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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11What is a trade secret? Under U.S. federal law, it is specific information that has actual or potential economic value because it is not generally known or readily discoverable by proper means, and that its owner takes reasonable steps to keep secret. Source code, data, methods, and other technical or business information can qualify—but a “confidential” label alone does not make them trade secrets.
For software and AI companies, the practical task is to identify valuable non-public information, restrict and document access to it, and respond carefully if it may have been taken. This guide explains the federal framework; state laws also apply and can differ in detail. It is general information, not state-specific legal advice.
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What makes information a trade secret?
Federal law defines a trade secret broadly to include financial, business, scientific, technical, economic, and engineering information, including methods, processes, procedures, programs, and codes. But a broad category is not enough: the legal test applies to the particular information and the steps its owner takes to protect it.
Under 18 U.S.C. § 1839(3), the information must meet both requirements:
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- It has independent economic value from remaining secret. The value may be actual or potential, and must arise because the information is not generally known or readily ascertainable through proper means by someone who could gain economic value from its disclosure or use.
- The owner takes reasonable measures to keep it secret. What is reasonable depends on the circumstances, including the information’s sensitivity and value and the company’s size and organization.
The USPTO’s trade-secret policy summarizes its listed elements this way: “All three of the listed elements are required.” In practice, that means a company needs both valuable secrecy and reasonable safeguards. If information becomes public or readily discoverable by lawful means, or the owner fails to take reasonable steps to preserve its secrecy, trade-secret protection may be lost.
What can a software or AI company protect?
Software and AI companies may assess many kinds of non-public information. The USPTO identifies proprietary software code, certain data, and improvements as possible subjects of trade-secret protection. Federal law also names programs and codes among its examples. None of the following qualifies automatically: the company must be able to identify the information and show that it meets the legal requirements.
Software and business information
- Source code, non-public architecture, and technical documentation.
- Methods for building, testing, deploying, or maintaining a product.
- Pricing, customer, and other business information that has value from not being generally known.
AI-related information
- Non-public model parameters, training or evaluation data, and data-curation rules.
- Prompts, evaluation methods, inference pipelines, and deployment know-how.
These are candidates to assess under the general definition—not categories that the federal statute or USPTO categorically declares to be trade secrets. For each one, ask who could obtain economic value from it, whether it is already public or readily ascertainable through proper means, and what specific restrictions protect it. A whole product, model, repository, or department is not a substitute for identifying the information at issue.
Sharing material with employees, contractors, cloud services, model vendors, or other recipients also calls for attention to authorization and confidentiality. The effect of a particular AI service’s terms on trade-secret status depends on the agreement and the facts; review applicable terms rather than assuming that a “confidential” setting or label settles the question.
How do you protect a trade secret?
Reasonable secrecy measures are contextual, not a checklist or software purchase that guarantees protection. The USPTO’s examples include need-to-know access, confidentiality commitments, training, confidentiality markings, digital permission controls, agreements with outside recipients, and departure procedures. A practical program should make it possible to explain what the company protects, who may access it, and how access and disclosure are controlled.
- Inventory the information. Describe each potential secret precisely enough to distinguish it from general know-how. Record its business value, internal owner, storage locations, authorized roles, and a review date.
- Limit and review access. Give access to people who need the information for their jobs. Use individual accounts and permission levels, and reassess access when responsibilities change.
- Set clear confidentiality terms. Use appropriate agreements with employees, contractors, vendors, and prospective partners before disclosure. Align the written terms with how information is actually handled.
- Train people and label materials consistently. Explain how to recognize, store, share, and report sensitive information. Use markings that reflect company policy and real controls.
- Manage changes and departures. Maintain a process for role changes and departures, including access revocation, return or deletion of company materials, and reminders of continuing obligations where appropriate. Keep relevant access records.
- Review third-party tools before sharing sensitive material. Before uploading source code, datasets, prompts, or model material, have security staff and counsel review permissions, retention, training use, and confidentiality terms. This is a practical risk-management step; there is no universal rule here that determines the effect of every AI vendor’s terms.
These measures should fit the information’s sensitivity and the company’s circumstances. A company should be able to describe its actual controls, not rely on a label or policy that does not match practice.
What is the difference between a patent and a trade secret?
A patent exchanges public disclosure for a time-limited right to exclude others from making or using the patented invention, subject to applicable law. A trade secret avoids an application and public disclosure, but only protects information while it remains secret and the legal requirements continue to be met.
