Trade Secrets In California
A trade secret is any information owned by a person or company, such as a customer list, formula, technique, or method of manufacture that has value because it is unknown to the public and is the subject of reasonable efforts to maintain its secrecy. Most importantly, of course, trade secrets are valuable because they are unknown to competitors or potential competitors.
Trade secret issues often arise when employees leave a company to join a competitor. Trade secrets – most commonly customer lists and customer information – can be transferred to and “misappropriated” by the competitor, who now has an unfair advantage because it can benefit from the information without having invested the work and capital to develop the information itself.
While trade secret litigation is common in California, cases involving trade secrets are often complex and require sophisticated legal counsel to successfully prosecute and defend. This complexity is compounded by special pleading and disclosure rules applied by California courts.
What is a Trade Secret?
California, like most other states, has adopted the Uniform Trade Secrets Act, referred to as the California Uniform Trade Secrets Act or “CUTSA,” which can be found at California Civil Code Sections 3426 through 3426.11.
The CUSTA defines “trade secret” to mean information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
To establish the existence of a trade secret, both requirements must be met. The information must derive value from the fact that it’s kept secret AND there must be reasonable efforts to maintain its secrecy. Unless both elements are satisfied, the information does not qualify as a trade secret and its owner will not be entitled to the protections and remedies available under the CUTSA.
Because the CUTSA requires any plaintiff making a claim for trade secret misappropriation to demonstrate reasonable efforts to maintain secrecy, it is critical that businesses regularly review the handling of and access to trade secret information BEFORE an issue arises. An experienced trade secret attorney can assist with this review.
What Is Trade Secret Misappropriation?
The CUTSA allows trade secret owners to sue for “misappropriation,” which the CUTSA defines to mean acquisition or use of a trade secret by “improper means,” which includes theft, bribery, misrepresentation, breach of a contractual duty to maintain secrecy and espionage (electronic or otherwise). Misappropriation can also occur indirectly if the person disclosing or using the trade secret knows or has reason to know that it was acquired using improper means or by accident or mistake.
Some courts have found that liability for trade secret misappropriation may be transferred from employees to their employers. This potential for “vicarious liability” means that an employer that hires employees who engage in trade secret misappropriation could be liable under the CUTSA, even if the employer is totally ignorant of the misappropriation.
What Remedies Are Available for Plaintiffs Who Prove Trade Secret Misappropriation?
The remedies available to successful plaintiffs include:
Injunctive relief – A court order preventing the wrongdoer from using the trade secret and/or compelling them to return it to its rightful owner.
Actual damages – The actual economic losses the plaintiff suffered as a result of the misappropriation.
Unjust enrichment – Return or disgorgement of any gain the wrongdoer obtained through the misappropriation.
Reasonable Royalty – If actual damages and unjust enrichment cannot be proven, the court can award a royalty amount for the time the trade secret was wrongfully used.
Punitive or exemplary damages – The CUTSA allows courts to award punitive or “exemplary” damages if the misappropriation was willful or malicious. The punitive damage award cannot be more than twice the actual damages, unjust enrichment, or reasonable royalty.
Preemption of Other Claims
Courts generally hold that the CUTSA preempts all other legal claims related to the theft of trade secrets. In other words, when trade secrets are misappropriated, the victim’s only remedy is the CUTSA. Common law claims such as breach of fiduciary duty, conversion, fraud, interference with contract, or unfair competition are considered “preempted” and will not be allowed to proceed.
Statute of Limitations
The statute of limitations for claims under the CUTSA is 3 years from when the misappropriation was discovered or should have been discovered through “reasonable diligence.”
Contact Our Orange County Office Today
The Orange County based Law Offices of Corbett H. Williams has the commercial ligation experience, sophistication and know-how to prosecute and defend trade secret claims under the CUTSA. Contact us today at 949-679-9909 for a free consultation, or use the form below and we will respond promptly.
