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California law protects the trade secrets of every San Diego and California business. Trade secrets do not have to be extra-special technology locked in a high security vault. Trade secrets are normal everyday things like customer lists and vendors sheets. Trade secrets are governed by the California Trade Secrets Act (“CTSA”). See Cal. Civ. Code §§ 3426, et seq. To be entitled to protection, your trade secrets must have commercial value by virtue of being secret and you and your company must make “… efforts that are reasonable under the circumstances to maintain [the] secrecy.” Cal. Civ. Code, § 3426.1, subd. (d)(1). In this article, we discuss how California courts define “reasonable” efforts.
San Diego Corporate Law: Trade Secrets
As noted, under the CTSA, 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.”
If a trade secret is stolen, then the owner of the trade secret can sue for misappropriation of trade secrets under CTSA. If the theft was willful and malicious, then punitive damages can be assessed against the person who misappropriated the trade secrets. Cal. Civ. Code, § 3426.3.
San Diego Corporate Law: The Bar is Low for “Reasonable Efforts”
Ultimately, it is a fact question for the jury to decide whether your business has made “reasonable” efforts to maintain the secrecy of your trade secrets. However, the bar is set very low in California. See, for example, the case of Crafty Kids Club v. Gressis, Case No. B226687 (Cal. App. 2nd Dist. 2011) (unpublished). In that case, the Court of Appeals held that the jury had sufficient evidence of “reasonable” efforts where there were only three employees of the company, each knew that the customer lists were the property of the company, access to the database containing the customer information was limited to those three employees, information from the database was not shared with anyone outside the company, and the computer holding the database was kept in a locked room. The court held the evidence to be enough to uphold a jury’s determination that the database was a trade secret and to uphold the jury’s verdict of $250,000 against the misappropriators. The court held that, given the small number of employees, other efforts to protect the database would have “accomplished nothing.”
San Diego Corporate Law: What Steps to Take to Ensure “Reasonable Efforts”
That being said, the more steps you take to protect your company’s trade secrets, the less chance there is that a jury will decide that you did not make “reasonable” efforts. Here is a quick non-exhaustive list of steps to take:
- Have employees sign non-disclosure agreements that define the company’s trade secrets
- Define trade secrets in your company employee handbook
- Verbally warn employees and staff about confidentiality — use the word “secret” in reference to the information that you want protected
- Lock up or secure the information — password protect computers
- Mark documents as “confidential,” but make sure the definition of “trade secret” in your non-disclosure agreements and the employee handbook is not limited to only information so marked
- Create company policies with respect to who may share the information and when
- Limit access to the information to “as needed basis”
Note that, for some courts, the first step — non-disclosure agreements — is sufficient ALONE to establish that the information subject to the agreement are “trade secrets.” See MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (US 9th Cir. 1993). See also Courtesy Temporary Service, Inc. v. Camacho, 222 Cal.App.3d 1278 (Cal. App. 2nd Dist. 1990) (efforts held “reasonable” to protect trade secrets where company had policies prohibiting divulging of confidential and proprietary information, providing general warnings to employees to not divulge or share confidential and proprietary information, providing specific verbal warnings where information was disclosed, limiting the divulging of information to “as need only” basis, limiting the time period of disclosure/access and for only specific purposes).
Contact San Diego Corporate Law Today
If you would like more information about protecting your trade secrets or about intellectual property, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.