In the United States, appellate courts are actively shaping the Defend Trade Secrets Act (DTSA). Notably, the Second Circuit recently followed the Third Circuit in applying a broad definition of "use" for DTSA misappropriation claims, expanding how companies can protect proprietary software and internal data.

Recent appellate jurisprudence has significantly strengthened trade secret protections under the Defend Trade Secrets Act (DTSA), specifically through how federal circuits interpret the statutory definition of "use." In a notable decision, the U.S. Court of Appeals for the Second Circuit aligned itself with the Third Circuit by endorsing an expansive, highly protective definition of "use" in trade secret misappropriation claims. This judicial shift carries profound implications for companies seeking to safeguard proprietary software, architecture, and confidential internal data from predatory competitors and departing employees.

The Doctrine of “Use”

Historically, establishing "use" under trade secret law often required a plaintiff to show that a competitor directly commercialised, sold, or identically replicated the stolen formula or product. Defendants frequently evaded liability by arguing they merely referenced, consulted, or drew inspiration from proprietary data while independently engineering a competing platform.

The Second Circuit dismantled this narrow defence. Relying on statutory construction and standard legal definitions, the court affirmed that "use" encompasses any exploitation of the confidential information that yields a commercial advantage, accelerates product development, or informs the creation of competing systems. In the case driving this evolution, which involved fintech architecture and financial software components, the court ruled that utilising a competitor's confidential specifications to guide internal design choices or bypass development hurdles constitutes actionable misappropriation, even if the final product is not a carbon copy.

The Circuit Precedents

By following the Third Circuit’s precedent, the Second Circuit has closed a loophole that corporate entities previously exploited during the early stages of litigation. Defendants can no longer easily secure early dismissals simply by offering benign or alternative explanations for internal emails, design documents, or code references uncovered during discovery.[1] Instead, courts are increasingly treating the question of how and why confidential data was referenced as a complex, fact-specific inquiry that must proceed past the motion-to-dismiss phase to be evaluated by a jury.

For corporate legal strategies, this broader interpretation offers a powerful shield. In an era where source code, proprietary algorithms, and internal datasets can be rapidly absorbed and repurposed by rival firms or migrating talent, an expansive definition of "use" ensures that companies have a viable federal remedy against subtle forms of corporate espionage and "head start" appropriation. It signals to the tech and finance sectors that utilising a competitor's proprietary framework as a blueprint, no matter how cleverly disguised, will face rigorous federal scrutiny under the DTSA.[2]

Feature written by Kushraj Singh, Senior Author, The Global IP Magazine.

Email Kushraj: newsdesk@northonsprmarketing.com