While an in-depth knowledge of the law is not critical for most game developers, there are a few legal principles that all game developers should be at least superficially familiar with. Before getting into the legal issues, first an important disclaimer:
There is no substitute for legal advice provided by a licensed attorney in your jurisdiction; the information provided herein is intended as academic and does not constitute legal counsel, nor the establishment of any privileged communication or work product, nor any fiduciary relationship with the author.
That out of the way, let's talk about the issues*. There are three major areas of law that touch the game industry: intellectual property, contracts, and labor law. Today, we'll be discussing intellectual property, specifically Trade Secrets. For other areas of law, see my other guides.
* Unless otherwise noted, we'll be referring to U.S. law.
Trade secret is often considered ugly stepchild of IP rights, and yet for the game industry, it may be among the most important. You will deal with trade secrets at every single job you take, every time you sign an NDA. You may even deal with trade secrets in licensing discussions, such as when presenting or considering a new tech partner. So what are trade secrets? Well unlike patents, copyright, and the like which are all based on federal law, the definition of a trade secret can actually vary from jurisdiction to jurisdiction. Most states (possibly all over the next few years) have accepted a model based on the Uniform Trade Secrets Act. The act defines a trade secret as information, formulas, patterns, programs, devices, methods, processes, techniques and compilations, that derive independent value, either actual or potential, from not being generally known to others; and not readily ascertainable by others; and which has reasonable efforts under the circumstances to maintain its secrecy.
This is one of those times where you need to really break the law down into its parts to see just what is or is not covered, so let's go line by line. First, the content. It includes quite a large number of things, from formulas (including algorithims in your programs), to the programs themselves, compilers, techniques (such as shader pipelines), and such. Obviously this touches on nearly every aspect of what you will deal with as a developer, but not everything you touch will be a trade secret, due to the rest of the definition. The next clause says it must derive independent value, either actual or potential, from not being generally known to others. So, valueless information is not trade secret, regardless of whether it is generally known to others. Similarly, any information generally known to others cannot be a trade secret. Think of it this way: it has to both be a secret (i.e. not known) and valuable in trade (derives independent value). Now remember, this value does not have to be realized right now. If your code is under NDA, it doesn't necessarily have actual value at the moment, but it certainly has potential value later. Next, it must not be readily ascertainable by others. So, even if others don't know it yet, if it is something that they could easily find out, it isn't trade secret. This ties into the last aspect -- that reasonable efforts under the circumstances must be taken to maintain its secrecy. The keys here are reasonable, and under the circumstances. Let's take an internal business document containing sensitive formulas on market research as an example. Where is the line on how much protection you need to provide? Well, it's obviously unreasonable to expect that it needs to be stored in Ft. Knox, especially if you're a small studio. Even more so, if it is a document that you think you'd be referring to quite a bit, then under the circumstances it could be expected to require less stringent efforts of protection than something like a one-time memo that will likely not ever be referred to again. Similarly, if your studio is in the countryside, you might be able to get away with a less stringent amount of protection than if you were in a busy office building with tons of visitors coming in and out. Again, the circumstances are important, and what is reasonable in one case may not be reasonable in others.
So, now that we know what a trade secret is, what does it do? Trade secret is an odd duck here. Basically what it does, is it provides you with a civil private right of action (meaning, the right to sue someone) in the event that your trade secret is misappropriated. Misappropriation is a legal term of art, meaning acquiring the secret through improper means or from someone else who did so, OR disclosing/using the secret without consent you have a duty not to do so. Notice how big the "or" is? Either situation works. There are four major situations that can cause misappropriation --
You can kind of break those four down into the situations they would most likely occur in. Point 1 is generally corporate espionage, always something to be wary of. Points 2 and 3 involve an insider leak (#2 as the source, and #3 as the recipient of the leak). Point 4 is generally for receiving mis-routed emails containing a disclaimer that those emails possess confidential information. Ever seen those disclaimers? This is why they are SUPER important. As a little anecdote, as a working journalist for a major gaming news outlet, there was a period where I was on a distribution list for a major game PR firm. Problem was, I was receiving some of their internal memos via emails, as the email client auto-complete would be sending them to me instead of the intended recipient with a similar address. Because the sender included that disclaimer at the bottom, they retained some legal remedies in case I decided to do something malicious with that information.
Let's talk about those remedies. The problem with trade secrets is that the second that it stops becoming a secret, that right is destroyed, so you really have to be proactive about protecting them. Naturally, this means that the best remedy for trade secrets are injunctions (sometimes known as restraining orders) preventing the use of that information. If the cat's out of the bag an injunction will probably be useless to you, so another remedy are money damages. Even if you can get an injunction, in situations of bad faith (typically blatant theft that gets caught early) you might be able to get both an injunction and punitive damages.
There are a few important defenses to trade secret, most stemming from the definition of the term. If the secret holder disclosed the information, that's a valid defense. If the other party developed the information on their own, that can be a valid defense if you can prove it. This can include things like reverse engineering, though you will need to check with local counsel as to your jurisdictions specific defenses.
Trade secrets are a double edged sword. Because they're only protected as long as they're secret, this means you can't patent them (as patenting involves a public disclosure). You also can't get them back once they're gone, and as a state law principle, definitions and defenses can vary in jurisdictions. The counter, however, is that they last indefinitely as long as they remain a secret. For example, soft drink formulas often remain a trade secret decades later. And if you are vigilant about enforcing them, you can protect quite a lot of your IP on top of copyright and patent until the time is right to make it public. A valuable trade secret can generate a LOT of money in license sales. Not to mention, some recent laws have criminalized corporate espionage misappropriation, which act as a disincentive for others to try and steal your information.