What Qualifies as Misappropriation of a Trade Secret?

Trade secrets are valuable assets for any business. Running a successful business often means having trade secrets that they wish to protect from competitors. That is why businesses make every effort to prevent competitors and former employees from using trade secrets without their knowledge.

Sometimes, trade secrets end up being misappropriated. When this happens, a business can file a lawsuit to recover compensation and hold individuals or organizations that stole trade secrets accountable for the theft. Whether you need assistance with enforcing your rights after the theft or misappropriation of your trade secrets or need to defend yourself against accusations of unauthorized disclosure of trade secrets, your best option is to contact a business litigation attorney.

At the Law Offices of David H. Schwartz, INC, an experienced and dedicated business litigation attorney in San Francisco, California handles disputes and lawsuits involving theft and misappropriation of trade secrets. Attorney David H. Schwartz also represents individuals and companies in cases of trade secret misappropriation in Santa Clara, Oakland, San Jose, San Mateo, and throughout Alameda County and greater the San Francisco Bay Area.

What Are Trade Secrets?

Trade secrets are defined as confidential information that the business intends to keep secret. According to the website of the United States Patent and Trademark Office (USPTO), a trade secret is any information that is subject to “reasonable efforts to maintain its secrecy.” Trade secrets include but are not limited to:

  • Business development plans
  • Financial plans
  • Customer lists
  • Software
  • Supply chain information
  • Sensitive marketing information

Trade secrets have commercial value derived from their secrecy. When a trade secret is revealed, it loses its value. Trade secrets, which are usually not revealed to anyone outside of the business, are often protected by Non-Disclosure Agreements (NDAs).

California Uniform Trade Secrets Act ("UTSA")

Like most states, California has adopted the Uniform Trade Secrets Act (UTSA). The law allows owners of trade secrets to pursue legal action and recover damages for unauthorized disclosure, misappropriation, and theft of trade secrets.

When pursuing a lawsuit for the misappropriation of a trade secret under the UTSA, businesses want to reveal as little information about the secret as possible. However, the UTSA requires plaintiffs (individuals or organizations filing lawsuits) to identify the trade secret that was allegedly misappropriated. A protective order may be necessary to prevent the public from accessing the information disclosed about the trade secret in the lawsuit.

What Qualifies as Misappropriation?

California law defines the word “misappropriation” as improper acquisition or unauthorized disclosure of a trade secret without the consent of the owner of that secret. Examples of improper means for acquiring trade secrets include:

  • Theft
  • Espionage
  • Bribery
  • Breach of a duty not to disclose the information

The disclosure of a trade secret is considered misappropriation under the UTSA if it was disclosed without the consent of the secret’s owner. If a trade secret was acquired by improper means, the owner might pursue financial compensation for the losses caused by the use or disclosure of their trade secrets.

Former Employee Provision

Under the UTSA, there is no requirement for plaintiffs seeking financial compensation for the misappropriation of a trade secret to show physical evidence of misappropriation. An employer may simply show that a former employee used their memory to disclose trade secret information to hold the employee accountable for the misappropriation. This is known as the “former employee” provision.

However, California courts have placed limits on the applicability of the provision in trade secret misappropriation litigation. You need to consult with an experienced attorney if you are:

  • An employer who wants to sue a former employee for disclosing trade secrets
  • An employee being accused of misappropriation of trade secrets by a former employer

Penalties for Misappropriation

California law allows owners of trade secrets to obtain an injunction against the individual or organization that acquired the secret by improper means to prevent any further use or disclosure of the confidential information. An injunction may also include payment of royalties from any profits the defendant (the party accused of stealing or misappropriating trade secrets) has gained from using or disclosing the information.

In addition to awarding financial compensation, the court may also impose punitive damages to punish the defendant for egregious conduct.

Hiring Legal Counsel

Whether you are the victim of trade secret misappropriation or are being accused of stealing, disclosing, or misappropriation of trade secrets, you need legal counsel to help you navigate the litigation process and protect your rights. Attorney David H. Schwartz is prepared to help you develop an efficient strategy and, if necessary, represent your interests in court. Located in San Francisco, California, the Law Offices of David H. Schwartz represents clients across the San Francisco Bay Area, including San Mateo, San Jose, Santa Clara, Oakland, and throughout Alameda County.


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