A new book chapter by Vanderbilt intellectual property expert Daniel Gervais provides a comprehensive examination of the development, structure, and complexity of U.S. trade secret law. The chapter – “Trade Secret Law in the United States: Evolution, Framework, and Federalization,” – shows that, from its origins in state common law to the present dual-track system of state and federal statutes, trade secret law has always required a careful balance of competing interests. The result is, as Gervais puts it, a “unified but not uniform system,” with the foundation and flexibility to protect employers, employees, and the broader competitive economy in a time of great change.
Early Trade Secret Law
Trade secret protection in the U.S. during the early and mid-20th century was, as Gervais describes it, a “patchwork of state common law,” derived from tort law, contract law, and property law. Doctrines varied significantly from one jurisdiction to another, creating an increasingly complex and untenable situation as the economy nationalized.
“This doctrinal diversity was not merely academic; it had practical consequences for the elements plaintiffs needed to prove, the defenses available to defendants, and the remedies courts could award,” Gervais writes.
The American Law Institute attempted to bring consistency to the trade secret law through “The Restatement (First) of Torts” in 1939. Section 757 of the Restatement defined a trade secret as “any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.”
Despite widespread adoption of the Restatement, application varied across jurisdictions, creating challenges for businesses in a post-World War II era that saw the U.S. economy grow more national and interconnected. “Businesses could not confidently rely on a single set of protective measures or enforcement strategies across their operations,” Gervais explains.
The Emergence and Impact of the Uniform Trade Secrets Act
Pressure for trade secret law reform grew in the 1960s and 1970s. Initial discussions about a uniform state law for trade secrets began in the mid-1960s within the American Bar Association’s Patent Section, which led to the formation of a special committee (the Uniform Law Commission) tasked with drafting a comprehensive trade secrets act.
The drafting process took over a decade, involving consultations with business representatives, plaintiffs’ and defendants’ attorneys, judges, and academics, as well as review of case law in all 50 states. In 1979, the Uniform Law Commission approved the Uniform Trade Secrets Act (UTSA), recommending it for enactment by the states.
UTSA replaced the Restatement’s six-factor balancing test with a two-part definition of a trade secret:
- It must consist of information that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use,” and
- The information must be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
It also provided a statutory definition of misappropriation that generally encompasses two categories of wrongful conduct:
- Acquisition by improper means, where a person acquires a trade secret by a person who knows that secret was acquired by improper means; and
- Wrongful use or disclosure of a trade secret without express or implicit consent.
Today, the UTSA has been adopted in some form in 49 states, D.C., Puerto Rico, and the U.S. Virgin Islands, with New York as the only jurisdiction to rely exclusively on its common law framework. It “represents a remarkable achievement in American legal harmonization,” Gervais writes.
While the UTSA created more consistency and predictability, certain features have been modified to reflect local priorities. For example, some states, including California, have rejected the act’s “inevitable disclosure” doctrine, which allows a court to enjoin former employees from working for a competitor if that employee’s new position will “inevitably” lead to sharing trade secrets from the former employer.
“The split over inevitable disclosure illustrates how states can reach diametrically opposite conclusions while all nominally operating under the UTSA framework,” Gervais writes.
Federalization of Trade Secret Law
At the turn of the century, business leaders and policymakers pushed again for reform to trade secret law. State-sponsored industrial espionage, global supply chains, and digitized trade secrets increased the difficulty of protecting intellectual property, and the UTSA’s state-based system made enforcement challenging on a national scale. A push for federal intervention began, leading to passage of The Defend Trade Secrets Act of 2016 (DTSA).
Modeled after the UTSA, the DTSA’s core definitions and concepts leverage decades of experience in case law, with a few notable features. The DTSA created a provision for ex parte civil seizure, which can direct federal law enforcement to seize property without providing prior notice (in practice, federal courts have been reluctant to authorize the measure). Whistleblowers may receive immunity for trade secret disclosure to officials or attorneys for the purpose of reporting or investigating a suspected violation.
Lastly, and perhaps most importantly, the DTSA supplements, instead of preempts, state trade secret law. “The practical consequence is that trade secret owners now have significant strategic choices to make in how they pursue their claims,” Gervais notes.
While enactment of the DTSA has resulted in more trade secret cases filed in federal court, “the DTSA has resulted in relatively little substantive innovation in trade secret doctrine,” the chapter explains. Federal courts have adopted interpretive differences for their respective states. For plaintiffs, forum selection remains a “critical strategic consideration.”
The Future of Trade Secret Law
Gervais believes that trade secret law will continue evolving in response to economic changes, but he argues that the fundamental structure will remain the same.
“The story of trade secret law is thus not one of simple progress toward uniformity, but rather of creating common foundations while preserving space for jurisdictional variation – a workable accommodation of the competing values and interests at stake in this critical area of intellectual property law.”
“Trade Secret Law in the United States: Evolution, Framework, and Federalization” is published in the forthcoming book Trade Secret Protection in the Netherlands (Peter Teunissen et al.). Daniel Gervais is the Milton R. Underwood Chair in Law and Director of the Vanderbilt Intellectual Property Program at Vanderbilt Law.