3 minute read | January.22.2025
AI companies should familiarize themselves with trade secret law to safeguard their innovations.
A company does not need to register a trade secret to invoke it in litigation, unlike other IP protections. Trade secrets can protect algorithms, processes, datasets and more.
Their ease of creation and flexibility make trade secrets especially important to protect for companies that focus on AI, where the tech changes quickly and other IP protections may not apply.
Federal law says a trade secret must relate to secret information that “derives economic value, actual or potential, from not being generally known.” In addition, the owner must have “taken reasonable measures to keep such information secret.”
Trade secrets do not protect IP absolutely. Rather, they protect trade-secret-eligible IP from being misappropriated. This means that if a company discovers a rival’s trade secret through “fair and honest means” it loses protection.
Here’s a look at how AI companies can protect trade secrets and avoid infringing upon those of others.
The law outlines three requirements for a “trade secret.”
Secret information: The sheer breadth of information that may constitute a trade secret makes it a compelling tool for protecting IP.
Not generally known: To qualify as a trade secret, the “actual or potential” economic value of the information must stem from its secrecy. This is a simple standard to meet for breakthrough technologies like AI.
Reasonable efforts to maintain secrecy: Companies can automatically meet the first two criteria for a trade secret, but maintaining secrecy requires action.
Trade secret claims are bound to arise as employees migrate between companies working on cutting edge products. Deploying a product that incorporates another entity’s trade secret is not inherently a violation. Independent invention, accidental disclosure or reverse engineering each provide a complete defense to a claim of trade secret appropriation.
Consider this example: Company A uses publicly available research from Company B. It also has authorized access to Company B’s product. Company A discovers IP that is otherwise protected by Company B. In that case, Company A has not misappropriated Company B’s trade secret. This is true even if Company A deploys that technology. Independent discovery is a complete defense to a trade secret appropriation claim.
On the other hand, if an employee from Company B divulges trade secrets during a job interview with Company A, and Company A hires that employee, Company B will have a stronger claim.
While this may seem obvious, many companies require presentations of past work as part of their interview process – a practice that can easily replicate our example scenario.
To mitigate potential liability, consider implementing real-time evaluations, such as technical interviews, instead of examining a candidate’s past work.
Since the manner in which a trade secret is discovered determines whether a claim is viable, not the technology itself, trade secret actions tend to be highly fact-dependent and can come up often in industries that depend on emerging technology.
As AI evolves and become integral to various industries, understanding and leveraging trade secret law is an essential way for companies to protect their innovations.
Companies can safeguard their competitive edge by maintaining the secrecy of valuable information, such as by implementing robust internal policies, limiting access and securing agreements with third parties.
To avoid legal pitfalls, it’s also crucial to keep in mind how people or organizations can inadvertently disclose or misappropriate trade secrets.
Want to know more? Contact one of the authors (Shannon Yavorsky, Robert Shwarts or Tom Zick).