Trade Secret

A trade secret encompasses a body of information, such as a formula, pattern, compilation, program, device, method, technique or process that derives actual or potential independent economic value. A trade secret is the subject of reasonable efforts to maintain its secrecy. Trade secrets encompass a wide range of information, including chemical formulas, business plans, and customer lists. Individuals and entities may utilize passwords and restrictive access policies to protect the secret information. Protecting trade secrets becomes a heightened concern when employees leave the company to work for a competitor. The appropriate use of legal precautions may help provide further protection to ensure that the employee does not utilize the secret information with the competing company.

Generally, state laws govern trade secrets. In 1979, the Uniform Law Commission published the Uniform Trade Secrets Act (“UTSA”) and most states have since modeled their own trade secret laws after the UTSA. Both California and Washington D.C. have adopted the UTSA as part of their trade secret laws. In California Civil Code §§ 3426, et seq. govern trade secret laws. In Washington, D.C., District of Columbia Code §§ 36-401, et seq. govern trade secret laws.

A trade secret claim must involve the type of information that the trade secret law intends to protect. The information must not be generally known to qualify as common knowledge. The holder of the trade secret bears the responsibility of showing that there were reasonable precautions in place to protect against disclosure of the confidential information. The holder of the trade secret must also demonstrate that the confidential information was in fact wrongfully used, against the holder’s rights. However, obtaining trade secrets through reverse engineering, independent discovery, or a trade secret holder’s involuntary disclosure of the protected information is lawful.

In certain instances, accessing trade secrets unlawfully may constitute a federal offense. For example, under section 1832 of the Economic Espionage Act, an individual that is guilty of stealing a trade secret may face up to ten years in prison and fines of up to $5 million. In addition, pursuant to section 1835, courts may enter an injunction to protect trade secrets while a case is pending in court. The federal courts of the United States hold exclusive jurisdiction over civil litigation involving misappropriation of trade secrets in violation of the Economic Espionage Act. Therefore, parties wishing to bring a civil suit for a violation of the Economic Espionage Act may only do so in federal court. The Economic Espionage Act also applies to conduct outside of the United States if the offending party is an American citizen or entity or if the misappropriation took place, at least in part, in the United States.

In general, trade secrets are different from patents in that trade secret protection lasts until there is public disclosure of the confidential information. An inventor cannot seek protection through a patent and a trade secret, and must select only one.

1. California Uniform Trade Secrets Act (CUTSA)

   CUTSA provides civil remedies for the misappropriation of trade secrets. It covers both actual and threatened misappropriation, making it possible to prevent violations before they occur.

   Under CUTSA, misappropriation includes:

   • Acquisition of a trade secret by someone who knows or should know it was obtained by improper means.
   • Disclosure or use of a trade secret without consent by someone who used improper means to acquire it or who knew the trade secret was acquired improperly.

   Remedies under CUTSA include:

   • Injunctions to stop use or disclosure.
   • Damages for actual loss and unjust enrichment.
   • Exemplary damages (up to twice the actual damages) and attorneys' fees for willful or malicious misappropriation.

2. Defend Trade Secrets Act (DTSA)

   The Defend Trade Secrets Act (18 U.S.C. § 1836 et seq.) complements the CUTSA and allows trade secret owners to file civil lawsuits in federal court. The DTSA is particularly relevant for online violations involving interstate or international activity.

   The notable features of DTSA include:

   • Federal jurisdiction, making it easier to pursue cases involving parties in different states or countries.
   • The ability to seek a civil seizure order to prevent the dissemination of trade secrets in extreme cases.

3. Computer Fraud and Abuse Act (CFAA)

   Although primarily a federal anti-hacking statute, the CFAA (18 U.S.C. § 1030) can apply to trade secret cases where unauthorized access to a computer system is involved. For example, if a former employee accesses a company's internal network to steal trade secrets, the CFAA may be used to pursue criminal or civil penalties.

Online trade secret violations in California often include:

• Employees emailing confidential data to personal accounts before resignation.
• Unauthorized access to cloud-based storage systems.
• Reverse engineering of digital platforms or software.
• Sharing trade secrets on public forums, websites, or social media.
• Theft via phishing, malware, or cyber-intrusion.

To strengthen legal protections and reduce risk, California businesses should:

1. Implement Robust Cybersecurity: Use encryption, multi-factor authentication, and access controls to protect digital trade secrets.
2. Use NDAs and Confidentiality Clauses: Require employees, contractors, and vendors to sign legally binding confidentiality agreements.
3. Define and Limit Access: Grant trade secret access only to those who need it to perform their job duties.
4. Train Employees: Educate staff on trade secret policies and the consequences of misappropriation.
5. Monitor and Audit: Regularly audit network activity and implement insider threat detection protocols.

California courts are seeing a growing number of trade secret disputes involving digital misappropriation, especially in sectors like tech, biotech, and e-commerce. The interplay between state and federal laws allows plaintiffs to select the most favorable legal venue.

Recent cases emphasize:

• The importance of documenting efforts to keep information confidential.
• The necessity of acting quickly if misappropriation is discovered, as delay may reduce the chance of securing injunctive relief.

The digital landscape has increased both the value and vulnerability of trade secrets. California businesses must understand and leverage state and federal laws like CUTSA and DTSA to safeguard their intellectual assets. With the right mix of legal planning, technological protection, and employee education, companies can minimize the risk of online trade secret violations and take decisive action when breaches occur.