Trade secrets are a powerful form of intellectual property that businesses use to maintain a competitive advantage. Unlike patents or trademarks, which require public disclosure, trade secrets thrive on confidentiality. They encompass formulas, processes, customer lists, business strategies, and other valuable information that gives companies an edge in the marketplace. Because trade secrets rely on secrecy, legal protection depends on how well businesses safeguard their confidential information.
Minnesota follows the Minnesota Uniform Trade Secrets Act (MUTSA), which outlines the legal framework for protecting trade secrets and provides remedies for misappropriation. At the federal level, the Defend Trade Secrets Act (DTSA) offers additional avenues for enforcement, particularly when a trade secret crosses state lines or involves interstate commerce. Understanding trade secret law is essential for businesses looking to prevent intellectual property theft and for attorneys advising clients on best practices for protecting proprietary information.
This article explores the definition of trade secrets, how they differ from other types of intellectual property, legal protections available in Minnesota, common misconceptions, enforcement strategies, and practical steps for businesses to strengthen their trade secret protections. It also examines key litigation strategies, defenses to misappropriation claims, and emerging issues in trade secret law.
Definition of Key Terms and Concepts
Trade secret law involves several fundamental concepts that distinguish it from other forms of intellectual property. Understanding these key terms is critical for businesses and legal practitioners dealing with trade secret protection.
Trade Secret
A trade secret is any information that derives independent economic value from not being generally known and that is subject to reasonable efforts to maintain its secrecy. Minnesota law, following MUTSA, defines a trade secret as including formulas, patterns, compilations, programs, devices, methods, techniques, or processes that meet these criteria.
To qualify as a trade secret, the information must have commercial value precisely because it remains undisclosed. If a competitor or the public can readily access the information without improper means, it loses its trade secret status. A company’s trade secrets might include customer lists, proprietary manufacturing techniques, unpublished software algorithms, or internal business strategies.
Misappropriation
Misappropriation occurs when a trade secret is acquired, used, or disclosed without authorization. Minnesota law considers misappropriation to involve:
- Acquisition of a trade secret by improper means, such as theft, bribery, fraud, or espionage.
- Disclosure or use of a trade secret without consent by someone who obtained it through improper means or knew that the information was confidential.
Misappropriation does not require direct theft; an employee who leaves a company and discloses proprietary customer information to a competitor could be liable for misappropriation if they had a duty to maintain confidentiality.
Improper Means
Improper means refer to unethical or unlawful methods of obtaining trade secrets. These can include industrial espionage, computer hacking, bribery, or inducing employees to breach confidentiality agreements. In contrast, information acquired through independent development, reverse engineering, or public sources is not considered to have been obtained by improper means.
Improper means extend beyond outright theft. For instance, if an individual breaches a non-disclosure agreement to disclose proprietary information, courts may consider that an improper means of acquisition.
Reasonable Efforts to Maintain Secrecy
Businesses must take reasonable steps to protect their trade secrets. Courts assess whether a company took active measures to prevent unauthorized access, such as:
- Restricting access to confidential information.
- Implementing password protections, encryption, and cybersecurity safeguards.
- Requiring employees and vendors to sign non-disclosure agreements (NDAs).
- Conducting regular training on confidentiality policies.
- Physically securing sensitive documents.
If a company fails to show reasonable efforts to maintain secrecy, it may lose trade secret protection, even if the information has economic value.
Statutory Framework in Minnesota
Background of the Minnesota Uniform Trade Secrets Act
Minnesota adopted the Uniform Trade Secrets Act (UTSA) in 1980, codifying it as MUTSA under Minnesota Statutes §§ 325C.01-325C.07. This law standardizes trade secret protections and defines legal remedies available to trade secret owners. Before UTSA, trade secret law was largely governed by common law, making it inconsistent across jurisdictions.
MUTSA establishes clear definitions for trade secrets, misappropriation, and improper means. It also provides remedies such as injunctive relief, damages, and attorneys’ fees for willful misappropriation. The statute’s goal is to protect businesses while ensuring fair competition by prohibiting unlawful acquisition of proprietary information.
Comparison with the Federal Defend Trade Secrets Act
The Defend Trade Secrets Act (DTSA), enacted in 2016, creates a federal cause of action for trade secret misappropriation. While it largely mirrors the UTSA, DTSA has key distinctions:
- Federal Jurisdiction: DTSA allows plaintiffs to file cases in federal court if the trade secret relates to interstate or foreign commerce.
- Civil Seizure Provision: In extraordinary cases, courts may order the seizure of misappropriated trade secrets before the defendant has a chance to destroy or disseminate them.
