What Are Trade Secrets?

Trade Secrets are among the most valuable assets of successful companies in today’s economy and are frequently what provides a business its market advantage over competitors. Loss or threatened loss of a trade secret can be a mission critical issue and can imperil the future success or even the continued existence of a business.

Trade secrets are a unique type of intellectual property. They differ from patents, copyrights and trademarks, which are generally disclosed to the public through registration with a federal agency, such as the United States Patent and Trademark or Copyright Office.

Unlike patents, copyrights and trademarks, trade secrets are valuable precisely because they are NOT disclosed to the public. Once disclosed to competitors, trade secrets lose their value. A trade secret can take practically any form such as a chemical composition, special manufacturing process or technique, algorithm, food product or beverage recipe, proprietary software, and systems unique to the business. Some of the most famously cited examples of trade secrets are Google’s search algorithm, the formula for Coca-Cola and Kentucky Fried Chicken’s “blend of 11 herbs and spices.”

To qualify for legal protection, a business must take reasonable steps to preserve its secrecy. This could include limiting access to certain people, the use of passwords, locks, or systems, or procedures designed to restrict access to the information. Other examples include the use of nondisclosure and confidentiality agreements (NDAs), investments in physical security systems such as vaults, physically secured or inaccessible computer systems, and physical locations with restricted access.

Thus, a trade secret is any commercially valuable information that is not publicly known where reasonable effort is taken to preserve its secrecy.

How Does the Law Protect Trade Secrets?

In California, trade secrets are protected by the California Uniform Trade Secret Act, also referred to the California “UTSA”. Many other states have similar protection measures, but state laws vary from state to state. Trade Secrets are also protected under federal law through the more recently created Defend Trade Secrets Act, which became law throughout the United States in 2016. The purpose of the federal law is to ensure that American businesses are protected from trade secret theft, regardless of the law in a particular state.

Numerous legal remedies are available to protect owners of valid trade secrets. These include injunctions (court orders) prohibiting those who misappropriate trade secrets, lost profit damages, recovery of wrongfully gotten profits, or a royalty for use of the trade secret.

Enhanced remedies are available if the misappropriation was willful or malicious. Enhanced remedies include an award of attorney’s fees to the prevailing victim and an award equal to twice the actual damages, unjust enrichment, or reasonable royalty (i.e. punitive / exemplary damages).

Trade Secret Misappropriation

There are three types of trade secret misappropriation prohibited by California law. They are:

• Unauthorized Acquisition: The acquisition of trade secret information through improper or illegal means. Examples include corporate espionage, an employee who accesses systems without permission or acquisition of confidential information through hacking or other unauthorized access.

• Unauthorized Disclosure: The disclosure of trade secret information obtained through improper means. Examples include an employee who sells or discloses confidential information to a competitor.
• Unauthorized Use: The use of trade secret information by a person or business with knowledge or reason to know that the information was obtained through improper means. For example, a competitor who uses a trade secret in its business knowing that it was obtained thorough unauthorized means (e.g., by unauthorized disclosure through an employee).

Why You Should Consider Retaining Trade Secret Litigation Counsel

If you or your business become involved in a dispute involving the misappropriation of trade secrets, you need an experienced lawyer. An Orange County trade secret litigation attorney will be vital in identifying key issues and evidence necessary to hold the responsible party liable. Successful trade secret litigation can result in a favorable settlement, compensation by the defendant of lost profits, disgorgement of wrongfully obtained profits or benefits (unjust enrichment) reasonable royalties and compensation for any diminished value of the trade secret.

Contact the Law Offices of Corbett H. Wiliams to schedule a consultation with an experienced Orange County trade secret lawyer.