Business Law Blog

Is A Plaintiff Required To Identify The Trade Secrets Misappropriated By The Defendant(s) Prior To Conducting Discovery?

2010-05-03T13:41:00.000-07:00

Code of Civil Procedure §2019.210, states:

“In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act … before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3426.5 of the Civil Code.”

It has long been the law in California that a plaintiff claiming misappropriation or theft of trade secrets must, at the outset, identify its trade secrets with sufficient particularity so as to avoid litigation abuses and to provide adequate protection against the unwarranted disclosure of trade secrets or otherwise confidential information to a plaintiff whose claims are not well-defined. Without such a rule, a plaintiff would be free to use litigation unfairly and inappropriately as a way to examine another's trade secrets, and then define its own allegedly misappropriated trade secrets so that they encompass whatever is found in discovery.

Hence, the purpose of section 2019.210 is to (a) promote well-investigated claims and dissuade the filing of meritless trade secret complaints; (b) prevent plaintiffs from using the discovery process as a means to obtain the defendant's trade secrets; (c) assist the court in framing the appropriate scope of discovery and in determining whether plaintiff's discovery requests fall within that scope; and (d) enable defendants to form complete and well-reasoned defenses, ensuring that they need not wait until the eve of trial to effectively defend against charges of trade secret misappropriation.

While neither the statue or the case law explain what constitutes a sufficient showing of “reasonable particularity,” courts have held that a plaintiff must make a showing that is fair, proper, just and rational under all of the circumstances to identify its alleged trade secret in a manner that will allow the trial court to control the scope of subsequent discovery, protect all parties' proprietary information, and allow them a fair opportunity to prepare and present their best case or defense at a trial on the merits.

Consequently, there is no bright line rule and what constitutes fair, proper, just and rational is determined on a case by case basis. However, based on recent case law, it appears that in a highly specialized technical field, a more exacting level of particularity may be required to distinguish the alleged trade secrets from matters already known to persons skilled in that field.

If you are involved in a dispute concerning theft of trade secrets, it is vital to have the experienced business litigation attorneys of Fisher & Talwar on your side. Attorneys at Fisher & Talwar are skilled in litigating misappropriation of trade secret and unfair competition claims. Contact Los Angeles trade secret attorneys at Fisher & Talwar at 213-891-0777 or contact vt@fishertalwar.com for immediate assistance.

Is There A Trade Secret Exception To The California Business And Professions Code Section 16600?

2010-04-14T15:23:00.001-07:00

Many employers in California require their employees to sign a non-compete and/or non-solicitation agreement. Presumably, employers believe that the only way to protect their trade secrets and seek legal recourse for misappropriation of said secrets is by having their employees sign a longwinded and overly broad statement acknowledging certain categories of items, procedures, data and methodology as confidential property of the employer.

Unbeknownst to the employers, these types of agreements are generally void even if they are narrowly tailored, i.e., limited in geographic location and time. This is because California Business and Professions Code §16600 states: "Except as provided in this Chapter, every contract by which anyone is restrained from engaging in lawful profession, trade, or business of any kind is to that extent void." Sections 16601-16602.5 specifically identify the three exceptions to the general rule. These exceptions deal with non-compete agreements made in the context of dissolution of a partnership/limited liability company or the sale of the goodwill of a business.

Until recently, California Courts unanimously used the so called trade secret exception to enforce these non-complete/non-solicitation agreements. Specifically, courts routinely held that a non-compete agreement was valid and enforceable if it was necessary to protect "trade secret(s)" of the former employer.
In the recent case of Dowell v. Biosense Webster, Inc., California Court of Appeal questioned whether or not there was a common law trade secret exception to Business and Professions Code Section 16600. Following in the footsteps of Edwards v. Arthur Andersen LLP and The Retirement Group v. Galante, the Dowell court concluded that Section 16600 "prohibits employee noncompetition agreements unless the agreement falls within a statutory exception."

The Dowell court further noted: "Section 16600 bars a court from specifically enforcing (by way of injunctive relief) a contractual clause purporting to ban a former employee from soliciting former customers to transfer their business away from the former employer to the employee's new business, but a court may enjoin tortuous conduct (as violative of either the Uniform Trade Secret Act and/or the unfair competition law) by banning the former employee from using trade secret information."

Hence, according to the Dowell court, claims of misappropriation of trade secrets are actionable and the "conduct is enjoinable not because it falls within a judicially created 'exception' to section 16600's ban on contractual non-solicitation clauses, but is instead enjoinable because it is wrongful independent of any contractual undertaking."

