Guarding the Crown Jewels: Trade Secrets Litigation and What SMBs Need to Know

For many small and mid-sized businesses (SMBs), trade secrets are the “crown jewels” of the company—the formulas, client lists, processes, or know-how that provide a competitive edge. Unlike patents or trademarks, trade secrets aren’t registered with the government.

Their protection depends on keeping them confidential. But when secrets leak—especially through departing employees or competitors—litigation often follows.

Here’s what business owners need to know about trade secret disputes.

1. What Counts as a Trade Secret?

Under both federal and state law, a trade secret is generally any information that:

• Derives independent economic value from not being generally known; and

• Is subject to reasonable efforts to maintain its secrecy.

  
  

Examples include:

• Customer lists with pricing or buying habits

• Proprietary recipes or formulas

• Manufacturing processes

• Business strategies or marketing plans

  
  

2. Common Triggers for Litigation

• Employee departures: A former employee takes client lists, designs, or confidential data to a competitor.

• Vendor or contractor disputes: A partner misuses information shared under an NDA.

• Competitor misconduct: A rival obtains sensitive information through improper means.

Because trade secrets are intangible, proving ownership and misuse can be fact-intensive, making these disputes some of the most complex in business litigation.

3. Legal Framework

• Federal Law: The Defend Trade Secrets Act (DTSA) allows trade secret owners to sue in federal court. It also provides for remedies like injunctions, damages, and in extreme cases, seizure of misappropriated materials.

• State Law: New York follows common law trade secret protections, focusing on the nature of the information and the efforts made to protect it.

  
  

4. Remedies in Trade Secret Litigation

Businesses that prevail in a trade secret case may obtain:

• Injunctive relief: Court orders preventing further use or disclosure of the secret.

• Damages: Compensation for lost profits or unjust enrichment by the defendant.

• Punitive damages & attorney’s fees: In cases involving willful and malicious misappropriation.

  
  

5. Prevention Is the Best Protection

• Use NDAs and confidentiality clauses with employees, vendors, and contractors.

• Restrict access: Only give sensitive information to those who truly need it.

• Train employees: Make clear what information is confidential and the consequences of disclosure.

• Exit interviews: Remind departing employees of their obligations.

  
  

Final Thought

Trade secrets litigation can strike at the heart of an SMB’s value. While the law provides strong remedies, the best approach is proactive: lock down your information, use contracts strategically, and act quickly if misappropriation occurs. In today’s competitive market, your trade secrets may be your greatest asset—and your greatest vulnerability.

This blog is for informational purposes only and not legal advice. If you suspect trade secret misappropriation, consult experienced counsel immediately to protect your rights.