What Is a Trade Secret in California?

If you own a business, you likely have “trade secrets” that you need to protect. In fact, for some businesses, the ultimate success or failure of the business depends on how well its trade secrets are protected. Despite this, many business owners do not have a firm understanding of exactly what constitutes a “trade secret” nor what steps can be taken protect them.  To help ensure that your business succeeds, an Orange County business litigation attorney at Brown & Charbonneau, LLP explains the fundamentals of trade secrets in California.

Trade Secrets Defined

Like many states, the State of California adopted the Uniform Trade Secrets Act (UTSA). The UTSA is a federal law that was promulgated for adoption by the states in 1979. The goal of the UTSA was to make the laws relating to trade secrets more uniform among the various states. The California Uniform Trade Secrets Act (CUTSA) is located at sections 3426 to 3426.11 of the California Civil Code. According to the CUTSA, a trade secret means:

information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

1.  Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
2.  Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Elements of a Trade Secret

It always helps to know how the law defines a trade secret; however, it is also beneficial to have a concrete way to identify a trade secret as well. With that in mind, the following four elements must be present for a trade secret to exist:

1. Information. There must be information to protect. The most common examples are technical and business information; however, any type of information could provide the basis for a trade secret.
2. Economic value (actual or potential). There must be some economic value gained by the owner of trade secret that is derived from the fact that the information is not known by others. This element does not focus on the value of the information itself, but on the value it has because it is not known by others.
3. Not generally known. The information cannot be something that is commonly known by either the public or by competitors.
4. Treated as a secret. The owner of the information must make a reasonable effort to keep the information a secret. Just having the intent to keep it secret is not sufficient. The owner must take reasonable steps to keep the information from falling into the hands of others.

Examples of Trade Secrets

The list of things that could be considered a trade secret is virtually endless; however, some common examples to help you better understand the concept include:

• Customer lists
• Computer software
• Plans, designs, and patterns
• Inventions that have yet to be patented
• Processes used to create products
• Formulas
• Internal market analysis
• Marketing and advertising plans

Protecting Your Trade Secrets

As noted in the fourth element of trade secrets, the owner must make a reasonable effort to keep the information secret. As a business owner, that starts with putting employees, contractors, vendors, and anyone else who is privy to the information on notice of the confidential nature of the information. There are less formal methods of accomplishing this, such as distributing a notice or including a provision or clause in an employment contract. Many businesses, however, choose the more formal route which requires employees to sign a non-disclosure agreement (NDA). When properly drafted, a NDA is an excellent way to protect trade secrets. Because the NDA you enter into with employees may end up in court though, you should work with an experienced business litigation attorney during the creation of the document. Courts will enforce an NDA but not if the court believes it is too broad in scope or too prohibitive for the employee.

Contact an Orange County Trial Attorney

If you have additional questions or concerns regarding business trade secrets, contact an experienced Orange County business litigation attorney at Brown & Charbonneau, LLP for more information. Contact the team today by calling 714-406-4397 to schedule your appointment.