Los Angeles Misappropriation of Trade Secret Attorneys

What is a Trade Secret?

California’s trade secret statute can be found in California Civil Code Section 3426.1 (d). It contains two prongs that must be satisfied before an item, method, process, technique or information is deemed a trade secret.

The first prong of the UTSA states that the information at issue must have independent economic value, actual or potential, from not being generally known to the public or to other persons who could obtain economic value from its disclosure or use. The term “independent economic value” means that the secrecy of the information provides a substantial business advantage. And the value must be more than trivial to the owner. In addition to a defense of general knowledge, if the information at issue is readily ascertainable by proper means — even if not generally known– it does not have any independent value.

Second, the alleged trade secret must have been maintained in a safe place so that it was not discoverable by the public or non-essential employees.

What Constitutes Misappropriation of Trade Secrets?

California Civil Code Section 3426.1(b) defines misappropriation as unauthorized acquisition, use, or disclosure of known trade secrets.

  1. Acquisition: Types of improper acquisition include copying electronic files, removing documents, obtaining access to trade secrets by misrepresentation, or inducing a breach of a duty to maintain secrecy. The most important factor is the use of improper means to obtain the trade secret.
  2. Use: Examples of use or disclosure include contacting customers identified on a customer list or using someone’s formula/recipe to replicate a product. It is important to note that a plaintiff need not establish that the defendant’s product was identical to the product it sold or that all of the defendants’ customers were once customers of the plaintiff. If the stolen formula accelerated the development process of the defendant or assisted the defendant in becoming a formidable competitor in a relatively short period of time, the plaintiff will likely prevail on its claims.
  3. Disclosure: Disclosure of a trade secret may be by intentional or accidental means. Since the California Uniform Trade Secret statute does not require a specific intent, an inadvertent disclosure can result in liability.

Thus, in order to successfully prevail on a trade secret claim, a plaintiff must not only prove that the property in dispute is a trade secret but it must also show that it was illegally acquired, used or disclosed.

 Available Remedies in a Trade Secret Action

Depending on the facts that are established at trial, a plaintiff may obtain the following relief:

  1. Disgorgement of Profits: Plaintiffs can recover profits realized by the defendant.
  2. Compensatory Damages: Plaintiffs can recover actual losses.
  3. Permanent Injunction: Plaintiffs can obtain a court order enjoining the defendant from engaging in particular conduct such as using the trade secrets or soliciting business from particular customers.
  4. Unjust Enrichment: A plaintiff can recover compensatory damages to the extent they are not included in the plaintiff’s actual losses.
  5. Payment of Royalty: If the plaintiff is not able to prove actual damages or unjust enrichment resulting from the misappropriation of the trade secret, he or she may receive reasonable royalty payments that do not exceed the life of the trade secret.
  6. Punitive Damages: Plaintiffs can recover punitive damages to punish the defendant in cases where the misappropriation was willful and malicious. However, these damages cannot exceed twice the amount of the plaintiff’s actual loss.
  7. Attorney Fees: Plaintiffs can recover attorney fees in cases where the misappropriation was willful and malicious. Defendants can recover attorney fees if the claim was brought in bad faith.

Statute of Limitations for Trade Secrets

In California, a party has three years to bring a theft of a trade secret claim. The three year period starts when the misappropriation is discovered or if the exercise of reasonable diligence should have been discovered. Although fears and suspicions of misappropriation do not trigger the limitation period, a party’s failure to timely investigate those beliefs may bar him or her from bringing an otherwise valid claim. Thus, if the defendant can point to facts or circumstances that would have caused a reasonable person to investigate suspicions of misappropriation — even if the actual plaintiff did not — the plaintiff will be deemed to have acquired information available from that investigation and thereby have constructive notice of the misappropriation.

Moreover, in situations where the defendant continues to misappropriate the trade secrets, the limitation period does not continuously accrue. As the Court in Cadence Design System Inc. v. Avant! Corp (2002) 29 Cal.4th 215stated, “a claim for misappropriation of a trade secret against a defendant arises only once, when the trade secret is initially misappropriated, and each subsequent use or disclosure of the secret augments the initial claim rather than arises as a separate claim.” Thus, once the misappropriation has occurred, the limitation period is triggered.

The three year statute of limitations, however, may be tolled under certain circumstances. For instances, the limitation period is tolled against a California resident defendant who is temporarily out of state as well as a nonresident defendant who has not entered the state. The tolling provision does not apply to California residents who have moved out of state.

If you are involved in a dispute concerning misappropriation of trade secrets, it is vital to have the experienced business litigation attorneys of Fisher & Talwar on your side. Available remedies for trade secret misappropriation include: injunction, exemplary damages, attorney fees and costs, compensatory damages and payment of royalties. Attorneys at Fisher & Talwar are skilled in litigating misappropriation of trade secret claims.

Handling Trade Secret Misappropriation Claims in Southern California

In addition to the foregoing, courts have found that: (1) a list identifying buyers of products that are inherently difficult to sell merits protection; (2) a list containing specialized information on each customer such as discounts offered and purchase history is more likely to be protected as trade secret; and (3) a list is more likely to be deemed trade secret if the customer’s purchase decisions are influenced primarily by its special needs or susceptibilities, as opposed to factors such as price, quality, reliable delivery and efficient service.

More on Trade Secrets

Ownership of Trade Secrets
Statute of Limitations for Trade Secrets
Trade Secret Involving Customer List
Misappropriation of Trade Secrets
Available Remedies in a Trade Secret Action

Contact Our Los Angeles, California Trade Secret Litigation Attorney

If you are involved in a dispute concerning misappropriation of trade secrets, it is vital to have the experienced business litigation attorneys of Fisher & Talwar on your side. Available remedies for trade secret misappropriation include: injunction, exemplary damages, attorney fees and costs, compensatory damages and payment of royalties. Our experienced business litigation lawyers are skilled in litigating misappropriation of trade secret claims. Contact our law firm online or call (213) 891-0777 to schedule your initial consultation with an experienced California trade secret litigation lawyer.