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| Decision point | Trade secret | Patent |
|---|---|---|
| How protection begins | Maintain qualifying information through reasonable secrecy measures; no USPTO application or registration is required. (USPTO trade-secret policy.) | File an application and obtain a patent grant. (USPTO Trade Secret Intellectual Property Toolkit, 2023.) |
| Disclosure | Keep the qualifying information secret. (18 U.S.C. § 1839(3).) | Disclose the invention sufficiently for others to make and use it. (USPTO Trade Secret Intellectual Property Toolkit, 2023.) |
| Potential duration | No fixed duration while the requirements continue to be satisfied. (USPTO trade-secret policy.) | Up to 20 years for a utility patent, as described by the USPTO in its 2023 toolkit. |
| Independent discovery or reverse engineering | Federal law treats reverse engineering of a lawfully obtained product and independent derivation as proper means, not misappropriation. (18 U.S.C. § 1839(6).) | A patent may allow its owner to exclude others from making or using the patented invention during the patent term, subject to applicable law. |
| Question to weigh | Can the company keep this specific information secret and demonstrate durable, reasonable controls? | Is public disclosure in exchange for a time-limited exclusion right preferable for this invention? |
The two approaches can complement each other: a company may patent some parts of an innovation while keeping other aspects, such as proprietary code, data, or improvements, secret. Neither route is universally better; the decision depends on the invention and the company’s business circumstances.
What counts as misappropriation—and what is lawful?
Under federal law, misappropriation includes acquiring someone else’s trade secret while knowing, or having reason to know, that it was obtained by improper means. It also includes certain unauthorized disclosures or uses by someone with the required knowledge or a duty to keep the information secret.
Improper means include theft, bribery, misrepresentation, breach or inducement of a secrecy duty, and espionage. USPTO examples also include taking company files without permission, deceptive access, and digital hacking. By contrast, federal law expressly excludes reverse engineering, independent derivation, and other lawful means. Examining a product obtained lawfully or independently developing a solution is therefore different from taking files, inducing someone to breach a confidentiality duty, or accessing protected systems without authorization.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What should a company do if an employee takes confidential files?
If a company suspects theft, the USPTO advises acting promptly, contacting legal counsel, and gathering evidence. A careful response helps preserve relevant information without turning an allegation into a public or employment dispute before the facts are understood.
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- Preserve relevant records. Work through an appropriate legal and security process to preserve access logs and other relevant records. An existing record of the information at issue, safeguards, and people with access can make evidence gathering easier.
- Limit further exposure appropriately. With counsel and security staff, assess access and take proportionate steps to protect systems and information while preserving evidence.
- Avoid retaliation or public accusations without advice. Establish what happened and follow appropriate legal and workplace processes before drawing conclusions.
Federal civil remedies and timing
The Defend Trade Secrets Act (DTSA) permits a federal civil action when the trade secret relates to a product or service used in, or intended for use in, interstate or foreign commerce. Depending on the case, potential remedies include an injunction, damages for actual loss, unjust enrichment not already included in actual-loss damages, or a reasonable royalty in lieu of other measures. For willful and malicious misappropriation, exemplary damages may be awarded up to twice the damages awarded.
A DTSA civil claim generally must be brought within three years after the misappropriation was discovered, or when reasonable diligence should have led to its discovery. For this federal limitation rule, continuing misappropriation is treated as a single claim. Federal and state civil remedies can coexist. Federal criminal prosecution under the Economic Espionage Act is separate; not every theft allegation is a federal crime, and an owner does not control whether criminal charges are brought.
Employee reporting and confidentiality agreements
Employers should account for the immunity notice in 18 U.S.C. § 1833(b) when preparing agreements that govern the use of trade secrets or other confidential information. The law gives an individual immunity under federal and state trade-secret law for a qualifying confidential disclosure to a federal, state, or local government official, or to an attorney, made solely to report or investigate a suspected legal violation. It also covers qualifying information filed under seal in a lawsuit or other proceeding.
The statute allows limited use of trade-secret information in an anti-retaliation case, subject to sealing and court-order conditions. For the notice requirement, “employee” includes contractors and consultants. An employer may provide the notice in the agreement or cross-reference a policy document describing the reporting policy. If it omits the notice, the employer may be unable to obtain exemplary damages or attorney fees under the specified DTSA provisions in an action against an employee who was not given notice. Have counsel review agreement templates and policies.
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