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Trade Secrets

Vondran Legal – Trade Secret protection, enforcement, arbitration and litigation.  Another Attorney Steve® resource page!

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Introduction

A trade secret can be one of a company's greatest intellectual assets.  Just think about the Coke “secret formula” or Kentucky Fried Chicken's “secret recipe.”  There are many different types of trade secrets and our intellectual property law firm can help you identify, protect and police your trade secrets in a competitive marketplace that's literally gone wild with the internet and the ability for ex-employees to start new startup businesses in a flash!

Main types of trade secret theft

  1. Departing employees wanting to start a new (often a competing business) or going to a new company that lured them away for their “knowledge and experience”
  2. Failed collaborations

Source of law

California has both a State Law covering theft of trade secrets, but there is also a Federal Trade Secrets Law.  See below for more detailed descriptions.

What is a Trade Secret?

VIDEO:  Click here to Watch Attorney Steve® explain trade secrets!  Make sure to SUBSCRIBE to join over 11,000 other subscribers who love our legal videos.

What is a “trade secret” under California law?

One case laid out the general rule under California law:

Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 220-21, 109 Cal. Rptr. 3d 27, 38 (2010) discussed the California Uniform Trade Secrets Act: “CUTSA defines “[ t]rade secret” to mean “ information, including a f ormula, 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.” (See Cal Civil Code §3426.1, subd. (d), italics added.) These are the general requirements.  Note:  A trade secret can potentially last forever, while a patent will eventually merge into the public domain.  With patents you are DISCLOSING the idea while in Trade Secrets you are SEEKING TO KEEP IT SECRET.

Types of things that may be protected as a Trade Secret:

1.  Secret formulas and recipes (need not be tangible). 2.  Customer list (need not be something technical in nature). 3.  Can be a compilation of information that may otherwise be from a public source. 4.  Can be a valuable information that provides a competitive business advantage by not being generally known (ex. technical designs, research and testing know-how) 5.  Computer source code 6.  Product information 7.  Data sheets 8.  Sales forecasts 9.  Piepline reports 10.  Business and marketing strategies

How do you protect a trade secret so it can potentially last forever?

Here are some of the most important steps.  However, there are many more depending upon the trade secret at issue.

1.   Take reasonable steps to protect it from disclosure 2.  Use of non-disclosure agreements 3.  Label things as a trademark 4.  Provide access on a “need to know” basis 5.  Police and enforce your trade secrets (pursue theft cases) 6.  Monitor employee internet activities (especially sending things out of your network, email, texting, etc.) 7.  Physical security (video monitoring) 8.  Electronic security (firewalls, keystroke loggers, source code tracking) 9.  Employee training 10.  Exit interviews 11.  Annual audits 12  Pre-employment background check and screening

California Civil Code Section 3426.1 definitions

Here are the key definitions under the California UTSA statute:

As used in this title, unless the context requires otherwise:

(a) “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means. Reverse engineering or independent derivation alone shall not be considered improper means.

(b) “Misappropriation” means:

(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(2) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(A) Used improper means to acquire knowledge of the trade secret; or

(B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was:

(i) Derived from or through a person who had utilized improper means to acquire it;

(ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

(iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(C) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

(c) “Person” means a natural person, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity.

Theft of trade secrets jury instruction – CACI 4400

What does it take for a Plaintiff to prove theft of a trade secret?  Here are the jury instructions in California (we serve Clients in Arizona and California):

