Jenga about to fall


David H. Schwartz Nov. 27, 2018

Trade secrets differ from other types of intellectual property such as patents, trademarks, or copyrights because trade secrets cannot be registered with a governmental agency or official entity in order to establish ownership.  Ownership of a trade secret is established not by open registration, but by maintaining its secrecy. 

Perhaps the easiest way to think of a trade secret is through the eyes of a company that holds the weight of just how big trade secrets can be — a trade secret that actually involves one of the biggest companies in the world: Coca-Cola.

Trade Secret Case Example: Coca-Cola

What, exactly, America's favorite soda is made of was a question that went unanswered for 125 years. When it was invented in 1886 by Dr. John Pemberton, the recipe was shared orally with only a small group of people. The group was so small, in fact, that only two Coca-Cola employees knew the ingredients. Fast forward nearly 40 years and two business owners later: the recipe was finally written down and placed in a vault at a local bank. In 2011, the recipe was moved to its new home at The World of Coca-Cola in Atlanta, Georgia. It was at that time that the company decided to finally reveal the recipe.

In the case of Coca-Cola, the recipe was the trade secret and that's precisely what a trade secret is: a formula, idea, patent, process, or collection of information that gives its owner an advantage over the competition. How things are made, computer system algorithms and even marketing strategies are all examples of trade secrets. The protection of a trade secret is left up to the owner. There aren't any forms to fill out and file with the government to protect it. The owner must keep it confidential, act in a manner that demonstrates its confidentiality (like putting the recipe in a bank vault), and hope for the best.

Nor is it enough that the owner treats the information as a secret – it must actually be a secret. Treating information that is known by others or is obvious to competitors as a trade secret will not convert that information into a trade secret. It is not uncommon for companies to overreach in their designations of trade secret proprietary material. It is also not uncommon for an ex-employer to sue former employees and their new employers for trade secret misappropriation as part of a competitive strategy, even if the subject material is not actually protectable as a trade secret.

Nevertheless, misappropriation of an actual trade secret, say by an ex-employee taking a former employer’s trade secrets to a new employer, can make that employee and the new employer liable civilly for damages and penalties and subject to severe injunctive orders that may effectively prohibit the employee from pursuing his/her livelihood and interfering with the new employer’s business. Misappropriation can also result in criminal charges where there appears to have been intentional misappropriation.

Trade Secret Acts to Protect California Businesses

There are two different types of trade secret acts put in place to help with trade secret cases:

California Uniform Trade Secrets Act (CUTSA)

California has adopted its own version of the Uniform Trade Secrets Act, the CUTSA. Until 2016 the CUTSA was the exclusive remedy for pursuing trade secret misappropriation in California, either in state or federal court.

Defend Trade Secrets Act (DTSA)

In 2016 under the Obama administration, the Defend Trade Secrets Act (DTSA) was enacted by the 114th United States Congress. This act gives federal courts jurisdiction to hear suits for trade secret misappropriation, although in general, the federal courts must adhere to the substantive law developed under the CUTSA. Since the passing of Defend Trade Secrets Act of 2016 (DTSA), U.S. trade secret case filings have increased from a range of 860-930 cases per year to 1,134 cases filed in 2017 according to Lex Machina’s Trade Secret Litigation Report.

San Francisco Trade Secret Litigation Attorney

Based in San Francisco, the Law Offices of David H. Schwartz, Inc. serves business owners throughout the Bay Area. Principal attorney David Schwartz has extensive experience in litigating trade secret misappropriation claims. If you wish to pursue a trade secret misappropriation claim or are being accused of misappropriating trade secrets, you should schedule a free consultation with the Law Offices of David H. Schwartz, Inc. to discuss your legal rights and options.