Key Takeaways

  • The California Uniform Trade Secrets Act (CUTSA) governs trade secret protection in California, providing remedies for misappropriation.
  • CUTSA differs from the federal Defend Trade Secrets Act (DTSA) in scope, jurisdiction, and remedies.
  • Trade secrets under CUTSA must derive independent economic value and be subject to reasonable efforts to maintain secrecy.
  • CUTSA preempts certain state law claims such as unfair competition or breach of fiduciary duty if based on trade secret misappropriation.
  • California rejects the "inevitable disclosure" doctrine, requiring concrete evidence of use or disclosure.
  • Courts can impose injunctive relief and monetary damages, including exemplary damages and attorney’s fees in cases of willful misappropriation.

The California Trade Secrets Acts is just as important now as it ever has been. In the United States, statistics have shown that a company's biggest threat to the loss of confidential and sensitive information comes from an internal source, such as a company's employees.

Trade Secrets Litigation

Trade secrets litigation is a brutal, hard-fought battle, especially for inexperienced lawyers with a mindset for thrill-seeking adventures. Temporary restraining orders and preliminary injunctions are often part of the court proceedings, which tend to run at a lightning-fast pace, and inexperienced lawyers have already lost the case by the time they understand the legal proceedings involved.

While many people might visualize things such as the Coca-Cola formula, the California Uniform Trade Secrets Act, UTSA, provides protection for much more than big companies formulas and research information. Much more common pieces of information are provided protection under the Civil Code sections 3426.1-3426.11.

California will recognize common everyday information worth protecting if a company takes all reasonable measures in protecting its own information and data. The information that California may protect and recognize as trade secrets may include various types of information, such as:

  • Business plans
  • Corporate minutes and agendas
  • Bid specifications
  • Customer lists
  • Spreadsheets

Misappropriation is the term the UTSA uses, rather than the word, theft, when a use or disclosure of trade secrets has taken place, or there has been an acquisition of improper means. This legal definition can be found in Civil Code section 3426.1.

In cases where the provision has been interpreted and upheld as the misappropriation of a trade secret, a former employee uses or discloses customer information that is confidential, to seek new accounts on behalf of a new employer.

Remedies Available Under California Trade Secrets Law

When trade secrets are misappropriated, CUTSA allows several forms of legal relief:

  • Injunctive Relief: Courts may prohibit further use or disclosure of the trade secret, including orders to return or destroy misappropriated data.
  • Monetary Damages: Plaintiffs may recover actual damages for economic losses and unjust enrichment.
  • Exemplary Damages: If the misappropriation is found to be willful and malicious, the court may award up to twice the amount of actual damages.
  • Attorney’s Fees: Reasonable attorney’s fees may be awarded to the prevailing party in cases of bad faith litigation or malicious misappropriation.

Remedies are designed not only to compensate victims but also to deter future violations.

What Are Improper Means?

Bribery is considered to be improper means, according to Civil Code section 3426.1(a). For example, information acquired by improper means would be when a former employee physically takes or copies a trade secret.

What Are Trade Secrets?

The Trade Secrets Act not only affords protection for physical information but protects the contents of an employee's memory as well. The employer only has to show the employee used or disclosed contents that meet the definition of a trade secret, to prove that a misappropriation has taken place.

What Is Required to Establish a Trade Secret Under CUTSA?

To qualify as a trade secret under the California Uniform Trade Secrets Act, two primary conditions must be met:

  1. Economic Value: The information must have independent economic value from not being generally known or readily ascertainable by others who could benefit from it.
  2. Efforts to Maintain Secrecy: The owner must take reasonable steps to keep the information confidential. This includes using non-disclosure agreements (NDAs), securing physical or digital access, and training employees on confidentiality policies.

Examples of qualifying information include product formulas, manufacturing techniques, internal pricing strategies, marketing plans, and proprietary customer data.

What Is the Wipe-Clean Doctrine?