- Whistleblower Protections: DTSA provides immunity for employees who disclose trade secrets to government officials or attorneys in certain whistleblower cases.
Companies in Minnesota must evaluate whether to pursue claims under MUTSA, DTSA, or both, depending on the circumstances of misappropriation.
Trade Secrets Versus Other Intellectual Property
Patent Versus Trade Secret
Patents and trade secrets both protect inventions, but they serve different purposes. Patents provide exclusive rights for 20 years in exchange for public disclosure of the invention. Trade secrets, by contrast, remain protected indefinitely as long as secrecy is maintained.
Businesses must decide whether to seek patent protection or rely on trade secrets. If an invention can be easily reverse-engineered, patenting may be the better option. However, if secrecy can be maintained, trade secret protection avoids the time and expense of patent prosecution while potentially offering unlimited protection.
Trademark Versus Trade Secret
Trademarks protect brand names, logos, and other identifiers that distinguish goods or services. Unlike trade secrets, which require confidentiality, trademarks thrive on public recognition. The two forms of intellectual property serve different functions: trademarks ensure brand consistency, while trade secrets guard confidential business knowledge.
Copyright Versus Trade Secret
Copyrights protect original works of authorship, such as books, films, and software code. Copyright applies automatically upon creation but does not cover ideas, methods, or processes. Trade secrets, however, protect proprietary business information that remains confidential.
Software companies often use both forms of protection. The underlying source code of an application may be copyrighted, while trade secrets cover proprietary algorithms or unpublished features.
Key Elements of a Trade Secret in Minnesota
Independent Economic Value
For information to qualify as a trade secret, it must provide an economic advantage by remaining undisclosed. Courts look at whether secrecy grants a business a competitive edge. If revealing the information would reduce its value—such as a secret recipe enabling a company to produce goods more cheaply—economic value is established.
Economic value can be demonstrated through:
- Financial statements showing revenue linked to the trade secret.
- Cost savings from proprietary production methods.
- Competitive differentiation based on confidential information.
Not Generally Known or Readily Ascertainable
Trade secret protection applies only to information that is not generally known or easily discoverable through legal means. If competitors can independently develop or ascertain the information through public sources, it loses protection.
Courts evaluate whether the information was available in industry publications, patents, or databases. If a company has taken significant measures to keep information hidden, it strengthens the argument that the information is not readily ascertainable.
Reasonable Efforts to Maintain Secrecy
Businesses must take concrete steps to prevent unauthorized access. Courts assess security measures such as:
- Limiting access to key personnel.
- Using confidentiality agreements and employee training.
- Implementing cybersecurity defenses.
- Physically securing sensitive materials.
A lapse in security can jeopardize trade secret protection, making rigorous safeguards essential.
Common Misconceptions About Trade Secrets
Understanding trade secret law requires dispelling common misunderstandings. Many businesses mistakenly believe they have trade secret protection when, in reality, they have not met the necessary legal standards. These misconceptions can lead to costly litigation or the unintended loss of valuable proprietary information.
“If It’s Known by More Than One Person, It’s Not a Trade Secret”
A widespread belief is that a trade secret loses its protection if multiple people know about it. This is incorrect. A trade secret does not have to be known by only one individual or entity. Many employees within a company may have access to a trade secret, and businesses may share trade secrets with partners, vendors, or clients under confidentiality agreements. The key factor is whether the information remains confidential outside the group of individuals who are authorized to know it.
What matters is whether the company has taken reasonable efforts to maintain secrecy. If confidential information is widely known within an industry or publicly accessible, it no longer qualifies for trade secret protection. However, a company can share trade secrets internally or with trusted third parties as long as confidentiality safeguards are in place.
“A Trade Secret Must Be Novel Like a Patent”
Unlike patents, trade secrets do not need to be novel. The law protects information that derives value from being secret, even if it consists of commonly known elements arranged in a unique way. For example, a manufacturing process that combines standard techniques in an innovative manner can qualify as a trade secret if it provides a competitive advantage.
This distinction is important when businesses decide whether to pursue patent or trade secret protection. While patents require novelty and non-obviousness, trade secrets can protect valuable, non-novel business knowledge that is not generally known.
“Labeling Documents as ‘Confidential’ Is Enough”
Many companies believe that simply marking documents as “confidential” automatically grants trade secret protection. While confidentiality labels are helpful, they are not sufficient by themselves. Courts require businesses to take reasonable steps to maintain secrecy. This may include implementing access controls, limiting distribution, training employees, and securing digital or physical copies of sensitive information.
