Restatement of Torts, Section 757: A trade secret may consist of any formula, practice, instrument, device or compilation of information which is used in one's business to obtain an advantage over competitors or customers.

The Economic Espionage Act of 1996, (18 U.S.C. § 1839) defines the term “trade secret” as follows: 

As used in this chapter

(1) . . .  

(3) the term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

• (A) the owner thereof has taken reasonable measures to keep such information secret; and
• (B) the information derives independent econimic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public, and: . . .  

In contrast, Patents and Trademarks are protected under federal statutes; the Patent Act and the Lanham Act, respectively.

It should be appreciated that the fundamental difference between a "trade secret" and patents/trademarks is that intellectual property that qualifies as a “trade secret” is protected only when such intellectual property is not disclosed.  In contrast, intellectual property protected by Patents and Trademarks are only protected through disclosure.

FEDERAL CRIMINAL LAW

As noted above, trade secrets are generally protected through state law as there are no federal CIVIL statutes to protect trade secrets.  That said, there is a federal CRIMINAL statute that protects trade secrets.

The Economic Espionage Act of 1996 (18 U.S.C. § 1831–1839) makes the theft or misappropriation of a “trade secret” (commercial information as defined above) a federal crime.

The Economic Espionage Act contains two sections criminalizing two categories of activity.   

The first, 18 U.S.C. § 1831(a), criminalizes the misappropriation of trade secrets (including conspiracy to misappropriate trade secrets and the subsequent acquisition of such misappropriated trade secrets) with the knowledge or intent that the theft will benefit a foreign power.   

The second, 18 U.S.C. § 1832, criminalizes the misappropriation of trade secrets related to or included in a product that is produced for or placed in interstate (including international) commerce, with the knowledge or intent that the misappropriation will injure the owner of the trade secret. Penalties for violation of section 1832 are imprisonment for up to 10 years for individuals (no fines) and fines of up to $5 million (US Dollars) for organizations.  

TRADE SECRET PROTECTION

Companies often consider their customer list as a trade secret. Companies typically protect their customer lists with Nondisclosure Agreements (NDAs), particularly when a former employee might use a customer list to contact clients. If a dispute over a customer list ends up in court, a judge generally considers the following elements to decide whether or not a customer list qualifies as a trade secret:

• Is the information in the list ascertainable by other means?  [A list that is readily ascertainable typically cannot be protected.];
• Does the list include more than names and addresses? [For example, a customer list that includes pricing and special needs is more likely to be protected because such information adds value];
• Did it take a lot of effort to assemble the list? [A customer list that requires more effort is more likely to be protected under an NDA.];
• Did the departing employee contribute to the list? [If the departing employee helped create the list or had personal contact with the customers, it is less likely to be protected under an NDA.]; and
• Is the cusomer list personal, long-standing or exclusive? [If a business can prove that a customer list is special to its business and has been used for a long time, such list is more likely to be protected.].

Wholesalers' lists of retail concerns are often hard to protect as trade secrets. Retailers are usually easy to identify through trade directories and other sources, and a list of them ordinarily does not confer a competitive advantage.  But there are exceptions -- for instance, a list of bookstores that order certain types of technical books and pay their bills promptly may be very valuable to a wholesale book distributor.  But if the information is readily ascertainable through trade publications or other industry sources, it is not classified as a trade secret.

EXAMPLE 1: A salesman worked for an insurance company selling credit life insurance to automobile dealers. When he switched jobs to work for a competing insurance company he took his customer list and contacted the customers at his new job. A court ruled that the customer list was not a trade secret because the names of the automobile dealers were easily ascertainable by other means and because the salesman had contributed to the creation of the list. Lincoln Towers Ins. Agency v. Farrell, 99 Ill. App. 3d 353, 425 N.E.2d 1034 (1981).

EXAMPLE 2: Former employees took the client list of a temporary employee service. The former employees argued that the list could not be a trade secret since the information could be obtained through other means. A court disagreed and prevented the ex-employees from using the list because it could not be shown, using public information, which companies were likely to use temporary employees and because the list also included such information as the volume of the customer's business, specific customer requirements, key managerial customer contacts and billing rates. Courtesy Temporary Serv., Inc. v. Camacho, 222 Cal. App. 3d 1278 (1990).