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California’s Uniform Trade Secrets Act

A complainant may recover damages for the actual loss caused by misappropriation

By Chris Micheli, June 19, 2022 4:50 pm

California has a number of formal acts in statute. The Uniform Trade Secrets Act is found in Civil Code Division 4 (General Provisions), Part 1 (Relief), Title 5, which is contained in Sections 3426 to 3426.11. Title 5 was added by Chapter 1724 in 1984.

Section 3426 provides that Title 5 may be cited as the Uniform Trade Secrets Act. Section 3426.1 provides definitions for the following terms: “improper means,” “misappropriation,” “person,” and “trade secret.” Section 3426.2 provides that actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction must be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

In addition, if the court determines that it would be unreasonable to prohibit future use, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time the use could have been prohibited. In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

Section 3426.3 provides that a complainant may recover damages for the actual loss caused by misappropriation. A complainant also may recover for the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss.

However, if neither damages nor unjust enrichment caused by misappropriation are provable, the court may order payment of a reasonable royalty for no longer than the period of time the use could have been prohibited. On the other hand, if willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made.

Section 3426.4 provides that, if a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney’s fees and costs to the prevailing party. Recoverable costs are defined.

Section 3426.5 states that, in an action under this title, a court is required to preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.

Section 3426.6 specifies that an action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. A continuing misappropriation constitutes a single claim.

Section 3426.7 provides that, 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 secrets. In addition, 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 a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.

Section 3426.9 states that, if any provision of this title or its application to any person or circumstances is held invalid, the invalidity does not affect other provisions or applications of the title which can be given effect without the invalid provision or application.

Section 3426.10 specifies that this title does not apply to misappropriation occurring prior to January 1, 1985. Section 3426.11 provides that, in any legislative or judicial proceeding, or in any other official proceeding authorized by law, or in the initiation or course of any other proceeding authorized by law, the voluntary, intentional disclosure of trade secret information, unauthorized by its owner, to a competitor or potential competitor of the owner of the trade secret information or the agent or representative of such a competitor or potential competitor is not privileged and is not a privileged communication.

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