4400 Misappropriation of Trade Secrets—Introduction 1.  [Name of plaintiff] claims that [he/she/it] [is/was] the [owner/licensee] of [insert general description of alleged trade secret[s]]. Attorney Steve Tip:  As one Court put it: “It is critical to any CUTSA cause of action—and any defense—that the information claimed to have been misappropriated be clearly identified.  Accordingly, a California trade secrets plaintiff must, prior to commencing discovery, “ identify the trade secret with reasonable particularity.” (Code Civ. Proc., § 2019.210 (§ 2019.210); see M. Lemley, The Surprising Virtues of Treating Trade Secrets as IP Rights (2008) 61 Stan.L.Rev. 311, 344 [plaintiff should be required to “clearly define what it claims to own, rather than (as happens all too often in practice) falling back on vague hand waving”.  See  Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 221, 109 Cal. Rptr. 3d 27, 38 (2010), as modified on denial of reh'g (May 27, 2010) disapproved of by Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 246 P.3d 877 (2011). 2.  [ Name of plaintiff] claims that [this/these] [ select short term to describe, e.g., information] [is/are] [a] trade secret[s] and that [name of defendant] misappropriated [it/them]. “Misappropriation” means the improper [acquisition/use/ [or] disclosure] of the trade secret[s]. 3.   [ Name of plaintiff] also claims that [ name of defendant ]'s misappropriation caused [[him/her/it] harm/ [or] [name of defendant] to be unjustly enriched]. California has adopted the Uniform Trade Secrets Act (“UTSA”) which codifies the basic principles of common law trade secret protection. Cal.Civ.Code §§ 3426–3426.10 (West Supp.1993). To establish a violation under the UTSA, it must be shown that a defendant has been unjustly enriched by the improper appropriation, use or disclosure of a “trade secret.”  See  MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 520 (9th Cir. 1993). See California Judicial Council Of California Civil Jury Instruction 4400 for more information.

Federal Trade Secrets Law – The Defend Trade Secrets Act – Signed by Obama in 2016.

According to wikipedia:

“Defend Trade Secrets Act of 2016 Great Seal of the United States Long title An Act to amend chapter 90 of title 18, United States Code, to provide Federal jurisdiction for the theft of trade secrets, and for other purposes Acronyms (colloquial) DTSA Enacted by the 114th United States Congress Effective May 11, 2016 Citations Public law Pub.L. 114–153 Statutes at Large 130 Stat. 376 Legislative history Introduced in the Senate as S.1890 by Orrin Hatch on July 29, 2015 Passed the Senate on April 4, 2016 (87-0 Roll call vote 39, via Senate.gov) Passed the House of Representatives on April 27, 2016 (410-2 Roll call vote 172, via Clerk.House.gov) Signed into law by President Barack Obama on May 11, 2016 The Defend Trade Secrets Act of 2016 (DTSA) (Pub.L. 114–153, 130 Stat. 376, enacted May 11, 2016, codified at 18 U.S.C. § 1836, et seq.) is a United States federal law that allows an owner of a trade secret to sue in federal court when its trade secrets have been misappropriated.[1] The act was signed into law by President Barack Obama on May 11, 2016.[1] It underscored Congress's desire to align closely with the Uniform Trade Secrets Act, which had been adopted in some form in almost every U.S. state. Technically, the DTSA extended the Economic Espionage Act of 1996, which criminalizes certain trade secret misappropriations.[2] The law also grants legal immunity to corporate whistleblowers.[2] After the DTSA's passage by the Senate, Forbes magazine called the law the “Biggest Development in [Intellectual Property] in Years.”

The Federal Law

Federal law does NOT preempt state law.  Adds safe harbor for whistleblowers.

According to the American Bar Association:

“Creating a Federal Cause of Action

The DTSA creates the first federal civil cause of action and suite of statutory remedies for the misappropriation of trade secrets in the United States and provides a single uniform cause of action for trade secret misappropriation across the states. Prior to its enactment, as a civil matter, trade secret misappropriation claims (as opposed to Computer Fraud and Abuse Act claims pursuant to 18 U.S.C. § 1030) were governed exclusively by state laws. (Although most states have enacted the Uniform Trade Secrets Act (UTSA), there are still two outliers that protect trade secrets under unique state statutes or common law: New York and North Carolina.) Plaintiffs who sued for trade secret misappropriation in different states faced some longstanding and well-understood differences in legal standards and procedural requirements. The DTSA was purportedly intended to create a uniform body of federal trade secret law while establishing jurisdiction for claims brought pursuant to the DTSA in the federal courts.

On its face, however, the DTSA does not pre-empt state law, meaning that a party can file suit under the DTSA in federal court and plead a state law claim arising out of the same facts. In practice, this means that the DTSA's primary function to date has been to create a path for plaintiffs to litigate what historically were essentially state law trade secret claims in federal court.”

