Q.  What is a Trade Secret under California law?

A.     California, as well as more than forty other states and the District of Columbia, has adopted a form of the Uniform Trade Secrets Act (“USTA”), which generally codifies common law principles of trade secrets found in the Restatement of Torts.  Under California law, a trade secret is defined as:

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.

Cal. Civil Code § 3426.1(d).  Even if information does qualify as a trade secret, there is no liability under the USTA unless it was “misappropriated.”  This requires either acquisition of the trade secret by improper means or use or disclosure of a trade secret acquired improperly (e.g. theft, bribery, misrepresentation) or in violation of a duty to maintain confidentiality.  Where information was disclosed by accident or mistake, the information is still considered to be misappropriated where the individual to whom the trade secret is mistakenly disclosed becomes aware of this fact before he or she materially changes his or her position based on the trade secret information disclosed.  Cal. Civil Code § 3426.1(a)-(c). 

There is a three year statute of limitations for trade secret actions, which begins to run when the trade secret owner discovers, or reasonably should have discovered, the misappropriation.  Cal. Civil Code § 3426.6.  The USTA provides for remedies such as an injunction, payment of a reasonably royalty rate, actual damages and exemplary damages.  

A trade secret owner must take affirmative measures to safeguard the information claimed to be a trade secret.  For example, trade secret related documents should be available to employees and other individuals only on a “need-to-know” basis.  In determining whether a company took the reasonable efforts to maintain its trade secret, courts will look both at a company’s trade secret protection plan and its adherence to that plan, and may use practices of other companies in the relevant industry as guideposts. 

Every company should tailor its security measures according to its needs and abilities, while trying to minimize internal business disruption and maintain efficiencies.  Businesses should consider consulting with an attorney for assistance in developing a trade secret protection plan, drafting a trade secret protection policy manual, confidentiality agreements, and creating and maintaining proper documentation. 

Last updated July 14, 2008.

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.




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