CONFIDENTIALITY UNDER CALIFORNIA LAW

Trade secrets are protected under California law even without a written confidentiality agreement under the Uniform Trade Secrets Act (“UTSA”) [California Civil Code (“CC”) S 3426 et seq.].

Under the UTSA, misappropriation occurs when a trade secret is acquired by a person who knows or has reason to know that the trade secret was acquired by improper means, or when a trade secret is disclosed or used without consent by a person: (i) who used improper means to acquire it; (ii) who knew or should have known it was acquired improperly, acquired under circumstances giving rise to a duty to maintain secrecy or limit its use, or derived from a person required to keep its secrecy or limit its use; or (iii) who knew or should have known that it was acquired by accident or mistake [CC S 3426.1(b)]. Remedies under the UTSA are damages and injunctive relief [CC SS 3426.2 and 3426.3]. If willful and malicious, the Court may award exemplary damages and attorneys fees in certain circumstances [CC S 3426.4].

Under UTSA a trade secret is, “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.” [CC S 3426.1(d)]

Should a written confidentiality agreement be entered into? In many instances, access to confidential data simply may not otherwise be had.

Advantages include: (i) the law of a particular jurisdiction may be selected; (ii) specific remedies may be selected such as specific performance and injunctive relief, and it may require attorneys fees be awarded to the prevailing party; (iii) identification of what is confidential; (iv) identifying which persons may view the information and how it must be treated and returned; (v) binding arbitration may be chosen; and (vi) it shows the claiming parties' effort to maintain confidentiality.

Disadvantages include: (i) it may be an unreasonable restrain on trade, especially when required as a condition of employment (time and geographic limitations must be included to avoid prohibiting highly trained individuals from being able to practice their trade); (ii) it may chill negotiations.