How to Stop California Companies from Using Misappropriated Trade Secrets

September 08, 2012

Everyone involved in the business world knows what a trade secret is and the immense value it can possess. However, the whole point of a trade secret is that a company derives value from the secret because it is just that, a secret. When a trade secret is misappropriated and/or made public, the trade secret not only loses value but the company risks losing the trade secret all together.

This begs the question, is there any relief available for a company after their trade secret is misappropriated? Is there any way to put the genie back in the bottle so other companies do not learn the trade secret as well? Well, there is equitable relief available in California for these situations - namely, the relief of seeking an injunction.

California Trade Secret Injunctive Relief

An injunction is basically a court order that can command or prevent a party from taking certain actions - in the case of trade secrets, is usually prevents the misappropriating company from utilizing the wrongfully obtained trade secret. Under California's Uniform Trade Secret Act (UTSA), injunctive relief is available for misappropriation of a trade secret. In fact, when it comes to trade secret injunctions, California law states:
- Actual or threatened trade secret misappropriation may be enjoined
- An injunction shall be terminated when the trade secret no longer exists, but may continue for a longer period in order to eliminate a commercial advantage that would be derived from the misappropriation of the trade secret
- If the court concludes that it would be unreasonable to restrict trade secret use in the future, an injunction may condition use on the payment of a reasonable royalty
- In some circumstances, affirmative acts to protect a trade secret may be ordered by the court

In addition, when a party seeks preliminary injunctive relief following the misappropriation of their trade secret, the court generally weighs four factors, which include:
- Whether the moving party is likely to succeed on the merits when the case goes to trial
- Whether the moving party is likely to suffer irreparable harm if the injunction is not granted
- Whether granting the injunction will cause even greater harm to the non-moving party
- Whether granting the injunction is in the public's interest

Usually, the duration and scope of an injunction is left to the court's discretion, but generally a court will only issue injunctive relief for as long as necessary. In fact, recently many courts have been electing to limit injunctions to the period of time that the misappropriating company gained over competing companies by misappropriating the trade secret - which is generally referred to as "lead-time." A court will usually gauge this time by determining how long it would have taken the company to independently develop or reverse engineer the trade secret.

If a court does decide to issue an injunction, they can generally range from lasting only a few months or years - as with a lead-time injunction - to being perpetual and permanent. When it comes to permanent injunctions, a court can grant these if the misappropriating company would not, or could not, have independently developed the trade secret without misappropriation. However, even in these situations a court will often retain their jurisdiction to modify the injunction if needed. In any case, it is important to note that all injunctions may be terminated if the trade secret no longer exists.

Companies need to do what they can to protect trade secrets, because if they do not take all reasonable steps to protect their trade secrets, they may lose protection of them under the law. This protection may involve the seeking of injunctive relief if they believe someone may have misappropriated trade secrets. If you believe you may be entitled injunctive relief or damages due to misappropriation of your trade secret, it is important that you talk to an experienced trade secret attorney to be advised of your rights and options.

Article provided by Boyd Contreras LLP
Visit us at www.karieboydlaw.com