secret protection, by definition, restricts knowledge spillovers. The very point is to prevent competitors from learning what you know. While this may encourage any individual firm to invest in innovation, it may also slow the broader diffusion of knowledge through the economy.
There is no easy resolution to this tension. Policymakers must balance the incentive effects of strong trade secret protection against the benefits of knowledge sharing. Different jurisdictions strike this balance differently, and the optimal policy likely varies depending on the industry and type of innovation involved.
The Modern Landscape
Trade secrets have become increasingly important in the modern economy, for reasons that would have surprised earlier generations of lawyers and businesspeople.
The shift to a knowledge economy means that a growing share of economic value comes from information and expertise rather than physical assets. Customer data, algorithmic systems, business processes, and accumulated know-how can be extraordinarily valuable—and trade secret law is often the primary mechanism for protecting them.
The rise of employee mobility has made trade secret disputes more common. In a world where workers expect to change jobs multiple times during their careers, the movement of human capital—and the knowledge it carries—creates constant opportunities for trade secret conflicts.
Digital technology has made information both easier to protect and easier to steal. Encryption and access controls can restrict information more precisely than physical security ever could. But a disgruntled employee with a thumb drive can copy gigabytes of sensitive data in seconds.
Globalization has complicated enforcement. When trade secrets cross borders—whether through international business operations, global supply chains, or cyber intrusions originating abroad—determining which country's laws apply and how to obtain remedies becomes extraordinarily complex.
The result is a legal field that remains surprisingly dynamic despite its ancient roots. From the monks of Chartreuse to the software engineers of Silicon Valley, the challenge of protecting valuable secrets while operating in a competitive economy continues to evolve.