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David H. Schwartz Aug. 6, 2019

As a business litigation attorney, I see it every day: business owners come forward, convinced that another party has taken and abused one of their company’s trade secrets. They then pursue a claim against the offending party only to discover that, as far as California law is concerned, that party didn’t do anything wrong. The business owners in this all-too-common scenario walk away empty-handed after having their claims denied.

So why does this happen, you ask? In California, most trade secret misappropriation cases are non-starters for one of two reasons:

  1. The claimant (that is, the party claiming misappropriation) was incorrect in classifying their information as a trade secret, or

  2. The claimant failed to appropriately protect their trade secrets, rendering them negligent rather than proving the defendant guilty of misappropriation.

Whether you are a business owner looking to pursue a trade secret misappropriation claim or a defendant trying to combat such a claim, it’s important to understand these two defenses before taking your case any further. Let’s review each one in further depth.

Defense #1: The Information Shared Wasn’t a Trade Secret

Companies throughout California frequently make the mistake of assuming that their work, ideas, intellectual property, procedures, coding, and documents all classify as trade secrets and are therefore automatically protected under state law. In reality, California defines trade secrets as information that:

  1. Is valuable to the company

  2. Is not publicly known

  3. Has been actively protected by the business in question

Companies trying to claim misappropriation are often surprised to discover that their information does not meet all three of these criteria. For instance, I have seen defendants use each of the following arguments to disprove a so-called “trade secret”:

The information is actually common knowledge.

Businesses often believe that the information used at their company is specific to them when in fact, that information is publicly accessible. In technology cases, for example, business owners may not realize that the code used at their company is commonly used code — not knowledge that’s specific to their business.

The knowledge was shared via marketing.

Likewise, companies might think their customer lists or pricing packages are trade secrets when in reality they’ve advertised that information in the past. As a result, that information is considered public knowledge and isn’t eligible for legal protection.

Former employees share the information.

Although employers strive to keep their workers from sharing company information, recent statistics estimate that about 80% of information theft can be traced back to employees. And, unfortunately for California business owners, it’s rare that they can successfully claim misappropriation if an employee (or former employee) shares their knowledge with another company. If, on the other hand, a former employee has stolen and/or shared company files, the claim for misappropriation would be much more likely to hold up in a court of law.

Defense #2: The Company Failed to Protect Their Trade Secret(s)

The second most common defense I see in trade secret misappropriation cases is simply this: the offended party didn’t take the appropriate steps to protect their trade secrets in the first place. When that happens, the court tends to view the sharing of company information as the claimant’s own fault. As a result, the claimant is said to be negligent for their lack of security, and the defendant does not have to answer for their alleged misappropriation.

For instance, a business that fails to get proper non-disclosure agreements or who has inadvertently shared a trade secret with a third party, potential buyer, or a potential business partner would be very unlikely to win a misappropriation claim.

San Francisco Trade Secret Dispute Attorney

If you’re involved in a trade secret dispute in the greater San Francisco area, don’t hesitate to contact the Law Offices of David H. Schwartz. With over 45 years of experience advocating for California businesses, David knows how to put together a strong case on behalf of both defendants and claimants.