A document labeled “confidential” but left openly accessible within an office or digital network may not qualify for protection. Trade secret owners must actively enforce security policies to demonstrate that they treated the information as proprietary.
“Once You File a Patent Application, You Still Have Trade Secret Protection”
Once a company files a patent application, the disclosed information is no longer a trade secret. Patent applications become public within 18 months of filing, making the invention available for anyone to see. Even if the application is pending or ultimately rejected, the information disclosed cannot be considered a trade secret.
Businesses must carefully weigh the choice between patent and trade secret protection. If maintaining secrecy provides a longer-term competitive advantage, patenting may not be the best option. However, if public disclosure is acceptable in exchange for exclusive legal rights, a patent may be preferable.
“Non-Compete Agreements Are Enough to Protect Trade Secrets”
While non-compete agreements can help protect trade secrets by preventing employees from working for competitors, they are not a substitute for trade secret protection. Courts in Minnesota scrutinize non-compete agreements and may refuse to enforce them if they are overly broad or restrict an individual’s ability to earn a living.
Even with a valid non-compete agreement, a former employee may still use general knowledge and skills acquired during employment. To strengthen trade secret protection, businesses should use well-drafted confidentiality agreements, train employees on handling sensitive information, and implement technological safeguards to prevent data leaks.
Common Problems in Trade Secret Protection
Trade secrets provide a competitive advantage, but protecting them requires vigilance. Businesses often face challenges in maintaining secrecy, especially as employees change jobs, partnerships evolve, and digital information becomes more vulnerable to security breaches.
Inadequate Internal Policies
One of the most common mistakes businesses make is failing to establish clear trade secret policies. Many companies assume that employees will inherently understand which information is confidential. However, without explicit policies, employees may unknowingly disclose trade secrets or fail to take necessary precautions.
A strong trade secret policy should:
- Define what constitutes a trade secret within the organization.
- Establish procedures for handling confidential information.
- Require employees to sign non-disclosure agreements (NDAs).
- Train staff on best practices for protecting sensitive data.
- Regularly review and update security measures.
Employee Turnover and Trade Secret Theft
Departing employees pose a significant risk to trade secrets. Former employees may join competitors or start their own businesses, taking valuable knowledge with them. Without proper safeguards, trade secrets can easily be leaked or used inappropriately.
To mitigate this risk, businesses should:
- Conduct exit interviews reminding employees of their confidentiality obligations.
- Require employees to return all company property, including digital files.
- Monitor access logs and disable access to sensitive systems upon departure.
- Take legal action if there is evidence of misappropriation.
Courts take trade secret theft seriously, but businesses must proactively enforce their rights. If a former employee misappropriates trade secrets, swift legal action may be necessary to prevent further damage.
Overbroad Confidentiality Designations
Some companies label nearly all business information as “confidential” or “trade secret,” assuming that this maximizes protection. However, if a business claims that everything is a trade secret, courts may view the designation skeptically. Overbroad claims can weaken legitimate trade secret protections.
Courts expect businesses to differentiate between general business knowledge and truly proprietary information. Trade secret owners should clearly document why specific information qualifies as confidential and ensure that it is treated accordingly.
Joint Ventures and Collaboration Risks
Businesses frequently collaborate with partners, suppliers, and contractors, requiring them to share sensitive information. However, trade secret protection can become complicated in joint ventures if confidentiality terms are not clearly defined.
To avoid disputes:
- Businesses should enter into written agreements specifying how trade secrets will be shared, used, and protected.
- Contracts should outline ownership rights over any jointly developed intellectual property.
- Clear protocols should be established for handling confidential information and preventing leaks.
Without well-drafted agreements, a company may lose control over its trade secrets or face difficulty proving ownership in litigation.
Practical Strategies to Protect Trade Secrets
Businesses that rely on trade secrets must take proactive steps to maintain confidentiality. Implementing best practices for trade secret management can prevent leaks, strengthen legal protections, and reduce the risk of misappropriation.
Implementing Confidentiality Agreements
One of the most effective ways to protect trade secrets is through confidentiality agreements, including:
- Employee Agreements: Require employees to sign NDAs and confidentiality clauses in employment contracts.
- Third-Party Agreements: Use NDAs when sharing trade secrets with vendors, contractors, or potential business partners.
- Consultant Agreements: Ensure that outside consultants and advisors agree to confidentiality restrictions before gaining access to sensitive information.
Confidentiality agreements should clearly define what constitutes confidential information, outline permissible uses, and specify penalties for unauthorized disclosure.
