Trade secret claims against your business: what the plaintiff must actually prove.

A New York trade secret plaintiff must prove two things: that it possessed a trade secret, and that you used that secret in breach of an agreement, a confidential relationship or duty, or after acquiring it by improper means. New York has never enacted the Uniform Trade Secrets Act, so the rule comes from case law.

What does a trade secret plaintiff have to prove in New York?

New York trade secret law is judge made, and the state has no civil trade secrets statute. To win, a plaintiff must prove that it possessed a trade secret and that the defendant used that trade secret in breach of an agreement, a confidential relationship or duty, or as a result of discovery by improper means.

Two elements. Element one is possession of a trade secret. Not confidential information. Not information the company would prefer you did not have. A trade secret, as New York defines the term.

Element two is wrongful use. The plaintiff must tie your use of that secret to a breach of an agreement, a breach of a confidential relationship or duty, or acquisition by improper means. An accusation that you competed or won a customer does not satisfy it. Competition is lawful.

Notice the verb. The New York standard is phrased in terms of use; the federal statute also reaches improper acquisition and unauthorized disclosure. Read each count separately: what secret, used how, when.

Case: Faiveley Transport Malmo AB v. Wabtec Corp., 559 F.3d 110, 117 (2d Cir. 2009). Law: 18 U.S.C. 1839(5).

What makes information a trade secret and not just confidential?

A trade secret in New York is a formula, pattern, device or compilation of information used in a business that gives its holder an advantage over competitors who do not know or use it. The Court of Appeals took that definition, and a six factor test, from the Restatement of Torts in Ashland.

The six factors:

• The extent to which the information is known outside the business.
• The extent to which it is known by employees and others involved in the business.
• The extent of measures taken to guard the secrecy of the information.
• The value of the information to the business and to its competitors.
• The amount of effort or money expended in developing the information.
• The ease or difficulty with which the information could be properly acquired or duplicated by others.

The factors are weighed, not counted. Two consequences follow. First, a trade secret must first of all be secret, so information already circulating in the industry fails at the threshold whatever the complaint calls it. Second, secrecy is generally a question of fact, so the decisive fight usually happens on a developed record rather than on the pleading. Build the record early.

Case: Ashland Mgt. Inc. v. Janien, 82 N.Y.2d 395, 407 (1993).

Secret means secret. Information the market already has does not become a trade secret because a complaint calls it one.

Does it matter that the company never protected the information?

Reasonable secrecy measures matter twice over. Under New York law, the extent of the measures taken to guard secrecy is one of the Ashland factors. Under the federal statute, reasonable measures to keep the information secret are part of the definition of a trade secret itself. A company that shared the material freely has a proof problem.

The federal definition has a second half: the information must also derive independent economic value from not being generally known or readily ascertainable through proper means.

So audit the plaintiff’s own conduct:

• Who inside the company had access, and was access limited to people who needed it?
• Was there a signed confidentiality agreement, and does it actually cover the information now claimed?
• Was the material handed to customers, vendors or contractors without a nondisclosure agreement?
• Did the same content appear in a pitch deck, a website page, a bid response or a public filing?

Every unprotected disclosure subtracts from element one. A company that emailed its pricing model to prospects, then sued a former employee for knowing it, is arguing against its own file. I ask for the confidentiality agreement, the offer letter and the exit checklist before I ask anyone what happened.

Law: 18 U.S.C. 1839(3). Case: Ashland, 82 N.Y.2d at 407.

Can the plaintiff claw back compensation you were already paid?

New York’s faithless servant doctrine can require an employee who was disloyal during the employment to forfeit compensation. It is not a damages claim measured by the employer’s loss, and the employer need not prove it lost a dollar. It is forfeiture, measured by what you were paid, which is why it can outweigh the trade secret count.

New York courts have applied two formulations of the trigger: misconduct substantially violating the contract of service, and acting adversely to the employer in any part of the transaction. Which governs is unsettled, so expect the plaintiff to plead the friendlier one.

Scope is what defendants misjudge. The Second Circuit, applying New York law, has held that forfeiture reaches all compensation paid after the first disloyal act, equity included, unless the parties agreed that compensation was paid for specific tasks performed loyally. So the fight is over what the first disloyal act was, and whether the compensation structure permits apportionment.

The defense lives in the details. Disloyalty must occur during the employment, so lawful post-employment competition falls outside the doctrine. The plaintiff must prove disloyal conduct, not disappointing performance. Never concede the date of the first disloyal act.

Cases: Murray v. Beard, 102 N.Y. 505 (1886); Phansalkar v. Andersen Weinroth & Co., 344 F.3d 184 (2d Cir. 2003).

Forfeiture is not a damages theory. It is a subtraction from money already in your account.

How does a federal DTSA claim change the case?

The Defend Trade Secrets Act, enacted in 2016, gives trade secret owners a federal cause of action, and plaintiffs routinely plead it alongside the New York common law claim. The statute supplies written definitions of both a trade secret and misappropriation. Those definitions give you fixed statutory language to test the allegations against.

