Does California's trade-secret act displace the confidentiality clause in this agreement?
No. The Uniform Trade Secrets Act as enacted in California expressly 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; and, except as otherwise expressly provided, it does not supersede any statute relating to misappropriation of a trade secret or otherwise regulating trade secrets (Civ. Code § 3426.7(a)-(b)). What the Act does displace other law FOR is defined in it: "misappropriation" is acquisition by one who knows or has reason to know the secret was acquired by improper means, or disclosure or use without consent by one who used improper means, or knew the knowledge was derived through improper means, acquired under a duty of secrecy, or derived from a person who owed such a duty; "improper means" includes "breach or inducement of a breach of a duty to maintain secrecy", but "Reverse engineering or independent derivation alone shall not be considered improper means" (Civ. Code § 3426.1(a)-(b)). A complainant recovers actual loss and unjust enrichment, a reasonable royalty where neither is provable, and for willful and malicious misappropriation exemplary damages up to twice the award (§ 3426.3); fees and expert costs go to the prevailing party for a bad-faith claim or willful and malicious misappropriation (§ 3426.4). The action must be brought within three years of actual or constructive discovery, and a continuing misappropriation is a single claim (§ 3426.6). And before discovery on the trade secret begins, the claimant must identify it "with reasonable particularity" (Code Civ. Proc. § 2019.210).
The trap
The savings clause preserves CONTRACTUAL remedies whether or not based on misappropriation, and 'other civil remedies that are not based upon misappropriation'; by negative implication, a non-contract civil claim that IS based on misappropriation is not within subdivision (b)(2). How far that displaces companion tort claims is Court of Appeal law, and as that court states the test it is narrow: the Act preempts another civil remedy only if that remedy "hinges upon," is "predicated upon," "rests squarely on," or is "based entirely on" allegations that a trade secret was misappropriated, and it "does not displace noncontract claims that, although related to a trade secret misappropriation, are independent and based on facts distinct from the facts that support the misappropriation claim." Read that as the shape of the argument, not as authority to cite: the one decision we hold stating the test is not certified for publication, and California Rules of Court, rule 8.1115(a) forbids citing or relying on it, so the confidentiality covenant is still the claim this rule can speak for on its own. Whether an NDA drafted so broadly that it operates as a restraint on practising a trade is open to attack under Bus. & Prof. Code § 16600 is a live question, and the Court of Appeal has twice connected the two. Ajaxo Inc. v. E*Trade Group, Inc. (2005) 135 Cal. App. 4th 21 says, in a footnote, that a breach-of-contract cause of action may be available for disclosed information that does not qualify as a trade secret "if the information is protected under a confidentiality or nondisclosure agreement, provided the agreement is not an invalid restraint of trade", with § 16600 cited for the restraint point, so that court took it for granted that a confidentiality covenant CAN be an invalid restraint. Read it as the shape of the argument, not as the answer: it is a footnote aside in an appeal decided on other grounds, and it does not say which covenants cross the line. Rigging International Maintenance Co. v. Gwin (1982) 128 Cal. App. 3d 594 goes further on its face, recording that § 16600 precludes enforcing such an agreement "beyond the protection of confidential information", but the parties there AGREED on that point and the court resolved the appeal without deciding it, so it is a concession rather than a contested holding. What is still missing is a decision actually holding a confidentiality covenant void, or void in part, under § 16600. The drafting consequence of § 3426.1(a)'s last sentence is that a confidentiality covenant reaches conduct the Act does not: reverse engineering and independent derivation are not improper means under the Act, so a claim that a counterparty reverse-engineered a product is a CONTRACT claim if the agreement forbade it, and not a misappropriation claim at all.
11 authorities
- statuteCal. Civ. Code § 3426.7enactment date not established
The words that state the rule
(a) 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. (b) 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. (c) This title does not affect the disclosure of a record by a state or local agency under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). Any determination as to whether the disclosure of a record under the California Public Records Act constitutes a misappropriation of a trade secret and the rights and remedies with respect thereto shall be made pursuant to the law in effect before the operative date of this title.
