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Trade Secrets

If your company innovates, then the information it possesses gives you economic advantage over competitors. In California, particular information belonging to a company is protected as a trade secret. As an owner/operator of a company, it is necessary to know what type of information you can protect and how you can protect it. Here is an informative guide about trade secret law in California:

Definition of a Trade Secret

Trade secrets are actually recognized as a type of intellectual property. Many states have adopted the standard set of rules, the Uniform Trade Secrets Act (“UTSA”).  However, many states also have additional laws concerning trade secrets. To adequately protect the intellectual property of your company you should be aware of the UTSA, any state statutes, and common law. In general, you need to meet the following criteria to qualify as a trade secret:

  • Information: Formulas, compilations, programs, devices, patterns, methods, techniques, mixtures, or processes.
  • Secrecy: The information cannot be generally known to the public. This means that if the information is known within industry or if it is published in any way, it does not qualify to be a trade secret.
  • Economic Value: The secret must give you “economic advantage” over competitors.
  • Reasonable Efforts: The company must make reasonable efforts to protect the information to be covered under trade secret law.

Examples of Trade Secrets

Many of the common household products we purchase or services we use on a daily basis are protected as trade secrets. For example, Coca-Cola, Kentucky Fried Chicken, and Krispy Kreme Doughnuts have “recipe trade secrets.”

Courts have the following as trade secrets: customer lists, plans for well drilling equipment, a process for treating steal, and a process to manufacture fiberglass.

Misappropriation

The tort of misappropriation establishes that a person or company unlawfully used a trade secret. Misappropriation is generally the wrongful use or disclosure of a trade secret of another.

Obtaining secretive information by improper means or via a third party qualifies when the recipient knows or should have known that the information would be regarded as a trade secret. A common example is when a former employee takes information to a competitor.

Reverse Engineering & Methods of Appropriation

Gathering the information through reverse engineering is not misappropriation. Reverse engineering is a general process of analyzing a process to determine exactly how it was designed. This allows competitors to create it over again.  If we figured out how to make coke, we could give it a shot – that’s capitalism.

Civil Remedies

A civil action against the individual who misappropriated your trade secret is possible. This would allow your company to seek an injunction (stopping the use), monetary damages ($), and if the defendant acted willfully and maliciously then punitive damages and/or attorney fees could be sought.

Criminal Remedies

Is this a crime too? The Economic Espionage Act of 1996 actually criminalizes the theft of trade secrets. An individual or company can be fined up to $250,000 ($5 million for companies) and receive up to ten years in prison. Defendant’s conduct must have been extreme.

Protecting Trade Secret

In order to establish that you possess a trade secret, your company must show that it took reasonable steps and efforts to maintain secrecy such as:

Nondisclosure Agreement:  Employees, independent contractors, or vendors should sign a non-disclosure agreement, in which they acknowledge that certain information is a trade secret and disclosing such information will be a breach of the employment contract.

Non-Compete Agreement: Prevents employees from working for competitors. To be binding non-compete agreements must be properly drafted and must include particular provisions such as a proper time, place, and scope restriction.

Educate Employees: Educate employees,vendors and independent contractors about the trade secret and their obligation not to keep it secret. This information should be included in an effectively drafted employee handbook and discussed during training sessions.

Passwords/Locks: Making it difficult for anyone to access the information by keeping the information password protected or in a secure safe will ensure protection.

Limited Disclosure: It is not a secret if the public can know about it. Limit the amount of people who can access the secretive information. Restrict the vital information to high-ranking employees. No one should have access to a trade secret unless it is absolutely necessary. The less people who have access to your trade secret, the more protected that your company will be.

More Information About Trade Secret Disputes in California

CONTACT BUSINESS ATTORNEY NOW

Your situation is unique. Do not rely exclusively on the above information; it is necessary that you speak with a licensed California lawyer about your particular matter. For more information or to schedule a free confidential consultation with a San Diego business attorney, call (619) 800-0676 or fill out the contact page of this website.

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