What is a Trade Secret?

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?

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.