Strengthening Internal Policies and Employee Training
Trade secret protection is only as strong as the measures used to enforce it. Businesses should establish clear internal policies, including:
- Documenting which information qualifies as a trade secret.
- Implementing access restrictions based on an employee’s role.
- Training employees on data security and confidentiality obligations.
- Regularly updating policies to address evolving security threats.
Educating employees about trade secret protection ensures that they understand their responsibilities and the consequences of mishandling confidential information.
Leveraging Cybersecurity and Physical Security Measures
In the digital age, cybersecurity plays a crucial role in trade secret protection. Businesses should:
- Use encryption for sensitive data.
- Implement multi-factor authentication for system access.
- Restrict file access to authorized personnel.
- Monitor network activity for unauthorized access.
Physical security is equally important. Sensitive documents should be stored in locked file cabinets, access to restricted areas should be controlled, and security cameras can help prevent unauthorized entry.
Conducting Exit Interviews and Enforcing Post-Employment Obligations
When employees leave, businesses should conduct thorough exit interviews to reinforce confidentiality obligations. Employees should be reminded that trade secret protections continue after their employment ends.
If a company suspects that a former employee has taken trade secrets, it should monitor potential misuse and be prepared to take legal action. Courts can issue injunctions to prevent further disclosure and award damages for misappropriation.
Enforcement and Remedies for Trade Secret Misappropriation
When a trade secret is misappropriated, the owner has several legal avenues to enforce their rights. Minnesota law provides both civil and, in some cases, criminal remedies. Businesses must act quickly to protect their trade secrets once a breach is discovered, as delays in enforcement can weaken a legal claim.
Civil Actions Under the Minnesota Uniform Trade Secrets Act (MUTSA)
The Minnesota Uniform Trade Secrets Act (MUTSA) allows trade secret owners to file civil lawsuits against individuals or entities that have misappropriated confidential information. Courts can impose several remedies, including:
- Injunctive Relief: Courts can issue an injunction to prevent further disclosure or use of the trade secret. This is often the first remedy sought in trade secret cases, as stopping the harm is often more important than seeking damages.
- Damages for Actual Loss and Unjust Enrichment: The plaintiff can seek compensation for financial losses suffered due to the misappropriation. Additionally, courts can award damages based on the defendant’s profits gained from using the trade secret.
- Reasonable Royalty: If actual damages are difficult to calculate, courts may award a reasonable royalty, which reflects the amount the defendant would have had to pay if they had legally licensed the trade secret.
- Attorneys’ Fees: In cases of willful and malicious misappropriation, courts may order the losing party to pay attorneys’ fees to the prevailing party.
Under MUTSA, a lawsuit must be filed within three years of when the misappropriation was discovered or reasonably should have been discovered. If a business waits too long to take legal action, it may lose its right to enforce the trade secret.
Federal Actions Under the Defend Trade Secrets Act (DTSA)
The Defend Trade Secrets Act (DTSA) provides an additional federal cause of action for trade secret misappropriation. While it largely mirrors state law, DTSA offers unique benefits:
- Access to Federal Courts: Businesses can bring their claims in federal court, which may be advantageous for multi-state disputes.
- Ex Parte Seizure Orders: In extreme cases, a court can order law enforcement to seize property containing misappropriated trade secrets to prevent their dissemination.
- Whistleblower Protection: DTSA includes provisions protecting employees who disclose trade secrets to government authorities as part of a whistleblower claim.
Since DTSA does not preempt state law, plaintiffs can bring claims under both MUTSA and DTSA, allowing them to pursue the broadest set of remedies.
Criminal Penalties for Trade Secret Theft
While trade secret cases are typically handled through civil litigation, certain acts of misappropriation may constitute criminal offenses under federal or state law.
- Economic Espionage Act (EEA): At the federal level, the Economic Espionage Act (18 U.S.C. §§ 1831–1839) imposes severe penalties for trade secret theft, especially when committed for the benefit of a foreign entity. Convictions can lead to fines of up to $5 million for companies and imprisonment for individuals.
- Minnesota Theft and Computer Crimes Laws: Under Minnesota criminal statutes, trade secret theft may be prosecuted under general theft laws or computer crimes statutes. A person who unlawfully accesses confidential business data through hacking or fraud may face criminal charges.
While criminal prosecutions are less common than civil lawsuits, they serve as an important deterrent against large-scale trade secret theft.