- statuteCal. Civ. Code § 3426.1enactment date not established
The words that state the rule
As used in this title, unless the context requires otherwise: (a) “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Reverse engineering or independent derivation alone shall not be considered improper means. (b) “Misappropriation” means: (1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) Disclosure or use of a trade secret of another without express or implied consent by a person who: (A) Used improper means to acquire knowledge of the trade secret; or (B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was: (i) Derived from or through a person who had utilized improper means to acquire it; (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
- statuteCal. Civ. Code § 3426.1enactment date not established
The words that state the rule
(d) “Trade secret” means 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.
- statuteCal. Civ. Code § 3426.3enactment date not established
The words that state the rule
(a) 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. (b) 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. (c) If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subdivision (a) or (b).
- statuteCal. Civ. Code § 3426.4enactment date not established
The words that state the rule
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 hereunder shall include a reasonable sum to cover the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the prevailing party.
- statuteCal. Civ. Code § 3426.6enactment date not established
The words that state the rule
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. For the purposes of this section, a continuing misappropriation constitutes a single claim.
- statuteCal. Civ. Proc. Code § 2019.210enactment date not established
The words that state the rule
In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act (Title 5 (commencing with Section 3426) of Part 1 of Division 4 of the Civil Code), before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3426.5 of the Civil Code.
- statuteCal. Civ. Code § 3426.10enactment date not established
The words that state the rule
This title does not apply to misappropriation occurring prior to January 1, 1985. If a continuing misappropriation otherwise covered by this title began before January 1, 1985, this title does not apply to the part of the misappropriation occurring before that date. This title does apply to the part of the misappropriation occurring on or after that date unless the appropriation was not a misappropriation under the law in effect before the operative date of this title.
- caseNo. B260301 (Cal. Ct. App. Jan. 7, 2016)O'Brien v. AMBS Diagnostics CA2/2Cal. Ct. App.decided 2016
The words that state the rule
The Act generally prohibits the misappropriation of trade secrets, but specifically preserves (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,” and (3) “criminal remedies, whether or not based upon misappropriation of a trade secret.” (Civ. Code, § 3426.7, italics added.) By negative implication, the italicized language has been read to “‘implicitly preempt[] alternative civil remedies based on trade secret misappropriation.’” (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 954 (K.C. Multimedia).) As to these alternative civil remedies, the Act “occupies the field” and “supersede[s] other causes of action even though [the Act] does not itself provide relief on a particular set of facts.” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 234, 237 (Silvaco), overruled on other grounds in Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310.) Consistent with this mandate, the Act preempts another civil remedy only if that remedy “hinges upon,” is “predicated upon,” “rests squarely on,” or is “based entirely on” allegations that a trade secret was misappropriated. (K.C. Multimedia, at pp. 955, 959, 962; Silvaco, at p. 234.) The Act “does not displace noncontract claims that, although related to a trade secret misappropriation, are independent and based on facts distinct from the facts that support the misappropriation claim.”
- case135 Cal. App. 4th 21Ajaxo Inc. v. E*Trade Group, Inc.Cal. Ct. App.decided 2005read it at the source ↗
The words that state the rule
In some cases, a breach of contract cause of action may be available where disclosed information does not qualify as a “trade secret” under the UTSA (Civ. Code, § 3426 et seq.) if the information is protected under a confidentiality or nondisclosure agreement, provided the agreement is not an invalid restraint of trade (see Bus. & Prof. Code, § 16600 [“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void”]).
- case128 Cal. App. 3d 594Rigging International Maintenance Co. v. GwinCal. Ct. App.decided 1982read it at the source ↗
The words that state the rule
Appellant contends that the “Employee Confidential Information and Invention Assignment Agreement” is enforceable against respondent. However, appellant agrees with respondent that Business and Professions Code section 16600 precludes enforceability of the agreement signed by respondent “beyond the protection of confidential information ....” Since we have determined that respondent did not make use of any confidential information of appellant that was entitled to protection, the agreement does not provide appellant with any additional basis upon which to attack the judgment of the trial court.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.