Trade Secret Disputes

A trade secret is information, a formula, a process, a customer list, a method, that derives independent economic value from not being generally known, and that its owner has taken reasonable steps to keep secret. That's the definition California and federal law both use, and it's a narrower category than "confidential information" generally: something has to actually be secret, and the business has to have made a real effort to keep it that way, not just stamped documents "confidential" after the fact.

TencerSherman LLP handles trade secret disputes on both sides: representing businesses whose proprietary information was taken by a departing employee or a competitor, and defending businesses and individuals accused of misappropriation, which often happens simply because a new hire came from a competitor and the competitor assumes information came with them.

The two laws that govern trade secret claims in California

California trade secret claims are typically brought under one or both of two statutes:

The California Uniform Trade Secrets Act (CUTSA), codified at Civil Code sections 3426 through 3426.11, is the primary state law. It defines a trade secret, defines misappropriation, and sets out remedies including injunctions, damages, and, for willful and malicious misappropriation, exemplary damages up to twice the actual award.

The federal Defend Trade Secrets Act (DTSA), codified at 18 U.S.C. section 1836, gives trade secret owners a path into federal court for any trade secret related to a product or service used in interstate commerce, which covers most businesses. The DTSA runs alongside CUTSA rather than replacing it; a plaintiff can often bring both claims in the same federal case.

What counts as misappropriation

Under CUTSA, misappropriation means acquiring a trade secret through improper means (theft, bribery, misrepresentation, breach of a duty to maintain secrecy), or using or disclosing a trade secret without consent when you knew, or had reason to know, it was obtained improperly or under circumstances creating a duty to keep it secret. Reverse engineering and independent derivation are specifically not improper means; a competitor who figures out your process on its own, without taking anything from you, hasn't misappropriated anything.

The most common fact pattern TencerSherman sees: an employee leaves, takes customer lists, pricing data, or technical files on the way out, and starts using them at a new employer, often a direct competitor. The claim can run against the employee, the new employer, or both.

Protecting trade secrets without relying on a non-compete

Here's a distinction that matters more in California than almost anywhere else: non-compete agreements, contracts that try to stop a former employee from working for a competitor at all, are void in California with narrow exceptions, mainly the sale of a business. Business and Professions Code section 16600 has long made these unenforceable, and 2024 amendments (sections 16600.1 and 16600.5) went further: they make it unlawful to even include a non-compete clause in an employment contract, require employers to send written notice to any current or former employee covered by a void non-compete clause, and create a private right of action, with damages and attorney's fees, for employees affected by one.

That means a California business can't rely on a non-compete to keep departing employees from working for a competitor. What it can rely on is a properly drafted confidentiality agreement (which restricts use and disclosure of specific information without restricting where someone can work) and, when that agreement gets violated, a CUTSA or DTSA claim. If your company has legacy non-compete language in its employment agreements, that's worth a compliance review on its own, independent of any active dispute, given the notice obligations under the 2024 amendments.

One more compliance point specific to the DTSA: federal law requires that any confidentiality or trade secret agreement include notice of whistleblower immunity, the right to disclose a trade secret in confidence to a government official or attorney, or in a court filing under seal, for the purpose of reporting a suspected legal violation, under 18 U.S.C. section 1833(b). An agreement missing that notice can lose access to the DTSA's exemplary damages and attorney's fee provisions against that particular employee.

Remedies available

• Injunctive relief, to stop actual or threatened use of the trade secret. Under the DTSA, injunctive relief can't be structured in a way that prevents someone from taking a new job outright; it has to be based on actual evidence of threatened misappropriation, not just the fact that the person knows things.
• Damages for the actual loss caused by the misappropriation, plus any unjust enrichment to the defendant not already captured in that loss figure.
• A reasonable royalty, in cases where damages and unjust enrichment are both difficult to prove, as an alternative measure.
• Exemplary damages, up to double the award, for willful and malicious misappropriation under CUTSA.
• Attorney's fees, available to the prevailing party under both CUTSA and the DTSA, but also available against a plaintiff who brings a misappropriation claim in bad faith, which makes the decision to bring a weak trade secret claim a real risk rather than a free option.

Frequently asked questions