Preliminary Injunctive Relief
Trade secret owners often seek a temporary restraining order (TRO) or a preliminary injunction at the beginning of a lawsuit. Courts grant these orders when there is an immediate risk that the trade secret will be further disclosed or used improperly. Injunctive relief can:
- Prevent a former employee from working for a competitor if they have confidential knowledge that cannot be separated from their new role.
- Stop a business partner from selling proprietary information to a third party.
- Require a company to delete or return confidential data obtained improperly.
Preliminary injunctions are time-sensitive and require businesses to present strong evidence that misappropriation has occurred and that irreparable harm will result without immediate court intervention.
Defenses to a Trade Secret Misappropriation Claim
Defendants accused of trade secret misappropriation have several legal defenses they can assert. Successfully arguing one of these defenses can result in the dismissal of claims or a reduction in damages.
Independent Development
One of the most common defenses is that the alleged trade secret was independently developed. If the defendant can show that they created the information on their own, without using or referencing the plaintiff’s confidential data, they cannot be held liable for misappropriation.
Courts often examine:
- The timeline of development.
- Internal documentation showing research and innovation efforts.
- Whether the defendant had access to the plaintiff’s trade secrets.
If independent development can be proven, the defendant has a strong case against liability.
Information Was Publicly Available or Readily Ascertainable
For trade secret protection to apply, the information must not be generally known or easily discoverable. A defendant may argue that the alleged trade secret was:
- Published in an industry journal or patent database.
- Available through public sources, such as websites or trade shows.
- Easily reverse-engineered.
If the defendant can demonstrate that the information was publicly accessible, the claim for misappropriation fails.
Consent or License to Use the Information
A defendant may argue that they had permission to use the trade secret, either explicitly or implicitly. This defense is often used when:
- The parties had a prior business relationship in which the information was shared.
- The alleged trade secret was included in a licensing agreement.
- The plaintiff failed to enforce confidentiality restrictions over time.
If the defendant can show that the plaintiff knowingly allowed the use of the trade secret, it weakens the plaintiff’s case.
The Plaintiff Did Not Take Reasonable Steps to Protect Secrecy
Trade secret law requires owners to take reasonable efforts to maintain secrecy. If a plaintiff failed to implement proper security measures, a defendant may argue that the information should not be considered a trade secret at all.
Courts look at factors such as:
- Whether the company used NDAs and confidentiality agreements.
- Whether the information was restricted to authorized personnel.
- Whether digital and physical security measures were in place.
If a court determines that the plaintiff did not sufficiently protect the information, the case may be dismissed.
Statute of Limitations
Under MUTSA, trade secret claims must be filed within three years of when the misappropriation was discovered or should have been discovered. If a plaintiff delays too long, the defendant can argue that the claim is time-barred.
Litigation Strategies and Considerations
Trade secret litigation is complex and requires careful planning. Plaintiffs and defendants must prepare for extensive discovery, expert testimony, and strategic decision-making about settlement versus trial.
Pre-Litigation Steps
Before filing a lawsuit, businesses should:
- Send a Cease-and-Desist Letter: Many disputes are resolved through a strongly worded letter demanding that the defendant stop using the trade secret.
- Preserve Evidence: Plaintiffs should collect documents, emails, and access logs that demonstrate misappropriation.
- Assess Risks of Litigation: Trade secret litigation can be costly and may expose proprietary information during discovery.
Discovery Process
Once a lawsuit is filed, both parties engage in discovery to gather evidence. This process may include:
- Interrogatories: Written questions exchanged between parties.
- Document Requests: Emails, contracts, and internal records related to the trade secret.
- Depositions: Sworn testimony from employees, executives, and expert witnesses.
Trade secret cases often involve protective orders to prevent the disclosure of sensitive information during litigation.
Settlement Versus Trial
Many trade secret disputes settle before reaching trial. Settlement negotiations can involve:
- Monetary Compensation: The defendant may pay damages or agree to a royalty arrangement.
- Non-Disclosure and Non-Compete Agreements: To prevent future misuse of the trade secret.
- Injunctive Relief: The defendant may agree to cease using the trade secret.
Trial remains an option when settlement is not possible, but it carries risks, including the potential public exposure of proprietary information.
Conclusion
Trade secret protection is a vital tool for businesses in Minnesota seeking to safeguard confidential information and maintain a competitive edge. Whether enforcing rights under state or federal law, businesses must take proactive steps to document, protect, and, when necessary, litigate to defend their trade secrets.
By implementing strong internal policies, leveraging legal agreements, and taking swift action when misappropriation occurs, companies can minimize risks and maximize the value of their proprietary assets.
