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Can a California company stop ex-employees from using its trade secrets?

Building a business from the ground up can be challenging, especially in competitive markets like California.  However, establishing a successful business can be even more daunting when a company has to worry about losing its trade secrets to competitors - trade secrets that likely involved significant time and investment.  And, given the volatility of the employment market in recent years, there is a real threat that ex-employees may attempt to bring company trade secrets with them when they leave to work for competitors.  Thankfully, though, California law offers several protections to stop ex-employees from using a company's trade secrets after their employment ends - an act that is otherwise known under the law as the misappropriation and theft of trade secrets.

California trade secret laws

California law actually defines trade secrets quite broadly.  In fact, trade secrets include any information - such as formulas, devices, methods, or techniques - that derive "independent economic value" from not being known to competing businesses or the public.  Given this wide-ranging definition, California courts have even afforded trade secret protection to companies' customer and client lists.

Additionally, California law delineates several actions that may constitute trade-secret misappropriation.  For instance, misappropriation can include the acquisition of a company's trade secret by another company who knows, or has reason to know, that it was acquired by improper means - such as an ex-employee stealing the trade secret.  Moreover, misappropriation can also include circumstances in which a protected trade secret is disclosed or used by someone who:

  • Used improper means to acquire the trade secret
  • Knew, or had reason to know, that the information is a trade secret and that it has been disclosed only by accident or mistake
  • Knew, or had reason to know, at the time of disclosure that the trade secret was obtained by someone who used improper means to acquire the information, obtained by someone who had a duty to maintain the secrecy of the trade secret, or obtained in a situation that created a duty to maintain the secrecy of the trade secret

However, it is important to mention that trade secrets are only given protection if the company that developed the trade secret takes reasonable efforts under the circumstances to keep it secret.  For example, while maintaining the secrecy of a trade secret need not be extreme of overly expensive, some efforts must be taken.  If a company discloses a trade secret through carelessness, it will possibly lose protection.  Often times, business owners will have employees sign written secrecy agreements in order to protect trade secrets, although these agreements are not necessary in all instances.

If a California business owner believes an ex-employee may be wrongfully using a company trade secret after leaving the company, the owner can seek an injunction stopping this employee from using the information.  Additionally, if the ex-employee has already used the trade secret, the business owner may seek damages for the misappropriation.  Importantly, a California court can also award double the damages if it finds that the trade-secret misappropriation was willful or malicious.

Ultimately, the law in California regarding trade-secret misappropriation can be quite complex, which is why it is often best to seek the counsel of an experienced business litigation attorney if you are a business owner currently embroiled in a trade-secret dispute.  A skilled attorney can review the facts of your case and help determine what your rights and options may be given your circumstances.

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Klein & Wilson

Klein & Wilson
4770 Von Karman Avenue
Newport Beach, CA 92660

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