Protecting Trade Secrets

Trade secrets can be the lifeblood of businesses. As trade secrets become more vital to the operations of a business, so does the necessity of actively protecting those trade secrets.

California Civil Code Section 3426.1 defines "trade secret" 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.

The Judicial Council of California Civil Jury Instructions (CACI) defines "trade secret" as information that (1) was secret; (2) had actual or potential independent economic value because the information was secret; and, (3) the business claiming rights to the trade secrets made reasonable efforts to keep the information secret.

The CACI follows their definition with two separate quotes from DVD Copy Control Assn., Inc. v. Bunner (2003) 31 Cal.4th 864, 881 and DVD Copy Control Assn., Inc. v. Bunner (2004) 116 Cal.App.4th 241, 251:

• “‘Trade secrets are a peculiar kind of property. Their only value consists in their being kept private.’ Thus, ‘the right to exclude others is central to the very definition of the property interest. Once the data that constitute a trade secret are disclosed to others, or others are allowed to use those data, the holder of the trade secret has lost his property interest in the data.’”


• “[T]he test for a trade secret is whether the matter sought to be protected is information (1) that is valuable because it is unknown to others and (2) that the owner has attempted to keep secret. . . . [I]n order to qualify as a trade secret, the information ‘must be secret, and must not be of public knowledge or of a general knowledge in the trade or business.’”

Confidentiality agreements and nondisclosure agreements are a powerful weapon for businesses to protect their trade secrets. A nondisclosure agreement is a contract between two or more parties establishing a confidential relationship. Businesses with trade secrets should always require employees with access to the secret information to sign an NDA. This step will help further establish evidence of trade secrets by showing the business' intentions were to keep the information secret. An NDA also immediately informs the employee of the business's expectation that the employee keep the information secret; hence, there is no misunderstanding. Other parties who should sign a nondisclosure agreement include, but are not limited to, visitors, customers, independent contractors, and anyone else who may come in contact with the trade secrets.

Our Sacramento business lawyers have drafted and reviewed countless nondisclosure agreements. Contact our business law firm to schedule an initial consultation with an attorney to learn more about protecting business trade secrets.

Beyond a one-time nondisclosure agreement, businesses should implement internal procedures that will further enforce the protections of trade secrets. Annual internal training seminars that educate employees on what information the business considers trade secrets and the procedures for handling the information. A business should also preform a thorough exit interview with any employee leaving that reiterates their duty to keep the trade secrets confidential.

Our Sacramento business lawyers often help businesses with exit interviews, training seminars, and simple letters to leaving employees that help ensure trade secrets remain secret. Internal policies are an important aspect of keeping information secret. Allow our business attorneys to help you keep that information secret.

Failure to keep information secret will doom a business's legal protections. If a business openly informs the public about their customer lists, then the list is not very secret and the business may have trouble protecting the information. Beyond requiring contractual secrecy, business must take adequate measures to protect the information. Here are two examples of businesses that were granted trade secret protections for customer lists:

• In Morlife, Inc. v Perry (1997) 56 CA4th 1514, the court granted trade secret protections for a company's customer lists because the company limited the circulation of its customer lists and advised employees, in employment agreements and the employee handbook, that it considered the lists to be confidential.


• In Stampede Tool Warehouse, Inc. v May (Ill App Ct 1995) 651 NE2d 209, the court also granted trade secret protections because the customers lists were locked in an office, the computer copies were only accessible by code, salesmen worked in confined areas, and salesmen could not take customer information out of the confined areas.

Trade secrets are the lifeblood of businesses. Business must take adequate measures to keep the information secret. Obtaining legal protection for trade secrets depend on the type of business and the trade secrets. A business should require nondisclosure agreements, implement internal procedures, and maintain the secrecy of information. Our Sacramento business lawyers work with organizations to guide them through the process of protecting their trade secrets. We listed a few steps that will help protect a business' trade secrets, but sometimes further procedures are necessary. If you're interested in discussing trade secrets, please contact Sacramento's business attorneys to set up an initial meeting.

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*The information provided in this post does not constitute legal advice or opinion. The information is for guidance purposes only. Individual situations vary and you should contact us for a consultation. Sacramento Business Lawyers Protecting Trade Secrets.