Trade Secrets

A trade secret is anything you use in your business that gives you an advantage over your competitors. A trade secret can be a recipe, process, formula, strategy, technique or device that your competitors do not know, do not have, and cannot use. Sometimes it is referred to as “know-how.” Examples of trade secrets include the formula for hair conditioner, the process for making a vaccine, or the recipe for a cookie.

Trade secrets are governed by both state law and federal law. New York State does not have any statutes covering trade secrets and is one of only two states that have not adopted the Uniform Trade Secrets Act. Instead, all trade secret protection in New York comes from the common law. Although it is the subject of current discussions in Congress, there is no uniform federal trade secret law, but the Economic Espionage Act of 1917 allows the government to punish thefts of trade secret by fines and/or imprisonment.

In general, a trade secret has three parts: (1) information (2) economic value from not being generally known by others, and (3) reasonable efforts have been taken to protect the trade secret. In New York, courts look at six factors to determine if information should be considered a trade secret:

  • The value of the information to your business and your competitors
  • Whether the information is known outside of your business
  • Whether the information is known only to your employees and people in your business
  • The amount of money you have spent in developing the information
  • The difficulty for others to get or create the information
  • The actions you have taken to guard the secrecy of the information

A trade secret is entitled to protection for as long as it is kept a secret. If the information is distributed to the public, it is no longer confidential and loses its trade secret protection forever.

If someone steals or uses your trade secret without your permission, it is called a “misappropriation” of trade secret. Not all uses of trade secrets are considered misappropriation. In order to be liable for misappropriation, the person who uses your trade secret information must have either:  1) obtained the information improperly, such as through corporate spying or 2) used the trade secret, which arose from a breach of confidence, such as where trade secret information was obtained through an employment relationship. New York law also requires that the use of the trade secret be continuous in the operation of a business, not a one-time thing.

If you file a lawsuit, the court can prevent further disclosure of your trade secret with an injunction. You can also seek money damages for any financial losses you suffered due to the misappropriation and you may be able to recover the profits the defendant obtained with your stolen trade secret. The statute of limitations for bringing an action for misappropriation in New York is three years from the date you discovered the misappropriation.

Legal Editor: Lawrence Goodwin and Stacy Grossman, July 2016

Changes may occur in this area of law. The information provided is brought to you as a public service with the help and assistance of volunteer legal editors, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or to substitute for the advice of a lawyer.

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