Trade Secrets, Protection & Litigation

Companies often rely on trade secrets as a basis for operating their business. Probably the most famous trade secret of all time – one that is subject to as much myth as reality – is the formula behind Coca-Cola. It is said that the recipe is held in a vault in the corporation’s Atlanta headquarters and that only two people have the combination to open the vault. 

While this may be true or not, the fact that Coca-Cola would go to such great lengths to safeguard its formula underlies one of the principles in trade secret law. That the owner of the trade secret must exert reasonable – or better – efforts to protect the secret from getting into the hands of others is pretty much the universal standard for what gives a trade secret its legal status. 

Most states, including California, have adopted the Uniform Trade Secrets Act (UTSA) as their own legislation to protect trade secrets. The UTSA was conceived and published by the Uniform Law Commission (ULC) in 1979 and amended in 1985. California’s version of the UTSA is found in the Civil Code, Sections 3426 through 3426.11. 

Under the UTSA and the California Civil Code, obtaining a trade secret through “improper means” is known as “misappropriation,” not theft. 

If your business in or around the San Francisco Bay Area fears its trade secret has been misappropriated, or on the other hand, you are being accused of misappropriation, contact the business and commercial litigation attorney at the Law Offices of David H. Schwartz, INC.  

Attorney David H. Schwartz is well-versed in trade secret law and litigation. He will help you pursue a lawsuit or defend you if you’re being sued. The Law Offices of David H. Schwartz, INC also serves clients in San Jose, Santa Clara, San Mateo, Oakland, and throughout Alameda County. 

What Qualifies as a Trade Secret? 

Obviously, from the Coca-Cola example, recipes can be trade secrets. Remember that the hallmark of a trade secret is that it is closely guarded, and on top of that, it must be something that is not easily deduced or determined by the general public. Thus, trade secrets can include any process or practice that gives someone a competitive edge over rivals. 

Other examples of trade secrets include, but are not limited to: patterns; plans; compilations; programming; formulas; designs; methods; techniques; procedures; programs; codes; and more. While it may be possible in some instances to obtain a patent for one of these trade secrets, once you obtain a patent, the product or device becomes public knowledge. 

What Are Considered ‘Reasonable Measures’ to Protect a Trade Secret? 

Under the UTSA and California law, the owner of a trade secret must exert “reasonable measures” to protect the trade secret. Coca-Cola, for example, keeps its recipe under lock and key, so to speak, and limits access to it, according to legend. Accordingly, two of the primary reasonable measures to protect a trade secret are to keep it safeguarded and to limit access to it. 

Safeguarding can indeed involve a locked filing cabinet or even password protection for digital information. Encryption of digital data represents even another layer of protection. Marking anything physical containing the trade secret “confidential” is also important. 

As for limiting access, you need to make sure that only those personnel who need to use the information do have access, and even then, you should require employees to sign nondisclosure agreements (NDAs) to prevent them from sharing the secret should they leave your company. 

Trade Secret Misappropriation 

The California Civil Code section known as the “Uniform Trade Secrets Act” says that obtaining a trade secret through improper means amounts to misappropriation. It defines improper means as “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means,” but it excludes reverse engineering and independent derivation.   

The section also says the acquisition of a trade secret is considered misappropriation so long as the acquiring party knew or should have known it was acquired by improper means. In other words, ignorance is likely no defense. 

Trade Secret Protections and Remedies 

If you have a trade secret of yours misappropriated, you can file a civil lawsuit, which can result in an injunction against the misappropriator and may also lead to compensation for any losses you suffered or even for any profits the acquiring party made from your trade secret. Under state legal precedent, however, what has come to be known as “the California rule” requires that you provide evidence of use or disclosure of your trade secret before bringing a lawsuit.