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Case Law Update: Trade Secret Confidentiality Outside the UTSA Context

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Because trade secrets often have to be disclosed in connection to a litigation, it is extremely important to take the necessary precautions to prevent them from losing any chance of protection.

As an illistration of this point, last week, the Court of Appeals of California, Second Appellate District, Division Seven, rejected Respondents’ argument that court records from a 1998 California case should remain under seal because they contained documents relating to trade secrets.

In relevant part, the Court held:

Trade Secrets and Intellectual Property Rights. Courts have recognized trade secrets as a potential overriding interest for restricting public access to information. (In re Providian Credit Card Cases (2002) 96 Cal.App.4th 292.) However, a trade secret does not in itself require confidentiality as required by law unless the action is initiated pursuant to the Uniform Trade Secret Act. (Id. at p. 288.)

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Protecting Trade Secrets – Basic Practical Considerations

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The protection of trade secrets involves a combination of business and legal acumen.

The best way to protect a trade secret is not to disclose it to anybody.  This should be the default position – keep it secret!  But, in the real world, that is rarely possible or practical.  Often, trade secrets must be disclosed to be able to benefit from them.

Trade secret disclosures can generally be broken down into three categories: (1) Disclosure to employees; (2) Disclosure to potential strategic partners and (3) Disclosure to potential sources of financing.

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Protecting Trade Secrets – Starting with the Basics

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What is a Trade Secret?

Although the definition may vary somewhat from state to state, a trade secret has three basic characteristics:

  • It is a secret– not generally known by or readily ascertainable to competitors;
  • It confers a competitive advantage on its owner; and
  • It is subject to reasonable efforts to maintain its secrecy.

    • Although the three definitional elements of a trade secret are relatively simple concepts, each has been the subject of extensive case law interpretation.  If a dispute erupts over an alleged wrongful taking of a trade secret -- "misappropriation" -- the analysis over whether each of these elements has been met can become exceedingly complex.  Any party seeking to protect a trade secret must keep in mind, from the outset, how it will prove these three elements, if it is forced to do so.