Trade Secret Litigation

State of play.

• The Federal Circuit has hardened the patent-disclosure bar for trade secret claims. In International Medical Devices v. Cornell, the court reversed a jury verdict, holding that designs disclosed in publicly available patents are "generally known" and ineligible for trade secret protection under California's UTSA — a ruling that directly threatens dual patent/trade secret strategies across medtech and other patent-heavy sectors .
• Taiwan's courts are imposing serious criminal penalties for semiconductor trade secret theft. The 10-year sentence against a former Tokyo Electron/TSMC employee — with corporate fines and damages against Tokyo Electron's Taiwan subsidiary — signals that national security framing elevates exposure well beyond civil damages .
• USTR's 2026 Special 301 Report keeps China on the Priority Watch List, with a concurrent Section 301 investigation into Phase One compliance on technology transfer and IP protection — and China's new Trade Secrets Regulation takes effect June 1, 2026 .
• DTSA filings are running at elevated volume, with 1,552 new federal cases filed in 2025 — a 20 percent increase — and ownership/standing doctrine emerging as a threshold gating issue alongside the established secrecy and misappropriation elements .
• For counsel advising technology companies, semiconductor firms, or any client with a dual patent/trade secret portfolio, the practical baseline is: public patent disclosures irrevocably destroy trade secret eligibility, statute of limitations defenses are highly fact-specific and contract-dependent, and cross-border enforcement risk — particularly in Taiwan and through U.S. trade mechanisms — is structurally elevated.

Where things stand.

• Patent disclosure is a hard cutoff for trade secret protection. The Federal Circuit's ruling in International Medical Devices v. Cornell applies California's UTSA to hold that patent-disclosed designs are "generally known" and unprotectable as trade secrets, regardless of subsequent confidentiality efforts. The same case found that an instrument list sent by email without confidentiality markings also failed the secrecy requirement .
• Contractual restrictions on investigation can toll the DTSA statute of limitations. In SkyBell Technologies v. Alarm.com, the Eastern District of Virginia held that a reverse engineering prohibition in a Development and Integration Agreement prevented the plaintiff from reasonably discovering misappropriation while the agreement was in force — defeating a limitations defense at the motion-to-dismiss stage .
• Ownership and standing under the DTSA are active threshold issues. The First Circuit's decision in ZipBy USA v. Parzych addresses who holds enforceable rights when ownership is ambiguous — a question courts are confronting with increasing frequency in joint development, employee contribution, and multi-party scenarios .
• Taiwan is prosecuting semiconductor trade secret theft as a national security matter. The Tokyo Electron/TSMC prosecution resulted in a 10-year sentence for the lead defendant, corporate fines of T$150 million, and T$100 million in damages — with the National Security Act providing the charging vehicle for "core national technologies" . Tokyo Electron separately terminated an executive with undisclosed financial ties to Chinese semiconductor equipment competitors .
• China's enforcement posture on trade secrets is escalating on multiple tracks. The Supreme People's Court's 2025 IP judgment digest covers trade secrets among eight categories, with punitive damages awards up 29.4% year-over-year and a record RMB 640 million award in a single trade secret misappropriation case . China's new Trade Secrets Regulation takes effect June 1, 2026 .
• The patent-vs.-trade-secret strategic choice is live for technology startups. The Berkeley Patent Survey documents growing use of trade secrets as a complement or substitute for patents, particularly as patent enforcement uncertainty increases and AI innovations favor undisclosed methods — but the Federal Circuit's disclosure bar makes the choice irreversible once a patent application is filed .
• Georgia has clarified that new employers may indemnify incoming hires against former-employer trade secret suits, reducing one friction point in talent mobility disputes .
• Accidental source code disclosure triggers trade secret and copyright exposure simultaneously. Anthropic's inadvertent publication of Claude Code source via npm — followed by 8,000+ DMCA takedowns — illustrates how a single operational failure can implicate both trade secret protection and copyright enforcement in AI development contexts .

Latest developments.

