Trade Secret Litigation In California
November 27, 2014
Trade secrets are valuable assets. Businesses must go to great lengths to protect their trade secrets from use or disclosure or risk losing their protection. When they are improperly acquired, used, or disclosed by others, companies must not sit on their rights or risk losing them.
This is particularly true in the digital age and in today’s labor market. The improper acquisition of company information is as easy as dragging files to a portable memory stick. Because employees rarely stay at the same company for their entire careers, the problem is inevitable.
At the same time, former employees are sometimes accused of improperly acquiring company files when they did not do so, did so without knowledge, or did so without the intent to improperly use or disclose trade secrets. In either case, California businesses and employees alike should understand how the California Uniform Trade Secret Act (CUTSA) might affect them.
Elements of a Trade Secret Claim
To state a claim for misappropriation of trade secrets under CUTSA, a plaintiff must allege two elements: (1) the existence of a trade secret, and (2) misappropriation of the trade secret.
The first element requires the plaintiff to describe the subject matter of the trade secret with sufficient particularity so as to give the court and the defendant reasonable notice of the issues. The second element requires a showing that the defendants misappropriated a trade secret, which can occur by improper acquisition, use, or disclosure.
An employee has not misappropriated trade secret information—even if they have taken it with them—unless the acquisition of the information is by “improper means,” such as theft, bribery, misrepresentation, breach or inducement of a duty to maintain secrecy, and espionage. Cal. Civ. Code § 3426(a). If the employee acquired the information under circumstances giving rise to a duty to maintain its secrecy, however, subsequent breach of that duty by use or disclosure is misappropriation actionable under the Act.
Liability under CUTSA includes: (1) monetary damages for actual loss and/or unjust enrichment; (2) if neither actual damages nor unjust enrichment are provable, award of a reasonable royalty payment for use; (3) injunctive relief for actual or threatened misappropriation; and (4) exemplary damages where willful and malicious misappropriation is proved.
Additionally, attorneys’ fees and costs may be recovered where (1) the misappropriation claim was made in bad faith; (2) a motion to terminate an injunction was made or resisted in bad faith; and (3) willful and malicious misappropriation occurred.
Defenses to a misappropriation claim include:
- The information is not a trade secret
- The information is readily ascertainable by proper means
- The trade secret owner failed to protect its trade secrets and alert third parties who acquired the information in good faith of the misappropriation claims
- No misappropriation occurred
- Statute of limitations
- The trade secret has not been described with requisite specificity
- No standing
- Traditional equitable defenses
Misappropriation claims under CUTSA are often brought along with a number of related claims that arise from the circumstances. An employer may bring claims against the former employee for common law unfair competition, statutory unfair competition, breach of fiduciary duty, intentional interference with economic advantage or contract, and unjust enrichment.
Employers will often seek to protect trade secrets through restrictive covenants and non-compete agreements, but California law may not enforce such agreements.
If you need assistance with a trade-secret issue, we may be able to help you. Bona Law PC is a boutique law firm that focuses on business and real-estate litigation, appeals, and antitrust. You can contact us at +1 858-964-4589.