As recent innovations in automotive technology continue to fuel unprecedented growth across the industry, companies must adapt their privacy and confidentiality capabilities to safeguard highly valuable trade secrets. With economists estimating that trade secrets in the United States are worth upward of $5 trillion, it is more important than ever to have robust measures and policies in place to mitigate information leaks and trade secret misappropriation.
The following key takeaways provide an overview of trade secrets, the legal protections in place at the federal and state levels, the growing prevalence of trade secrets in the automotive industry, and how companies and organizations can best maintain and protect their proprietary information.
According to US federal law, “trade secrets” are broadly defined as forms and types of valuable, proprietary information that help companies gain a competitive advantage. Information that qualifies as a trade secret spans a wide range of potentially sensitive intellectual property, including business and advertising strategies, engineering drawings and blueprints, technical specifications, and customer data. However, in order for a type of information to be considered a trade secret, the owner must have taken “reasonable measures” to keep that information secret, the trade secret must provide actual or potential economic value, and it cannot be “readily ascertainable through proper means.”
In addition to the various measures companies can take to safeguard its confidential information, such as nondisclosure and confidentiality agreements or restricting how and where access is granted, trade secrets are also protected by the Defend Trade Secrets Act (DTSA), which was enacted by Congress in 2016. Under the DTSA, federal courts may grant companies injunction relief or award damages for misappropriated trade secrets that were acquired by improper means, such as theft, bribery, or misrepresentation.
While the DTSA represents the protections and remedies for trade secret misappropriation under federal law, the Uniform Trade Secret Act (UTSA) is its state law predecessor, initially approved in 1979 and later amended in 1985. However, rather than preempting state laws, Congress designed the DTSA to complement the UTSA, with many plaintiffs who bring misappropriation claims in court asserting both DTSA and UTSA claims.
There are some key differences between the two laws, with the DTSA offering a more expansive definition of what can be considered a trade secret. In addition, while the DTSA requires reasonable measures to maintain secrecy of trade secrets, the UTSA requires efforts that are “reasonable under the circumstances,” offering more consideration to facts and context of a given misappropriation claim. As a practical matter, courts frequently apply the same legal reasoning to DTSA and UTSA claims and don’t consider there to be substantive differences between the statutes.
The automotive industry has been one of the fastest growing sectors in the world in recent years, with new and emerging technologies like electric and autonomous vehicles acting as a primary driver of its rapid expansion. As these cutting-edge capabilities continue to accelerate the industry forward, trade secret litigation has quickly become a new battleground for automotive companies.
Economic conditions such as heightened competition or employee layoffs as well as increased collaborations and partnerships with tech companies have contributed to a steep rise in misappropriation disputes, with approximately 1,300 federal trade secrets cases being filed each year since the enactment of the DTSA. The Federal Trade Commission also issued a final rule in April 2024 banning noncompete clauses across the United States, which, despite current challenges in lower courts, could significantly impact companies’ ability to protect their trade secrets.
To best maintain proprietary information, businesses should focus on implementing and executing a comprehensive trade secret policy across their organization. This involves first identifying what qualifies as trade secrets by definition and then thoroughly educating employees on what information must be kept internal.
Companies should also prioritize marking any trade secrets as confidential business information, limiting access to trade secrets to strictly necessary users, and invest in the latest tools and solutions in data privacy and IT security to effectively safeguard its information. Fostering a culture of confidentiality across an organization can also significantly limit instances of trade secret exposure.
From 2009 to 2019, courts found that in 11% of cases, parties claiming trade secret misappropriation did not take adequate measures to protect their trade secrets. Companies can further mitigate this risk by drafting clear policies on the use of confidential or proprietary information and providing comprehensive training to employees.