What is the Impact of AI on Trade Secrets—and What Can You Do?

The rapid development of artificial intelligence (AI) presents both unprecedented opportunities and complex challenges for businesses and intellectual property (IP) owners. Among critical concerns, the potential exposure of trade secrets—those invaluable proprietary processes, formulas, tools, and strategies that give companies a competitive edge—is near the top. As experts in IP and data privacy matters, the impact of AI on trade secrets is important to Ludwig APC and our ability to deliver tailored, timely guidance to clients.

What’s the Big Deal?

While AI technologies help businesses and IP owners innovate and thrive, they also introduce vulnerabilities. Some examples include the inadvertent exposure of trade secret data during AI system training, the rise of sophisticated AI-driven cyber threats, and the inherent challenges of safeguarding information within increasingly complex AI-driven environments and supply chains.

AI truly acts as a double-edged sword for businesses and IP owners—it enables advanced data analytics, streamlines operations through automation, can aid in the creative process, and more. Yet, AI also poses risks, including those mentioned above, as well as creates challenges in detecting and tracing the misuse or theft of trade secrets. Such challenges underscore the importance of stakeholders striking a balance to leverage AI’s benefits while also acting to safeguard trade secrets through robust security and oversight.

How AI Threatens Trade Secrets

The very things that make AI powerful—its ability to process, analyze, and generate data at scale—also make it a potential threat to trade secrets. Here are several scenarios where businesses could be vulnerable:

1. Unintentional Data Exposure: AI models require vast amounts of data for training. If proprietary information is included in these datasets, it can be exposed (inadvertently or not) to external parties.
2. Insider Threats: Employees or contractors with access to AI systems might misuse their access, intentionally or accidentally leaking confidential information.
3. Advanced Hacking Techniques: Cybercriminals are already leveraging AI to create more sophisticated attacks, including those targeting trade secrets.
4. Third-Party Risks: As businesses increasingly collaborate with external AI vendors, they face the risk of their trade secrets being exposed to others in the supply chain.

AI Can Be a Trade Secret, Too

Businesses and IP owners must also recognize that AI itself—its design, functionality, and training—can hold immense proprietary value. Protecting AI as a trade secret and shielding it from competitors and malicious actors can be as crucial as safeguarding any other trade secret.

For AI to qualify as a trade secret, businesses must ensure that the AI system remains confidential. This includes algorithms, models, and training data that define its functionality and competitive differentiator. This can involve limiting access to essential personnel, requiring employees to sign non-disclosure agreements, and securing systems against unauthorized access. The goal is to ensure the AI system remains out of the public domain, which is a critical component for maintaining its status as a trade secret. Of course, like any trade secret, the AI system must also hold economic value due to its secrecy.

Fundamental Steps for Protecting Trade Secrets

Protecting trade secrets in the age of AI is a daunting challenge that requires expertise, vigilance, and adaptability. AI-related threats are constantly evolving, and attempting to tackle these risks without expert knowledge can lead to costly mistakes.

Here are the elements of a comprehensive, multi-layered strategy:

1. Implement Security Measures: Utilize end-to-end encryption, secure storage, and AI-powered cybersecurity solutions to defend against potential breaches.
2. Educate Employees: Train staff to recognize the value of trade secrets and enforce strict confidentiality practices across the organization.
3. Review Vendor Agreements: Partner exclusively with trusted AI vendors, ensuring that contracts include strong data protection clauses and liability terms.
4. Adopt AI Governance Policies: Develop clear, ethical guidelines for AI use, defining the types of data that systems can access and share.
5. Conduct Regular Audits: Perform periodic assessments of systems to identify vulnerabilities and confirm adherence to trade secret laws and best practices.

By employing these measures and seeking guidance from expert advisors, like Ludwig APC, businesses are better able to navigate the complexities of AI while ensuring their trade secrets remain protected.

How Ludwig APC Can Help

The Ludwig APC team offers expert support to help clients safeguard their trade secrets.

1. Tailored Legal Strategies: Ludwig APC works with businesses to develop customized legal strategies that address unique challenges posed by AI in protecting trade secrets and other proprietary information.
2. Contract Review and Drafting: We review agreements with employees, contractors, and third-party vendors to ensure they include robust confidentiality and non-disclosure provisions.
3. Litigation Support: In cases of trade secret misappropriation, Ludwig APC provides expert representation to help businesses recover damages and prevent further breaches.
4. AI Governance Consultation: We advise clients on implementing AI governance policies that balance innovation with data security.
5. Proactive Risk Management: Ludwig APC identifies potential vulnerabilities in client trade secret protection strategies and recommends practical solutions.

Let’s Work Together: Global Experience, Personal Focus

Ludwig APC brings decades of global experience in asserting and defending IP rights. This includes working with clients to help protect trade secrets and other proprietary data from traditional as well as AI-driven threats. Contact Ludwig APC today at (619) 929-0873 or [email protected] to arrange a free consultation to discuss your needs.