The “wipe clean” doctrine is no longer viable since the enactment of UTSA. The doctrine refers to an argument that involved employee's who concurred that they could not be expected to wipe clean all the information in their memories, thus they should be allowed to use an employer's trade secret information. Since the 1984 UTSA enactment, cases before 1984 are no longer considered a reliable support in trade secret disputes.

Preemption of Other Claims Under CUTSA

A crucial but often overlooked feature of the California Uniform Trade Secrets Act is its preemption clause. CUTSA displaces other civil claims that are based on the same set of facts as a trade secret misappropriation claim. This includes:

  • Breach of fiduciary duty
  • Unjust enrichment
  • Conversion
  • Interference with prospective economic advantage

However, CUTSA does not preempt claims based on contractual obligations or those unrelated to the misappropriation of trade secrets. Plaintiffs must carefully draft claims to avoid preemption challenges in litigation.

How Does California View Trade Secrets?

Employees will often leave one employer and gain employment with a competitor or a company that involves the same field of work. In such circumstances, it is only reasonable to assume that the employee will inevitably disclose trade secrets of their former employer. However, California does not accept this “inevitable disclosure principle and demands that evidence of use or disclosure be presented.

In the case of Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1459-60 (2002), the court ruled that the former employer must provide evidence of such use or disclosure of trade secret information before bringing a lawsuit.

While California tends to be looked upon as a key leader in regards to trade secret laws, many states remain divided over the so-called California rule. The California rule refers to the rule that says when a party makes claims of trade secret misappropriation, the party must identify trade secrets with specificity before being allowed to carry out discovery, relating to its trade secret claim.

The rule is highly criticized as plaintiffs lay claim to the fact that there is no way to know the specific trade secrets that have been misappropriated until they are allowed to conduct discovery on the defendant. The lack of harmony among courts is most likely an indication that competing policies are just simply hard to resolve in a speedy manner. In addition, until such competing policies and concerns are balanced, defendants and plaintiffs will continue to see different rules applied throughout courts in the United States.

Key Differences Between CUTSA and the Federal DTSA

California’s Uniform Trade Secrets Act (CUTSA) is often compared to the federal Defend Trade Secrets Act (DTSA). While both aim to protect trade secrets, there are key distinctions:

  • Jurisdiction: CUTSA applies only within California, while DTSA provides a federal cause of action, allowing access to federal courts.
  • Ex Parte Seizure: DTSA includes a unique provision for ex parte seizure of property to prevent dissemination of trade secrets—CUTSA does not have this remedy.
  • Whistleblower Immunity: DTSA includes express immunity for whistleblowers who disclose trade secrets in legal complaints or to government officials; CUTSA has no such clause.
  • Scope of Misappropriation: CUTSA generally preempts common law claims like breach of fiduciary duty when they arise from the same facts as a trade secret misappropriation claim. DTSA does not.

These differences can impact strategic decisions regarding where and how to file a trade secret claim.

Frequently Asked Questions

  1. What is the California Uniform Trade Secrets Act (CUTSA)?
    CUTSA is California's law that protects trade secrets from misappropriation. It defines what constitutes a trade secret and provides legal remedies for unauthorized use or disclosure.
  2. How does CUTSA differ from the Defend Trade Secrets Act (DTSA)?
    CUTSA is a state law, while DTSA is federal. DTSA allows for federal court jurisdiction and includes additional remedies like ex parte seizure and whistleblower protections.
  3. What types of information can be protected under CUTSA?
    Protected information can include formulas, customer lists, marketing strategies, and any data that has economic value and is kept confidential through reasonable means.
  4. What does “reasonable efforts to maintain secrecy” mean?
    This refers to using tools like NDAs, secure file storage, limited access protocols, and employee training to safeguard sensitive information.
  5. Can I sue for trade secret theft without identifying the specific secret?
    California courts generally require plaintiffs to identify the trade secret with reasonable specificity before proceeding with discovery, making vague allegations insufficient.

If you need help with understanding the California Trade Secrets Act, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.