What Qualifies as a Trade Secret in California?
Sept. 30, 2022
Trade secrets are the “stuff” successful companies are made of. Their proprietary information may be the only feature that distinguishes them from similar companies, and that feature may be the key to their profitability.
Trade secrets are also timeless. Despite the economy closing down during the height of the COVID-19 pandemic, the number of trade secret cases filed in U.S. courts held steady. The vast majority of such cases are settled out of court or dismissed due to procedural issues. However, some are fully litigated, which makes having a seasoned commercial litigation attorney with experience in the legalities of trade secrets on your side a tremendous advantage.
Whether you are wondering if you should file a trade secrets complaint against someone or you need a business attorney to defend you, my firm — Martinez Law Office, Inc. — is here to help. I represent businesses and individuals in Santa Ana, California, and throughout Southern California, including San Diego, Los Angeles, and Orange counties.
What Is a Trade Secret?
You have probably heard the term “intellectual property.” That and trade secrets are often one and the same. Trade secrets are tangible and intangible items and information that a company owns that are prohibited for use by other companies because they give the owner an edge. They may take any of several forms, such as an idea, a formula, a method, a manufacturing process, data, a pattern, or more.
There are some features that make something likely to be a trade secret, such as information known only to the owner company and perhaps its employees and other stakeholders. The trade secret has value to the company, such as profits generated from a product with a secret formula or unique feature. It is difficult for another company to duplicate, and the owner must take reasonable steps to protect the secret from others.
Examples are probably the best way to illustrate what trade secrets are, so here are a few:
A list of potential clients researched, cultivated, and maintained by the owner
A unique fabric pattern created by an artist or designer
An original song
A new computer game
A formula for a new medication
A piece of equipment designed by someone and incorporated into the manufacturing process of a product
Trade secrets are not just the purview of large companies. An individual or small start-up business might possess intellectual property that merits protection under the law. If it can be sold or licensed because it has commercial value, it likely qualifies as a trade secret.
California Laws Protecting Trade Secrets
California has adopted the federal Uniform Trade Secrets Act (UTSA). This law has been adopted by nearly every state in the U.S., although different states may have slightly varying provisions.
There are two key elements in the California law pertinent to information or objects and their qualification as trade secrets. First, it must have and actual or potential value simply because it is known only by the owner of the information. For example, if a company invents a formula that increases the tolerance of an outdoor fabric over time, the company can use that formula as a marketing advantage over its competitors because it can make that durability claim.
Second, the owner must have taken all reasonable precautions to keep the proprietary information secret. Such precautions would include having employees and internal stakeholders sign nondisclosure agreements, limiting access to the information to only essential personnel, or securing all relevant information, prototypes, and other data under lock and key.
Proving a Trade Secrets Violation
If an owner chooses to file a trade secrets lawsuit against another company or individual under California law, the plaintiff must provide compelling evidence for the following three issues:
The information or item at issue qualifies as a trade secret under the law
The plaintiff took all reasonable steps to secure the secret
The defendant obtained the information by misappropriation or wrongful action
Misappropriation involves the unauthorized use of a trade secret by someone other than the owner. This requires the plaintiff to submit evidence that the defendant wrongfully obtained the secret as opposed to developing it on their own or through reverse engineering. Instead, the secret must have been revealed by, for example, a former employee of the owner who used their employment to obtain the information or violated the terms of a nondisclosure agreement. In simple terms, the plaintiff must prove that the secret was stolen.
Personalized Legal Counsel: Martinez Law Office, Inc.
There are three types of business litigation attorneys in Santa Ana and Southern California. There are those who handle business transactions, those who represent clients in litigation, and those — like me — who do both. If you want to explore filing a trade secrets lawsuit or if someone has filed one against you, call Martinez Law Office, Inc. today to schedule a consultation. I proudly service clients in Santa Ana and throughout Southern California, including the counties of San Diego, Los Angeles, and Orange.