When most people consider intellectual property protections, they tend to think first of the rights that can be obtained by filing patents, trademarks, or copyrights. While these legal mechanisms confer significant protections in a particular piece of intellectual property (IP), they also require that the rights-holder disclose their invention, process, idea, or other IP to the public at large. In return for disclosure, the individuals or businesses receive an exclusive right to benefit from their idea for a fixed period of time.
Trade secret law provides an alternative way for people who have a unique idea from which they may be able to profit to protect their intellectual property, without having to disclose it to the rest of the world. In addition, unlike trademarks, patents, or copyrights, trade secret protections do not expire, allowing the protection to be extended indefinitely, which may be of significant importance to certain ventures. For example, the Cola-Cola Company has successfully protected the formula for its eponymous product as a trade secret for decades after its patent protections would have expired, resulting in untold billions in profits.
What is a Trade Secret?
California, along with a majority of other states, has adopted a version of the Uniform Trade Secrets Act (UTSA) in California Civil Code §§ 3426-3426.11, which defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process.” In addition, in order to one of the preceding ideas to be considered a trade secret, it must:
- Derive independent actual or potential economic value by not being known to the public or to other parties that may be able to profit from its disclosure or use, and
- Be the subject of reasonable efforts to maintain secrecy regarding its existence or content.
The types of intellectual property that may be considered trade secrets include recipes, customer or client lists, processes for the manufacture of certain products, computer programs or applications, techniques of products, research data, pricing information, marketing plans, and information regarding company personnel.
Misappropriation of Trade Secrets
The USTA refers to the theft or other misuse of trade secrets as “misappropriation.” The law defines misappropriation as the acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means. In addition, misappropriation can occur when an unauthorized person discloses or uses a trade secret. Misappropriation can occur both through intentional and unintentional disclosure and could be the result of actions taken by both employees and third parties.
There are a variety of remedies available to parties who have fallen victim to trade secret misappropriation under the UTSA. Among those authorized by the statute include:
- An injunction enjoining the actual or threatened misappropriation
- Payment of royalties
- Actual damages
- Unjust enrichment
- Double the actual damages, in cases of willful and malicious misappropriation
- Attorney’s fees
Various criminal penalties may also be available under California law, including under California Penal Code 499c, which specifically criminalizes the theft of trade secrets.
Protecting Trade Secrets
Importantly, businesses must make “reasonable efforts” to ensure that the ideas that they wish to protect as trade secrets are classified as such by the law. Such efforts could include informing employees about the confidential nature of certain information, marking confidential files as such, establishing internal network security measures, and the use of non-compete and non-disclosure agreements with employees and potential business partners.
There are a number of federal laws that can be used to criminally prosecute individuals and businesses that misappropriate trade secrets. Among the most commonly used is the Economic Espionage Act of 1996, which criminalizes the misappropriation of trade secrets, including knowingly buying, possessing, or receiving trade secrets. The penalties associated with violating the law include a fine of up to $5,000,000 and 15 years in prison for individuals and for organizations “the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.”
For further information, contact Punzalan Law, P.C.
Anyone with questions regarding trade secret protections or who is currently involved in a trade secret dispute should consult with an attorney with experience in this area of law immediately. The attorneys at Punzalan Law, P.C. advise and counsel a wide variety of companies on legal matters related to intellectual property and trade secret protection.