The federal count carries its own thresholds. The secret must relate to a product or service used in, or intended for use in, interstate or foreign commerce, and the statute reaches misappropriation on or after its May 11, 2016 enactment date.

Law: 18 U.S.C. 1836(b)(1), (b)(2)(A)(i)-(ii), (b)(3)(C)-(D), (d); 1839(3), (5); CPLR 214(4).

One practical effect is forum. The federal count supplies a federal courthouse, and the state counts usually travel with it on supplemental jurisdiction, which is discretionary. The timing row is the one defendants underuse. A plaintiff that discovered the theft years ago, then pleads a fresh federal injury from continuing use, is fighting the statute’s text.

What are the real defenses to a trade secret claim?

Three defenses do most of the work: independent development, general skill and knowledge, and public availability. Each attacks a different part of the plaintiff’s proof. Independent development defeats improper means and use. General skill and knowledge defeats the existence of a protectable secret. Public availability defeats secrecy itself.

Independent development. Independent development means you built the thing yourself, without using the plaintiff’s information. It is not an excuse but a direct denial, and the federal statute agrees, excluding reverse engineering and independent derivation from improper means. It is proved with documents carrying their own dates: drafts, source control history, invoices, engineering notes. I build the development timeline out of dated documents before I read the plaintiff’s list of secrets. A dated file beats an inference drawn from timing.

General skill and knowledge. A trade secret is information, not competence. The Court of Appeals has held that absent a trade secret or wrongful conduct, an employee cannot be enjoined from using the general knowledge and skill acquired on the job. Where the claimed secret is really a description of an employee’s own capability, factors two and six cut hard against it.

Public availability. Public availability means anyone willing to look could find it. A published price list. A website page. An industry directory. A patent. A regulatory filing. Customer identities readily ascertainable in the trade are the classic example, and the Court of Appeals has refused protection on that ground, while client information compiled at substantial effort and kept close has been protected. Where a claimed compilation can be reassembled from public sources with ordinary effort, the plaintiff must explain what secret remains. Because secrecy is generally a question of fact, this defense usually wins on summary judgment, not on the pleadings.

Two further defenses belong in the first pleading. The first is identification: a complaint calling everything the company knows confidential and proprietary has not identified a trade secret. The second is use. Possession of an old file in an archive is not the same as using a secret to compete, and use is what the New York claim requires, though improper acquisition can stand alone on the federal count.

Cases: Reed, Roberts Assocs. v. Strauman, 40 N.Y.2d 303 (1976); Leo Silfen, Inc. v. Cream, 29 N.Y.2d 387 (1972); N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 44 (2d Cir. 1999); Ashland, 82 N.Y.2d at 407. Law: 18 U.S.C. 1839(6)(B).

Can the plaintiff shut you down with an injunction before trial?

A preliminary injunction takes more than a plausible trade secret, and it is discretionary relief. In federal court the plaintiff must show irreparable harm, plus either a likelihood of success or serious questions going to the merits with the balance of hardships in its favor, and that an injunction serves the public interest.

Irreparable harm is the pressure point. The Second Circuit, quoting Rodriguez, calls it “the single most important prerequisite for the issuance of a preliminary injunction,” and has held that such harm is not presumed where the defendant seeks to use the information rather than destroy its secrecy and the loss can be remedied in damages.

So the fight is often won on delay and on the shape of the claimed harm. Ask when the plaintiff learned what it says it learned, and what it did next. An emergency that waited two quarters is not an emergency.

The statute also authorizes ex parte civil seizure of property necessary to prevent propagation or dissemination of a trade secret, in extraordinary circumstances only, and only where other equitable relief would be inadequate. If such an application is threatened, the response is preservation and transparency about what you hold, not silence.

Case: Faiveley, 559 F.3d at 118-19 (quoting Rodriguez v. DeBuono, 175 F.3d 227, 234 (2d Cir. 1999)). Law: 18 U.S.C. 1836(b)(2)(A)(i)-(ii).

What should you do in the first week after you are served?

The first week after service is about preservation and identification, not argument. Stop all deletion, isolate the devices and accounts, and determine exactly what plaintiff material you hold, if any. Confirm the response deadline in the governing court, and whether emergency relief is pending. Nothing should look like a cleanup.

• Put a litigation hold in writing and send it to everyone who touched the work. Deletion invites sanctions at the court’s discretion and moves the argument off the merits and onto your conduct.
• Image the laptops, phones and cloud accounts. Do not wipe, reinstall or run cleaning software.
• Collect the governing documents by name: the confidentiality agreement, the offer letter, the handbook acknowledgment, the exit checklist, and the customer contracts.
• Build the dated development timeline for anything the plaintiff says you copied, and print and date the public sources carrying the same information.
• Identify who had contact with the plaintiff’s material and when, before memories align themselves.
• Give notice to your insurer. Notice provisions are often short, and whether a policy responds depends on its wording.

Then read the complaint once more with one question in mind. For each secret it names, can the plaintiff prove it was secret, that it protected it, and that you used it in breach of a duty or by improper means? A no on any of the three makes that item vulnerable. That is how these cases shrink.