File Folders on a Desk

What Qualifies as a Trade
Secret in California?

 Robinson Bradford LLP June 8, 2022

When people hear the term “trade secret,” they often think of the formula for Coca-Cola, which is locked inside a vault at corporate headquarters in Atlanta, Georgia, and is never known by more than two people at one time. The two parts of the term – trade and secret – pretty much reveal what a trade secret is.

First, it is an idea, concept, marketing strategy, customer base, algorithm, recipe, formula, a machine, a process, or just about anything that gives a business – a trade -- a competitive advantage over its rivals. Second, it must be protected as if it’s a secret, whether in a vault, like Coca-Cola, in protected databases, or through nondisclosure agreements and other efforts to keep the information from falling into the hands of competitors.

California, like most other states, has adopted the Uniform Trade Secrets Act (UTSA) to allow businesses and individuals to protect their trade secrets from what the state calls “misappropriation” rather than theft, which is actually what may have led to its unauthorized use by others.

If your business has seen its trade secret misappropriated by others, or you have been accused of misappropriating another entity’s trade secret, in Stockton, Temecula, or Costa Mesa, California, contact the attorneys at Robinson Bradford LLP. 

With our combined 50 years plus experience in business disputes and litigation, we can listen to your story, explain your legal options to you, and attempt to fight for your rights.

Understanding Trade Secrets

According to the United States Patent and Trademark Office (USPTO), a trade secret has three components, which in the agency’s own words are:

  • information that has either actual or potential independent economic value by virtue of not being generally known,

  • is valuable to others who cannot legitimately obtain the information, and;

  • subject to reasonable efforts to maintain its secrecy. 

Though trade secrets, unlike copyrights, patents or trademarks, are not registrable with a government agency such as the USPTO, federal laws do protect them. The Economic Espionage Act of 1996 protects the owners of trade secrets and allows for criminal action by the U.S. Department of Justice (DOJ) for their theft.

The Defend Trade Secrets Act (DTSA) of 2016 expands the Economic Espionage Act to allow for civil action by those possessing trade secrets that have been misappropriated. The DTSA does not override any state trade secret laws, but it allows those abused to choose between state and federal civil actions.

California Law on Trade Secrets

The California Uniform Trade Secrets Act (UTSA) is found in the California Civil Code Section 3426.1, whose definition of trade secret mirrors the USPTO version:

“Trade secret” means 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.

The same section defines misappropriation in two ways -- as the acquisition by improper means, and as through the use and disclosure of trade secrets.

Improper means include theft, bribery, misrepresentation, breach, or espionage whether through electronic means or otherwise. A former employee who takes a trade secret to a competitor by downloading it or taking a physical copy is using improper means.

The second definition includes a former employee’s use and disclosure of confidential customer information to, for instance, solicit customers for a new employer.

Former Employer Provision

There is also the concept of “inevitable disclosure,” meaning that a former employee cannot wipe clean their knowledge gained during previous employment, and thus the revelation of trade secrets is a natural occurrence.

California courts generally reject the inevitable disclosure defense but at the same time require that the former employer must have actual evidence of the use and disclosure of trade secret information before bringing a lawsuit.

Getting Experienced Legal Counsel

If your business suspects your trade secret has been misappropriated or is being accused of misappropriating a trade secret, you need to seek out experienced legal counsel. 

Trade secret disputes can be complex and challenging. The victim of trade secret misappropriation may be awarded damages – compensation – for any lost revenue due to the act, and the misappropriating party may be required to compensate the trade secret holder.

For all your trade dispute issues – including taking the proper measures to protect your trade secrets – contact the attorneys at Robinson Bradford LLP. We have a half-century’s worth of experience in resolving business disputes and exercising the rights of the parties involved.

We proudly serve clients in Stockton, Temecula, and Costa Mesa, California.