What is a trade secret?
A trade secret is information that gives a business an edge because others don't know it. Under U.S. law, information qualifies if it derives independent economic value from not being generally known or readily discoverable, and if its owner takes reasonable measures to keep it secret. The information can be technical, like a chemical formula or manufacturing process, or commercial, like pricing models, supplier terms or customer lists.
Trade secrets are one of the main types of intellectual property, alongside patents, copyrights and trademarks. They differ in one big way: nothing is registered or published. Protection lasts as long as the secret stays secret, which can be forever, but it disappears the moment the information becomes public.
- Key elements
- Secret, valuable because secret, reasonably protected
- Examples
- Formulas, algorithms, customer lists, processes
- U.S. law
- DTSA (federal) and state laws based on the UTSA
- Korean law
- Unfair Competition Prevention and Trade Secret Protection Act
A patent trades secrecy for a 20-year monopoly. A trade secret keeps the secret and bets that nobody will find out.
Famous trade secret examples
The Coca-Cola formula is the classic example: the company chose secrecy over a patent, which would have expired long ago and required publishing the recipe. Other commonly cited examples include search ranking algorithms, the recipe for KFC's original seasoning and the methods behind the New York Times bestseller list.
Ordinary businesses have trade secrets too. A plumbing company's list of repeat customers with their service histories, a restaurant's supplier pricing or a startup's unreleased product plans can all qualify if they're kept confidential. General skills and knowledge an employee picks up on the job usually don't.
U.S. law: the DTSA and state statutes
Most states have adopted the Uniform Trade Secrets Act (UTSA), first published in 1979; New York relies mainly on common law instead. In 2016 Congress passed the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836, which lets owners sue in federal court and, in extraordinary cases, seek a court order to seize property to prevent a secret from spreading. Theft can also be a federal crime under the Economic Espionage Act of 1996.
Misappropriation means acquiring a secret by improper means, such as theft, bribery or breaching a duty of confidence, or using or disclosing a secret you know was obtained that way. Remedies include injunctions, damages for actual loss or unjust enrichment, and up to double damages plus attorney's fees for willful misappropriation.
- Kewanee Oil v. Bicron (1974)
- Federal patent law doesn't preempt state trade secret protection
- Waymo v. Uber (2018)
- Self-driving car dispute settled mid-trial for Uber equity
- DTSA (2016)
- Federal civil cause of action and whistleblower immunity
What isn't protected: reverse engineering and independent discovery
Trade secret law only stops improper taking. If a competitor buys your product and figures out how it works, which is reverse engineering, or develops the same thing on its own, that's legal. This is the main trade-off compared with patents, which block even independent inventors.
Trade secret owners also can't stop someone who learns the information from a public source, such as a published paper, a trade show demonstration or a careless post online. Once that happens, the secret is generally gone for everyone, even if the leak was originally wrongful, though the owner may still sue whoever caused it.
That's why businesses choose carefully. Something easy to reverse engineer once sold, like a mechanical design, usually needs a patent. Something hidden in a process or server, like a manufacturing method or ranking algorithm, may be better kept secret. Aggressive patent assertion is covered in patent trolls, and the line between ideas and expression is in copyright basics.
Trade secrets and employees
Most trade secret cases involve departing employees. Employers rely on confidentiality agreements and, in many states, non-compete agreements. In 2024 the FTC issued a rule banning most non-competes, but a federal court set it aside before it took effect, and the agency later dropped its appeal, so state law still controls. California refuses to enforce most non-competes, which pushes employers there to rely on trade secret law itself. Background on at-will employment is in at-will employment.
Korea protects trade secrets under the Unfair Competition Prevention and Trade Secret Protection Act. Since a 2019 amendment, information only has to be "managed as a secret," instead of protected through "considerable effort," which made small firms easier to protect, and damages for intentional misappropriation can now reach five times actual loss. Korean courts may also bar a departing employee from using the secret or competing, but the Supreme Court has limited such bans to the time a competitor would need to develop the same information independently or by reverse engineering (Decision 96Da16605, 1996).
A Korean report on Trade Secret Protection and Industrial Espionage in Korea: The Unfair Competition Prevention Act, Its Amendments and Employee Poaching Cases reviews these rules and industrial espionage cases, and a report on Responding to Patent Troll Demand Letters, Font Copyright Claims and Trademark Infringement: Four IP Disputes Small Korean Companies Face covers related IP disputes small companies face.
| Trade secret | Patent | |
|---|---|---|
| Registration | None | Application and examination |
| Duration | As long as it stays secret | Generally 20 years from filing |
| Disclosure | Kept secret | Published |
| Independent discovery | Allowed | Still infringes |
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Criticism and debate
Supporters say trade secret law encourages investment in know-how that patents can't cover and protects small companies that can't afford patent filings. Critics argue it can lock up knowledge forever, discourage employee mobility and be used to threaten workers who simply move to a competitor. The rise of cross-border industrial espionage cases, especially in semiconductors and batteries, has pushed both the U.S. and Korea toward tougher criminal penalties.
A secret is only as safe as the habits around it. Most leaks come from ordinary emails and downloads, not from movie-style break-ins.
- What is a trade secret in simple terms?
- It's valuable business information that competitors don't know and that the owner actively keeps secret, like a recipe, algorithm or customer list.
- What is the difference between a trade secret and a patent?
- A patent is registered, published and lasts about 20 years, while a trade secret is never published, can last indefinitely and doesn't stop independent discovery.
- How do you protect a trade secret?
- Limit access, use confidentiality agreements, label confidential materials, secure systems and train employees, because courts require reasonable measures to keep the information secret.
References and official sources
- 18 U.S.C. § 1836 (Defend Trade Secrets Act). Cornell LII
- 18 U.S.C. § 1839 (definitions). Cornell LII
- Trade secret, Wex. Cornell LII
- 부정경쟁방지 및 영업비밀보호에 관한 법률. 국가법령정보센터