Misappropriation of Trade Secrets in California
California has adopted its own version of the Uniform Trade Secrets Act (UTSA). The UTSA is codified under section 3426 to 3426.11 of the California Civil Code. Under this section, a “trade secret” is defined as “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.”
Under California law, “misappropriation” refers to the acquisition of a trade secret through improper means – theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage. This includes the disclosure of a trade secret without the consent of the person who acquired the trade secret. A victim may seek financial compensation and, depending on the facts of the case, a court may impose punitive damages for egregious conduct.
California law surrounding trade secrets is unique when it comes to the employer-employee relationship. California law expressly establishes that the employer owns all trade secrets created by an employee when the trade secret is created in the scope of employment and involves the use of employee materials. (Cal. Labor Code Sec. 2860). However, an employer does not own a trade secret if the employee created the secret on his or her own time and without the use of any employee materials.
Theft of trade secrets is such a large issue that in 1996 Congress passed the Economic Espionage Act of 1996, making the theft of trade secrets a federal offense. The potential consequences of violating this federal statute include a potential 15-year prison sentence and up to $5 million in fines, depending on whether the thief is an individual or a corporation.