• Federal Circuit reverses jury verdict in International Medical Devices v. Cornell, holding patent-disclosed designs ineligible for trade secret protection under California UTSA
• USTR releases 2026 Special 301 Report retaining China on Priority Watch List; China's new Trade Secrets Regulation effective June 1, 2026
• First Circuit addresses DTSA ownership and standing in ZipBy USA v. Parzych; DTSA filings reached 1,552 new cases in 2025, a 20 percent increase
• E.D. Va. denies motion to dismiss in SkyBell v. Alarm.com, holding reverse engineering prohibition in DIA tolled the limitations clock
• Taiwan court sentences former Tokyo Electron/TSMC employee to 10 years; corporate fines and damages imposed on Tokyo Electron Taiwan subsidiary
• Tokyo Electron terminates executive Jay Chen over undisclosed financial ties to Chinese semiconductor equipment competitors
• China's Supreme People's Court releases 2025 IP judgment digest covering 159 cases including trade secrets; punitive damages up 29.4% year-over-year
• Anthropic accidentally publishes Claude Code source via npm; issues 8,000+ DMCA takedowns to contain leak
• Georgia court holds new employers may indemnify incoming hires against former-employer trade secret litigation
• Supply chain disputes in beauty, fashion, and automotive sectors escalating into litigation as tariffs and nearshoring pressures surface IP and confidentiality issues at supplier transitions

Active questions and open splits.

• Where exactly does the patent-disclosure bar fall under state UTSA variants? The Federal Circuit applied California's UTSA in International Medical Devices, but the analysis of what makes information "generally known" may differ across UTSA-adopting states and under the federal DTSA. Clients with multi-jurisdiction portfolios need state-specific audits of any information disclosed in patent filings .
• How far does contractual tolling extend under the DTSA discovery rule? SkyBell holds that a reverse engineering ban in a bilateral agreement can prevent the limitations clock from starting — but the outer limits of that principle (e.g., one-sided NDAs, industry-standard confidentiality clauses, post-termination obligations) remain untested .
• Who owns the trade secret when development is joint or employee-contributed? The First Circuit's ZipBy USA decision addresses standing under the DTSA, but the doctrine governing ownership allocation in joint development agreements, contractor relationships, and AI-assisted development is unsettled and increasingly litigated .
• Does China's new Trade Secrets Regulation (effective June 1, 2026) materially change enforcement for foreign IP holders? The USTR's Special 301 Report treats recent Chinese enforcement actions as insufficient despite the regulatory movement — the gap between formal legal reform and practical enforcement remains the operative question for clients with China-facing IP portfolios .
• What is the trade secret exposure when AI source code is accidentally published? The Anthropic/Claude Code incident raises unresolved questions about whether mass DMCA takedowns can restore trade secret status once code is publicly accessible, and whether the "reasonable measures" requirement under the DTSA is satisfied by post-disclosure remediation .
• How should supplier transition agreements address IP and trade secret risk? As nearshoring and tariff-driven supplier changes accelerate, the question of what confidential information transfers — and what protections attach — at supplier transitions is generating litigation exposure that standard boilerplate does not address .

What to watch.

• China's new Trade Secrets Regulation takes effect June 1, 2026 — watch for implementing guidance and early enforcement actions that test whether the regulatory reform closes the gap USTR identified.
• Whether the USTR's Section 301 investigation into China's Phase One compliance on technology transfer produces additional tariff actions or trade remedies affecting clients with China-facing IP portfolios .
• Appeals in the Tokyo Electron/TSMC criminal case — the defendants retain appeal rights, and the outcome will shape how Taiwan's National Security Act applies to future semiconductor trade secret prosecutions .
• Publication of the full ZipBy USA v. Parzych First Circuit opinion and any circuit-level guidance on DTSA ownership and standing doctrine in multi-party development scenarios .
• Whether courts in other circuits adopt SkyBell's contractual-tolling rationale or limit it to cases with explicit reverse engineering prohibitions .
• EU Grand Board of Appeal guidance on photorealistic facial trademark registration — a parallel IP boundary question with implications for AI-generated likeness and the scope of personal IP protection strategies .