Trade Secrets

Under the Economic Espionage Act of 1996, Congress has deemed certain forms of misappropriation of trade secrets a federal crime in order to protect against economic espionage. Under the aforementioned Act, violators may be fined $500,000 to $10,000,000, imprisoned for over 15 years, or both.

According to California Civil Code § 3426, et seq., the Uniform Trade Secrets Act (UTSA) a "trade secret" is information that maintains independent economic value from non-disclosure and is a result of efforts that justify non-disclosure under the circumstances. The knowingly wrongful taking or disclosure of trade secrets is defined as "misappropriation" within the Code, and is considered unfair competition, a civil offense.

In order to initiate a claim for the misappropriation of a trade secret, the following elements must be met:

  • The subject of the claim must fall within the protection of the Code,
  • The owner of the trade secret must meet the burden of showing that "reasonable precautions" were taken against disclosure of the secrets, and
  • The owner of the trade secret must show that the secrets were acquired by unauthorized means.

Trade secret owners have a duty to adequately protect the confidential information contained in trade secrets. Otherwise, individuals may obtain trade secrets lawfully through, for example, independent discovery. Trade secrets are different from patents in that patents only last for a specified period of time, whereas trade secrets provide endless protection, unless such time as the information is publicly disclosed. However, patents and trade secrets cannot be used in conjunction - owners must choose one or the other form of protection.

Employers face the potential threat that past employees may misappropriate trade secrets. Employers should consider instituting precautions to protect against misappropriation of trade secrets by employees. For example, by adopting nondisclosure agreements and requiring incoming employees to sign such agreements, employers may better protect their trade secrets.

Furthermore, according to California law, companies are restricted from using information if they had any " reason to know" the information constituted a trade secret. Therefore, a California company may be prosecuted for misappropriation of trade secrets under a constructive knowledge standard, even if the company did not actually know the information at issue constituted a trade secret. In addition, California Labor Code section 2860 establishes that employers own trade secrets created by employees if the trade secrets are created on the employer's time, with the use of the employer's resources.

In California, the statute of limitations for an action for misappropriation of trade secrets is generally three years. Stated otherwise, the lawsuit must be brought within three years of when the misappropriation is actually discovered, or when the misappropriation should have been discovered through the exercise of reasonable diligence.