However it is also important to note that the Dowell court, for some reason stopped short of clearly rejecting the common law trade secret exception to non-compete and non-solicitation agreements. Thus, it appears that while there is no clear authority California Courts are beginning to question the validity and enforceability to restrictive covenants in the context of theft of trade secret cases. Since theft of trade secret is a tortuous conduct, a fully executed non-compete agreement is not a prerequisite to enjoining an employee from misappropriating trade secrets of the former employer.

More importantly, if courts continue to follow in the footsteps of Dowell, employers who may be trying to protect their confidential information by compelling their employees to sign a non-compete or non-solicitation agreement may be liable for violating unfair competition laws such as Business and Professions Code § 17200.

If you are involved in a theft of trade secret claim, it is vital to have the experienced business litigation attorneys of Fisher & Talwar on your side. Attorneys at Fisher & Talwar are skilled in litigating misappropriation of trade secret claims. Contact Los Angeles trade secret attorneys at Fisher & Talwar at 213-891-0777 or vt@fishertalwar.com for immediate assistance.

What is a Trade Secret?

2009-08-17T15:26:00.000-07:00

Claims of trade secret misappropriation involving misuse of a customer list are frequently litigated. Often a plaintiff claims its customer list is a trade secret because the company has spent a lot of time, effort, and money in compiling a list of customers who have a proclivity to purchase the company's unique product(s). The defendant, on the other hand, will argue that the customer list is not a trade secret because the same information can easily be obtained from the internet and/or other publicly available sources such as the Yellow Pages. To make matters worse, there is no bright line rule as to what constitutes a trade secret. This is why California courts look at customer list – trade secret claims on a case by case basis. To assist courts in making this determination, the California Legislature has enacted the Uniform Trade Secret Act that is codified in Civil Code § 3426.1(d) (“UTSA”).

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.

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.

Finally, whether or not a customer list is a trade secret requires an objective analysis because a party's belief that something is a trade secret is not dispositive. Nor is a contract labeling information as a trade secret because a contract cannot make a trade secret where none exists under the law.

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. Contact Los Angeles trade secret attorneys at Fisher & Talwar at 213-891-0777 or vt@fishertalwar.com for immediate assistance.

Are Non-Compete Agreements Enforceable In California?

2009-08-17T15:25:00.000-07:00

Often, employment agreements contain some form of a covenant to prevent an employee from working for a competitor after he leaves his current employer. Such agreements generally contain the following type of language:

Employee will not render services, directly or indirectly, for a period of one year after separation of employment with a competitor of a former employer.

The enforceability of these types of agreements depends on the nature of the information that the employer is trying to protect. Unlike many other states, in California these types of non-compete or anti-solicitation agreements are generally void and not enforceable. This is true even if the non-compete agreement is narrowly tailored, i.e., limited in geographic location and time. This is because California Business and Professions Code §16600 states: "Except as provided in this Chapter, every contract by which anyone is restrained from engaging in lawful profession, trade, or business of any kind is to that extent void." However, the Business & Professions Code provides an exception to this general rule where the (a) non-compete agreement is in the context of dissolution of a partnership/limited liability company; or (b) the sale of the goodwill of a business.

As one court recently stated: "California courts have consistently declared section 16600 is an expression of public policy to ensure that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice…[and]…the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change.” D'sa v. Playhut Inc. (2000) 85 Cal.App.4th 927. This means that even if an employee has agreed in writing not to compete, he has a right to work with competitors of the former employer and even transact business with customers of the former employer.

There is, however, a third exception to the above-referenced rule that arises in the context of protecting trade secrets. California courts have routinely held that a non-compete agreement is valid and enforceable if it is necessary to protect trade secrets of the former employer. It is also important to understand that even if an employee has not signed a non-compete agreement, he or she may still be enjoined from working for a competitor if the employee is disclosing or using the trade secrets of the former employer. Thus, a written and fully executed non-compete agreement is not necessary to prevent an employee from working for a competitor if the employee is using trade secrets of the former employer. But, in the context of protecting trade secrets, a non-compete agreement is enforceable and generally strengthens an employer's legal position in the event a lawsuit is filed.

In sum, the enforceability of non-compete agreements depends on the underlying interest sought to be protected. If the employer is able to establish that the information is a legitimate trade secret of the company, the court will likely grant an injunction preventing the former employee and his or her new employer from misappropriating the trade secrets.

