Calfee Connections

Artificial Intelligence (AI) is rapidly reshaping industries, revolutionizing everything from content creation to complex problem-solving. As AI-generated works become more prevalent, novel legal issues concerning ownership and protection of intellectual property (IP) rights have emerged. We continue our series on "Rethinking IP in the Age of AI," exploring in Part Two how AI is impacting the use of trade secret protections to safeguard IP where patent protection is not available or AI-inventorship complicates patent rights (see Part One). Stay tuned for future posts where we examine how using AI can impact copyrights (Part Three) and trademarks (Part Four).

Understanding Trade Secrets

A trade secret is any confidential information that provides a competitive advantage because it is not generally known or easily discoverable. To qualify as a trade secret, the information must have economic value, be kept secret, and be protected through reasonable efforts (e.g., limit access, use confidentiality agreements, and monitor and contain breaches). Companies can enforce their trade secret rights against those who improperly disclose or misappropriate the trade secrets by seeking damages and/or preventing further disclosure. This makes trade secret protection a great option to protect ideas that are not easily independently invented or reverse engineered. Trade secret protection is a valuable protection scheme because it will last as long as you protect and derive value from your secret information, enabling perpetual protection as long as robust disclosure safeguards are followed.

When it comes to interacting with AI systems, it is important to understand that the information you input into the model might not be protected. If sensitive information (e.g., undisclosed patentable inventions, potential trade secrets, etc.) is included in prompts to AI models, it is important to understand how terms and conditions and any other policies (such as privacy policies or vendor agreements) do or do not limit whether this information is visible to the company providing the AI service or can be used to train the AI model you are using (or even other models you are not using). If your input data is used to later train the AI model, there is a serious risk that this information could be used by AI when responding to later prompts from other users outside your organization, and in some cases, reproduce your input data nearly verbatim. These concerns can be mitigated by running local or enterprise specific versions of the AI models to avoid unwanted sharing of your data, or by negotiating contracts with model providers that curtail unwanted retention and/or usage of your input data. Developing strong internal policies for how and what AI tools are integrated into your existing workflows further protects against unwanted distribution of confidential or sensitive information.

When it comes to utilizing AI outputs, some information that might qualify for patent protection (including product formulations, manufacturing processes or software algorithms) could instead be protected as a trade secret. Understanding the pros and cons of each type of protection can be helpful to determine which is right for your situation. On one hand, while trade secrets have no expiration date, do not require public disclosure, and do not require upfront costs associated with formal registration, trade secrets offer little to no protection against someone who can prove that they reverse engineered or independently invented what was kept secret. On the other hand, while patents provide strong protection of the idea behind the invention itself, patents expire after 20 years and require upfront costs to obtain the protection. Particularly in situations where prohibitions of patent protection based on AI inventorship apply, trade secrets have no such prohibition and may present an alternative option to protect valuable information.

Consider a hypothetical situation where you input a common problem you are having into an AI model and the AI model responds with source code for a smartphone app that solves your problem. After using the app you realize that this could easily be the next big smartphone app. So arrives the dilemma – how do you protect the app when your contribution may have been minimal? Aside from the ordinary hurdles in convincing courts that the software is more than an abstract idea and deserves patent protection (a thorny situation to tackle another day), there is a real risk that you will not qualify as an inventor in this hypothetical. In this situation, it may be more advantageous to protect the app idea as a trade secret than to disclose how the AI model solved the problem in a patent application.

Key Takeaways

Trade secrets can provide valuable and long-lasting protection for AI-assisted or AI-generated information and can serve as an alternative where patent rights might be unavailable. At the same time, companies must be careful to not give their trade secret information to AI systems when they are unsure whether or how the company running the AI service will use that information.

If you have any questions or concerns about how using AI can impact your property rights or risk infringing the rights of others, contact Calfee's Intellectual Property attorneys. We look forward to helping you responsibly embrace these new and exciting technologies while avoiding the potential pitfalls this powerful new technology brings.

Series: Rethinking IP in the Age of AI

Part One: A New Frontier for Patent Law by Michael E. Glennon and Bradley S. Pulfer

Part Three: Copyrights and AI-Assisted Creations by Michael E. Glennon and Bradley S. Pulfer

Calfee has one of the largest Intellectual Property and Information Technology practices within a general practice firm in the Midwest. Of the 40+ skilled attorneys, patent agents, and paralegals in Calfee's Intellectual Property practice, more than 30 are registered to practice before the U.S. Patent and Trademark Office. Calfee has nearly 25,000 active patents and trademarks on its dockets, more than 15,000 of which are international. The IP team has handled filings in 190+ countries and has broad experience and a deep bench in prosecution, litigation, opinions, IP business strategy, and counseling.

Calfee, Halter & Griswold LLP is a full-service corporate law firm with 160 attorneys and professionals in five offices in Cleveland, Columbus, and Cincinnati, Indianapolis, and Washington, D.C. Calfee serves clients in the Midwest, nationally and globally in the areas of Corporate and Finance, Employee Benefits and Executive Compensation, Energy and Utilities, Estate and Succession Planning and Administration, Government Relations and Legislation, Intellectual Property, Investment Management Law, Labor and Employment, Litigation, and Real Estate Law. Calfee has been recognized as a leading law firm by Chambers USA 2025 in Antitrust, Banking & Finance, Construction, Corporate/M&A, Employee Benefits & Executive Compensation, Energy & Natural Resources, Environment, Government Relations, Insurance, Intellectual Property, Investment Funds: Regulatory & Compliance, Labor & Employment, Litigation: General Commercial, Litigation: White-Collar Crime & Government Investigations, and Real Estate, and by Chambers HNW 2024 in Private Wealth Law. A founding member of Lex Mundi, Calfee offers international representation through a network of independent law firms with access to 22,000 attorneys located in more than 125 countries. Additional information is available at Calfee.com.