What Is California’s Trade Secrets Law?

Trade secrets and other intellectual property can be extremely valuable to companies, particularly when those companies have competitors with similar products or services. That’s a major reason why companies will go to great lengths to ensure that their trade secrets and other IP assets remain confidential. If you are a business owner whose trade secret is being used without permission, you may be asking yourself, “What is California’s trade secrets law?” The good news is that California business owners can avail themselves of the California Uniform Trade Secrets Act (CUTSA) when their trade secrets have been misappropriated by a former employee, a competitor, or any other person or entity.

To learn more about California’s trade secrets law, keep reading.

California Uniform Trade Secrets Act Protects the Intellectual Property Rights of Businesses

The Uniform Trade Secrets Act (UTSA) gives owners of trade secrets a legal right to file a lawsuit in state court when their trade secrets have been stolen or misappropriated. California’s version of the Uniform Trade Secrets Act is codified in Cal. Civil Code § § 3426-3426.11.

California has a unique spin on the Uniform Trade Secrets Act that gives employers broader protection against theft or misappropriation of trade secrets by an employee. That’s because the California law explicitly states that an employer owns all trade secrets created by an employee within the scope of their employment. (There is an exception to this rule: when an employee creates the secret information on their own time and outside the scope of their employment, the employee may claim ownership of the information.)

The California UTSA also gives businesses a legal right to sue a rival company that uses a trade secret without authorization. Importantly, the standard of proof in these cases does not require plaintiffs to show that the defendant knew the information was a trade secret. Instead, all that is needed from plaintiffs is a showing that the defendant had reason to know or should have known that they might be using a trade secret.

What Is the Definition of a “Trade Secret” Under California Law?

Trade secrets are an important intellectual property right. But what exactly is a trade secret? The CUTSA defines a “trade secret” broadly to include just about any information utilized by a business, including “formulas, patterns, compilations, programs, devices, methods, techniques, and processes.”

All the following are examples of trade secrets that companies may need to protect against misappropriation:

Customer lists
Marketing strategies
Manufacturing processes
Computer software
Food recipes and formulas
Inventions without patents

How Do You Prove a CUTSA Claim?

Winning a CUTSA claim requires the plaintiff to prove two elements:

That the information at issue was, in fact, a trade secret.
That the information was misappropriated.

Proving the Information was a “Trade Secret”

As defined by the California Uniform Trade Secrets Act (CUTSA), a “trade secret” can be just about any piece of information that has value stemming from its secrecy. Basically, all that is necessary to establish the first element of a CUTSA claim is that (1) the information has independent value from the fact that it’s not known by others, and (2) the company has taken reasonable steps to protect the information.

When filing a lawsuit under the CUTSA, the plaintiff must name the confidential information at issue. The statute explicitly requires plaintiffs filing a CUTSA claim to “identify the trade secret with reasonable particularity” and disclose that information to both the court and the defendant. This runs the risk of making that secret information available to the general public, which is why many business owners choose not to file patent applications with the United States Patent and Trademark Office (USPTO) and instead rely on trade secret protections. It’s also a good reason why any business looking to file a trade secrets claim in California court should speak with a lawyer first. An experienced attorney can potentially help you obtain a protective order that seals the records and limits the public from seeing any proprietary information disclosed in the case.

Proving the Information was “Misappropriated”

For the second element under the CUTSA, a trade secret is “misappropriated” when it has been improperly acquired, used, or disclosed by the defendant. The most obvious examples of trade secret misappropriation involve theft or espionage. Even if the defendant was an employee granted access to the information, however, it may still qualify as misappropriation if the employee had a duty to maintain the secrecy of the information and subsequently breached that duty.

The plaintiff in a CUTSA action does not need to show that the defendant physically took the confidential information. For example, if a former employee remembers certain information and then uses or discloses that information without authorization, it may constitute trade secret misappropriation as set forth by the CUTSA. This is a major difference between the California Uniform Trade Secrets Act and other trade secret statutes that allow for ex-employees to claim that they cannot be expected to “wipe clean” their memories.

Federal Trade Secret Laws

Trade secret owners are already able to file suit in federal court under the Defend Trade Secrets Act (DTSA). For business owners in California and most other states, the Uniform Trade Secrets Act (UTSA) provides another option.

There is also a federal law that criminalizes the theft of trade secrets in certain circumstances. The Economic Espionage Act of 1996 makes it illegal for anyone to steal a trade secret and disclose it to a foreign entity. Violation of the statute is punishable by up to 15 years in prison and $5 million in fines. It should also be noted that there can be both a criminal prosecution under the Economic Espionage Act and a private civil action under the CUTSA.

Contact the Los Angeles Trade Secret Lawyers at Tauler Smith LLP

The Los Angeles trade secret lawyers at Tauler Smith LLP have experience filing CUTSA claims in California state courts. We understand the nuances of the law, and we know what is needed to help our clients prevail at trial. Call 310-590-3927 or email us to schedule a free consultation with a member of our intellectual property team.