Trade Secret Misappropriation: Establishing Reasonable Efforts to Maintain Secrecy Under the DTSA

For many businesses, some of the most valuable assets are not physical property or equipment but the confidential information that gives them a competitive advantage. Customer lists, pricing strategies, manufacturing processes, software code, research data, proprietary formulas, marketing plans, and business methods can all represent years of investment and development.  

When that information is improperly acquired, disclosed, or used by a competitor, former employee, or business partner, the consequences can be significant. The federal Defend Trade Secrets Act (DTSA) provides businesses with a powerful tool for protecting valuable confidential information, but not every piece of confidential information qualifies as a trade secret. One of the most important requirements under the DTSA is demonstrating that reasonable efforts were made to keep the information secret. 

Businesses often seek legal guidance after discovering that a former employee, competitor, vendor, or business associate may have improperly used confidential information. In many of these cases, the success of a trade secret claim depends not only on the value of the information itself but also on whether the company took appropriate steps to protect it. 

The Law Offices of David H. Schwartz, Inc. represents businesses and individuals throughout the San Francisco Bay Area, including San Jose, Santa Clara, San Mateo, Alameda County, Oakland, and surrounding California communities. Attorney David Schwartz has spent more than 45 years handling trade secret disputes, business litigation, shareholder derivative actions, Civil RICO matters, and other commercial conflicts.  

Understanding Trade Secret Protection Under the DTSA

The Defend Trade Secrets Act, enacted in 2016, created a federal cause of action for trade secret misappropriation. Before the DTSA, trade secret disputes were primarily governed by state law. While state law remains important, the DTSA allows businesses to pursue certain trade secret claims in federal court. 

Under the DTSA, information generally qualifies as a trade secret when it derives independent economic value from not being generally known or readily ascertainable by others and when the owner has taken reasonable measures to maintain its secrecy. 

This second requirement often becomes a major point of contention during litigation. Businesses sometimes assume that information automatically qualifies as a trade secret because it is valuable or confidential. However, courts frequently examine whether the company actively protected the information before deciding whether trade secret protection applies. In other words, valuable information is not necessarily a trade secret if little effort was made to keep it private. 

What Are Reasonable Efforts to Maintain Secrecy?

The DTSA does not require absolute secrecy. Businesses are not expected to create perfect security systems or eliminate every possibility of unauthorized disclosure. Instead, courts generally look at whether the company took reasonable steps under the circumstances to protect the information. 

Reasonableness often depends on factors such as the nature of the information, the size of the business, industry practices, and the risks associated with disclosure. What may be reasonable for a multinational technology company could differ from what is reasonable for a small business. 

The key question is whether the company treated the information as deserving protection. If a business makes little distinction between trade secrets and ordinary information, a court may be less likely to view the information as legally protected. 

Confidentiality Agreements Play an Important Role

One of the most common methods of protecting trade secrets involves confidentiality agreements. Employees, contractors, consultants, vendors, and business partners who have access to sensitive information are often asked to sign agreements restricting disclosure and use of that information. 

These agreements can serve several purposes. They put individuals on notice that the information is confidential, establish expectations regarding its handling, and create contractual obligations that may be enforceable in court. 

While confidentiality agreements alone may not be enough to establish trade secret protection, they are frequently viewed as evidence that a business took meaningful steps to safeguard its information. Businesses that fail to use confidentiality agreements may face additional challenges in demonstrating that secrecy was a priority. 

Limiting Access to Sensitive Information 

Courts often examine who had access to the alleged trade secret and whether that access was appropriately restricted. Information available to anyone within a company, without limitation, may be more difficult to characterize as a protected trade secret. 

Many businesses limit access to sensitive information based on job responsibilities. Employees may only be given access to information necessary for their roles, and certain materials may be restricted to management, research personnel, or other designated individuals. 

Electronic safeguards can also play an important role. Password protection, user access controls, encryption, secure servers, and activity monitoring may all help demonstrate that a company took steps to restrict unauthorized access. 

The goal is not necessarily to create barriers for legitimate business operations, but to show that the company treated the information as confidential and valuable. 

Physical Security Measures Still Matter

Although many trade secret disputes involve digital information, physical security remains relevant as well. Businesses often maintain sensitive documents, prototypes, research materials, and records in physical form. 

Locked offices, restricted work areas, visitor controls, badge access systems, and secure document storage may all contribute to a company's efforts to maintain secrecy. Physical safeguards help demonstrate that confidential information was not freely available to employees, visitors, or members of the public.  

Courts may consider both digital and physical security measures when evaluating whether reasonable efforts were taken to protect a trade secret. A comprehensive approach to confidentiality often carries greater weight than reliance on a single protective measure. 

Employee Training and Internal Policies

Trade secret protection is often strengthened when businesses actively educate employees about confidentiality obligations. Written policies, employee handbooks, training programs, and periodic reminders can all reinforce the importance of protecting sensitive information. 

Employees who understand what information is confidential and how it should be handled are less likely to disclose it inadvertently. Training can also help establish a record demonstrating that the company consistently treated certain information as protected. 

Internal policies often address issues such as data storage, remote access, document handling, device usage, and procedures for departing employees. These policies may become important evidence in trade secret litigation. Businesses that invest in employee education often place themselves in a stronger position when seeking legal protection for confidential information. 

What Happens When Reasonable Efforts Are Missing?

A company may possess highly valuable information and still struggle to obtain trade secret protection if it cannot demonstrate reasonable efforts to maintain secrecy. For example, information shared freely without confidentiality agreements, stored on unrestricted systems, or distributed broadly without limitations may face greater scrutiny in court. Opposing parties often focus heavily on identifying weaknesses in a company's security practices. 

If a court concludes that reasonable efforts were lacking, the information may not qualify as a trade secret under the DTSA, regardless of its value. This can significantly affect a business's ability to pursue legal remedies for misappropriation. As a result, preventive measures taken before a dispute arises are often just as important as the litigation strategy employed afterward. 

California Laws and Trade Secret Protection

In addition to the DTSA, California businesses often rely on the California Uniform Trade Secrets Act (CUTSA) when pursuing claims involving misappropriation of confidential business information. California law generally requires proof that the information derives economic value from not being generally known and that reasonable efforts were made to maintain its secrecy. 

California courts frequently examine factors similar to those considered under the DTSA, including confidentiality agreements, access restrictions, security protocols, employee policies, and other protective measures. Businesses may pursue remedies such as injunctions, monetary damages, and other forms of relief when trade secret misappropriation occurs. 

Because trade secret disputes often involve both federal and state law claims, businesses should carefully evaluate their protective measures before a dispute arises and act promptly when misappropriation is suspected. 

Business Litigation Attorney Serving the San Francisco Bay Area

The Law Offices of David H. Schwartz, Inc. represents businesses and individuals involved in high-stakes commercial disputes throughout the San Francisco Bay Area, including San Jose, Santa Clara, San Mateo, Alameda County, Oakland, and surrounding California communities.  

Attorney David Schwartz has spent more than 45 years handling trade secret litigation, shareholder derivative actions, Civil RICO claims, and other business disputes. Known for a strategic approach that balances immediate objectives with long-term goals, he helps clients protect their interests when critical business assets are at stake. Contact the Law Offices of David H. Schwartz, Inc. today to discuss your matter.