Remedies for California businesses when trade secrets are misappropriated

California businesses now have both state and federal remedies for trade secret misappropriation.

In an economic system that encourages business competition as the means to growth and innovation, keeping company secrets that are key to success in the marketplace away from the public and from other companies is extremely important. It is in this context that laws protecting trade secrets were enacted to safeguard confidential company information from exploitation or outright theft by competitors.

For California businesses, the Uniform Trade Secrets Act or UTSA has provided legal remedies for trade secret misappropriation since 1984 under state law. On May 22, 2016, in an unusual show of bipartisanship, President Obama signed a new federal law, the Defend Trade Secrets Act or DTSA, that creates a private federal right to sue for trade secret misappropriation for a trade secret "related to a product or service used in, or intended for use in, interstate or foreign commerce."

The California UTSA

The California UTSA provides legal remedies for misappropriation of a trade secret, which it defines as "information, including a formula, pattern, compilation, program, device, method, technique, or process" that provides its owner with "independent economic value" because of its secret status, that the owner reasonably tries to keep secret from competitors.

Under the California UTSA, a person (including both people and commercial entities) can misappropriate a trade secret either by acquiring it when the person "knows or has reason to know" that it was acquired by "improper means" or by disclosing or using it without "express or implied consent" under any of these circumstances:

  • The secret was acquired by improper means.
  • The person knew or had reason to know that it came from a person who used improper means to get it.
  • The person knew or had reason to know there was a duty to keep it secret or limit its use.
  • The person knew or had reason to know that it came from a person who had the duty to keep it secret or limit its use.
  • Before "a material change of his or her position," the person knew or had reason to know it was a trade secret learned about "by accident or mistake."

The Act defines "improper means" as including "theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means."

Some of the major safeguards and remedies the UTSA provides includes, under certain circumstances:

  • Court preservation of trade secrets during judicial proceedings
  • A court order enjoining misappropriation, requiring payment of royalties or for "affirmative acts to protect a trade secret"
  • Damages for actual loss or unjust enrichment
  • Exemplary (punitive) damages for "willful and malicious" misappropriation
  • Legal fees and costs

The federal DTSA

The new DTSA also provides legal remedies for trade secret misappropriation. The federal law will not pre-empt the California state law, meaning that the DTSA will not trump the UTSA, but will allow the state scheme to remain a viable source of legal redress.

Significantly, the DTSA adds a civil seizure procedure that gives the court authority to order property seized if it will help protect the confidentiality of the trade secret at issue in a given DTSA lawsuit.

It will be important for any California business or executive facing trade secret issues to consult an experienced attorney to understand the ramifications under both state and federal trade secret laws and the potential options for going forward.

The lawyers of Burkhalter Kessler Clement & George LLP in Irvine represent clients locally, across the state of California and nationally in litigation regarding trade secrets and nondisclosure agreements.