18 U.S.C. 1836(3)(A) & (B) Remedies

Where trade secret misappropriation is shown under Federal law the remedies to the aggrieved party include:

(3)Remedies.—In a civil action brought under this subsection with respect to the misappropriation of a trade secret, a court may—

(A) grant an injunction— (i) to prevent any actual or threatened misappropriation described in paragraph (1) on such terms as the court deems reasonable, provided the order does not— (I) prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows; or (II) otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business; (ii) if determined appropriate by the court, requiring affirmative actions to be taken to protect the trade secret; and (iii) in exceptional circumstances that render an injunction inequitable, that conditions future use of the trade secret upon payment of a reasonable royalty for no longer than the period of time for which such use could have been prohibited;

(B) award—

(i) (I) damages for actual loss caused by the misappropriation of the trade secret; and (II) damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss;

or

(ii) in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator's unauthorized disclosure or use of the trade secret;

(C) if the trade secret is willfully and maliciously misappropriated, award exemplary damages in an amount not more than 2 times the amount of the damages awarded under subparagraph (B); and

(D) if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney's fees to the prevailing party.

NOTE:  Criminal convictions are also possible in certain cases.

Damages can be high

Here are some sample settlements.  Note: some of these may have been reversed, lowered, or overturned on appeal.

  • $919 million du Pont & Co. v. Kolon Industries, Inc. (2011)
  • $2.3 billion Pacesetter Inc. v. Nervicon Co. (2011)
  • $940 million Brocad Communications Systems, Inc. v. A10 Networks (2012)
  • $134 million USA Power, LLC v. Pacificorp (2012)
  • $74 million Miller UK Ltd. v. Catepillar (2015)
  • $91 million CardiAQ Valve Technologies v. Neovasc (2016)

Software audits and corporate sabotage by “secret informants”

For software audit cases sometimes the informant may disclose protected elements of a database that can be a trade secret.  In these cases, an injunction against the “secret informant” may be necessary.  See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 521 (9th Cir. 1993) which held: “We agree that the Customer Database qualifies as a trade secret. The Customer Database has potential economic value because it allows a competitor like Peak to direct its sales efforts to those potential customers that are already using the MAI computer system. Further, MAI took reasonable steps to insure the secrecy to this information as required by the UTSA. MAI required its employees to sign confidentiality agreements respecting its trade secrets, including the Customer Database. Thus, under the UTSA, the MAI Customer Database constitutes a trade secret.”   Click on the link in this paragraph to read our article on this topic.

Non-Disclosure Agreements

A breach of a non-disclosure agreement (or “NDA”) is a common ground leading to trade secret theft litigation.  It is important in protecting trade secrets that information be disclosed only under a NDA.  The NDA should be detailed and define the confidential and proprietary information.  Disclose only that which is need to know.  Specify the limited purpose for disclosure.  Document everything in case there is an issue of breach of the agreement.

We can help with the following types of legal issues

Our intellectual property law firm can help you with the following types of cases involving trade secrets:

1.  Breach of non-disclosure agreements

2. Theft of trade secrets

3.  Software audit – [trade secret corporate espionage by BSA informant]

4.  Trade secret arbitration;

5.  Trade secret litigation

6.  TRO and injunctions

We can represent both Plaintiff and Defendants in California or Arizona cases.  If you are being accused of theft or misappropriation of trade secrets or you are an employer being accused of luring away an employee to get trade secrets or are an employer subject to trade secret theft give us a call for a free initial consultation.  These can be hotly contested cases.

Contact a California trade secret law firm

For more information about our trade secret services contact us at (877) 276-5084.  We offer flat rate legal fees for many non-litigation cases and we have over a decade of experience in litigating in the State and Federal Courts.  See our Federal Court experience here.  We have offices in San Diego, Newport Beach (Orange County), Santa Monica (Los Angeles), San Francisco (serving San Jose, Silicon Valley and the Bay area) and Phoenix, Arizona.

Contact us for an initial consultation!

For more information, or to discuss your case or our experience and qualifications please contact us at (877) 276-5084. Please note that our firm does not represent you unless and until a written retainer agreement is signed, and any applicable legal fees are paid. All initial conversations are general in nature. Free consultations are limited to time and availability of counsel and will depend on the type of case you are calling about (no free consultations for other lawyers). All users and potential clients are bound by our Terms of Use Policies. We look forward to working with you!

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