AI Innovators Turn to Trade Secrets Amid IP Uncertainty
AI companies are increasingly relying on trade secrets to protect innovations as IP law evolves.
Why it matters: Legal teams face mounting pressure to secure valuable AI assets that may fall outside traditional IP protection. Understanding the trade secret framework is critical for maintaining competitive advantage and managing risk.
- Trade secrets protect confidential information with economic value, including AI algorithms and datasets.
- The Defend Trade Secrets Act (DTSA) enables federal enforcement against misappropriation across the U.S.
- Protection requires reasonable steps such as NDAs, non-competes, and strong IT security.
- Trade secrets do not guard against independent creation or reverse engineering.
As artificial intelligence (AI) technology rapidly advances, companies are revisiting intellectual property (IP) strategies. With legal protections for AI patents and copyrights still unsettled, trade secrets offer a pragmatic tool to secure proprietary developments.
- The Uniform Trade Secrets Act defines a trade secret as valuable information not generally known, protected by reasonable secrecy efforts.
- Under the Defend Trade Secrets Act of 2016 (DTSA), companies can bring federal lawsuits for trade secret misappropriation anywhere in the U.S.
- Trade secrets are increasingly used to protect elements core to AI—such as algorithms, model architectures, training methods, and curated datasets—where fast-paced innovation may outstrip slower-moving patent protections (LegalClarity).
Brian W. Nolan and Megan P. Fitzgerald note: “Trade secrets are a form of IP protection that does not require government review. Instead, federal and state statutes protect any type of information that derives economic value because a company takes reasonable steps to protect its secrecy.” (Mayer Brown)
To harness these protections, companies must:
- Implement NDAs and non-compete agreements for staff and contractors
- Invest in robust IT security and access controls
- Regularly review and update confidentiality protocols (WIPO)
But trade secrets have limits: they do not prevent reverse engineering or independent development. Vigilance in internal processes and employee management remains essential (Orrick).
Yes, but: Trade secrets offer no protection if competitors independently create or reverse engineer similar AI tools.