If you are involved in a trade secrets misappropriation claim it is vital to have the experienced business litigation attorneys of Fisher & Talwar on your side. Attorneys at Fisher & Talwar are skilled in litigating misappropriation of trade secret claims. Contact Los Angeles trade secret attorneys at Fisher & Talwar at 213-891-0777 or vt@fishertalwar.com for immediate assistance.

Los Angeles Business Law Blog

2009-06-10T16:08:00.000-07:00

California Uniform Trade Secret Act (UTSA) Preempts common law unfair competition claims as well as claims based on Business and Professions Code § 17200.

In the recent case of K.C. Multimedia, Inc. v. Bank of America Technology & Operations Inc. (2009) 171 Cal.App.4th 939, California Court of Appeal held that UTSA preempts common law claims and statutory unfair competition claims that are based on the same nucleus of facts as the misappropriation of trade secret claim. This holding has brought California state law in line with federal court cases that have applied California law.

In K.C. Multimedia, Inc., plaintiff claimed defendants misappropriated its technology that enabled defendants' end-users to access personal bank account information. The complaint asserted causes of action for trade secret misappropriation, breach of confidence, conversion, breach of contract, tortuous interference with contract and unfair competition. However, prior to trial, the trial court dismissed three causes of action -- breach of confidence, unfair competition, interference with contract -- on the grounds they were preempted by UTSA. Plaintiff appealed the preemption ruling, claiming it was contrary to California law.

The Court of Appeal affirmed the lower court’s ruling and held that the comprehensive nature and breadth of UTSA suggests a legislative intent to preempt other claims based on trade secret misappropriation. The Court of Appeal began its analysis by highlighting the general principles that underpin the statutory preemption doctrine and stated:

“The general rule is that statutes do not supplant the common law unless it appears that the Legislature intended to cover the entire subject or, in other words, to occupy the field. General and comprehensive legislation, where course of conduct, parties, things affected, limitations and exceptions are minutely described, indicates a legislative intent that the statute should totally supersede and replace the common law dealing with the subject matter."

Against this backdrop, the Court of Appeal examined the UTSA codified in §§3426-3426.11 and noted:

“Among other things, CUTSA defines key terms, provides various forms of relief, spells out methods of preserving the secrecy of trade secrets, and sets forth the limitations period. The stated purpose of UTSA is to provide unitary definitions of trade secret and trade secret misappropriation, and a single statute of limitations for the various property, quasi-contractual, and violation of fiduciary relationship theories of noncontractual liabilities utilized at common law. The Uniform Act also codifies the results of the better reasoned cases concerning the remedies for trade secret misappropriation.”

The court then focused on the §3426.7 and observed the following:

"CUTSA includes a specific provision concerning preemption. That provision, section 3426.7, reads in pertinent part as follows: (a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secret. (b) This title does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon misappropriation of trade secret, or (3) criminal remedies, whether or not based upon misappropriation of trade secret. Section 3426.7 thus expressly allows contractual and criminal remedies, whether or not based on trade secret misappropriation and implicitly preempts alternative civil remedies based on trade secret misappropriation. At the same time, § 3426.7 implicitly preempts alternative civil remedies based on trade secret misappropriation.’”

Based on the foregoing, the Court of Appeal concluded that §3426.7(b) “would appear to be rendered meaningless if, in fact, claims which are based on trade secret misappropriation are not preempted by the state's statutory scheme.” Id. at 958.

In K.C. Multimedia, Inc. v. Bank of America Technology & Operations Inc., California Court of Appeal followed in the footsteps of recent federal courts cases (Cacique, Inc. v. Robet Reiser & Co. Inc. (9^th Cir. 1999) 169 F.3d 619, 626 Accuimage Diagnostic Corp v. Terarecon, Inc. (ND CA 2003) 260 F.Supp.2d 941, 953-954; First Advantage Background Services Crop. v. PrivateEyes (ND CA 2009) 569 F.Supp.2d 929; and Digital Envoy, Inc. v. Google, Inc. (ND CA 2005) 370 F.Supp.2d 1025, 1034-1035) in holding that the Uniform Trade Secret Act preempts common law claims and statutory unfair competition claims that are based on the same nucleus of facts as the misappropriation of trade secret claim.

If you are involved in a dispute concerning trade secrets it is vital to have the experienced business litigation attorneys of Fisher & Talwar on your side. Attorneys at Fisher & Talwar are skilled in litigating misappropriation of trade secret claims. Contact Los Angeles trade secret attorneys at Fisher & Talwar at 213-891-0777 or vt@fishertalwar.com for immediate assistance.