Trade Secret Remedies

March 04, 2008 | By: Jeffrey J. Zuber, Esq.

The Uniform Trade Secrets Act ("UTSA"), codified by the California legislature at Cal. Civ. Code §§ 3426 et seq., governs misappropriation of trade secrets claims in California.  Under the UTSA, a plaintiff may choose among several distinct and sometimes exclusive remedies which are provided for by California statute. These remedies include:

I. Injunctive relief pursuant to Cal. Civ. Code § 3426.2; Monetary damages including actual loss, unjust enrichment; reasonable royalties and/or punitive damages pursuant to Cal. Civ. Code § 3426.3; and

II. Attorney’s fees pursuant to Cal. Civ. Code § 3426.4.

Each of these paths of recovery are discussed in more detail below.

Injunctive Relief

A plaintiff may apply to the court for injunctive relief to prevent actual or merely threatened misappropriation. Cal. Civ. Code § 3426.2(a). First, the plaintiff may request court of competent jurisdiction grant a preliminary injunction, wherein the court may enjoin a defendant from engaging in certain activities pending outcome of the matter at trial.¹ Such injunctions may be granted where the applicant shows “(1) irreparable injury, (2) a reasonable probability of success on the merits, (3) the harm to it outweighs the possible harm to other interested parties, and (4) harm to the public.” Frank Russell Co. v. Wellington Management Co., 154 F.3d 97, 101 (3d Cir. 1998). Applicants must take care to avoid overreaching, since such an injunction can be striken for being vague, ambiguous, or overbroad. ReadyLink Healthcare v. Cotton (App. 4 Dist. 2005) 24 Cal.Rptr.3d 720.²

The plaintiff may also request a permanent injunction be granted, though this relief will be achieved only after a trial on the merits, or a stipulation and order to that effect. Even permanent injunctions, however, can last only as long as the trade secret remains secret. Cal. Civ. Code § 3426.2(a). The rational supporting this aspect of the UTSA is simply that its provisions only forbid the misappropriation of trade secrets, not of information known to the general public. For example, if a trade secret will be disclosed in a product retailed by plaintiff next year, the injunction can only last one year. California law does, however, allow the court to extend the injunction for a “reasonable period of time” in order to eliminate any commercial advantage that the defendant would have gained from the misappropriation. Id.

Finally, in “appropriate circumstances” a court may order the defendant to make affirmative acts to protect a trade secret. Cal. Civ. Code § 3426.2(c).

Compensatory and Exemplary (Punitive) Damages

In addition to injunctive relief, a plaintiff may also demand compensatory (monetary) damages for misapporiation of its trade secrets, including recovery of both the plaintiff’s actual loss and the defendant’s unjust enrichment that is not factored into the first calculation of actual loss. Cal. Civ. Code § 3426.3(a).

Where willful or malicious misappropriation exists in the misappropriation of trade secrets, the plaintiff may also request the court grant exemplary damages.  Here, the amount of exemplary damages may not exceed twice the award of compensatory damages or the award of royalties (see next section). Cal. Civ. Code § 3426.3(c); Therapeutic Research Faculty v. NBTY, Inc., (E.D.Cal. 2007) 488 F.Supp.2d 991. An award of exemplary damages must be accompanied by meaningful information about the defendant’s net worth. Vacco Industries, Inc. v. Van Den Berg, 5 Cal.App.4th 34, 46, footnote 11. The plaintiff must also provide evidence of the defendant’s ability to pay the requested award--information that is generally available through discovery. Lara v. Cadag, 13 Cal.App.4th 1061, 1064.

Royalties

In some circumstances, granting an injunction might be unfair or unreasonable. Likewise, the plaintiff may not be able to prove his or her exact damages. For example, both the plaintiff’s and defendant’s records may be inadequately kept for a court to calculate the plaintiff’s loss or the defendant’s gain with accuracy.³

When both granting an injunction and awarding damages is impractical, the court may order the liable defendant(s) to pay a reasonable royalty to the plaintiff. Cal. Civ. Code § 3426.2(b) and 3(b); Robert L. Cloud & Associates, Inc. v. Mikesell, 82 Cal.Rptr.2d 143; see also, Unilogic, Inc. v. Burroughs Corp., 12 Cal.Rptr.2d 741.  The order to pay royalties can last only as long as the plaintiff’s information would have remained secret; in other words, for as long as the misappropriation could have been enjoined.  Cal. Civ. Code § 3426.3(b).

Attorney’s Fees

In addition to the remedies stated above, the plaintiff may also be entitled to recover attorney’s fees. Attorney’s fees may be granted to the prevailing party in any of three situations: i) a claim of misappropriation is made in bad faith; ii) a motion to terminate an injunction is made or resisted in bad faith,orr iii) willful and malicious misappropriation exists.  Cal. Civ. Code § 3426.4. As part of this award, the prevailing party is also entitled to recover actual and reasonably incurred costs of expert witnesses who are not regular employees of any party, for both preparation for trial or arbitration, or during trial or arbitration. Id.

¹ In certain, far rarer occasions, the court may even order the defendant to take certain actions in order to prevent irreparable harm. See, e.g., ReadyLink Healthcare v. Cotton, 126 Cal.App.4th 1006, (Cal.App. 4 Dist.,2005).

² It may be wise to ask for several items of relief in the application, and set them forth at length in the proposed order filed with the application, in order to give notice of the possibly overlapping yet distinct requests.  More broadly worded requests can be set forth as separate from the more narrowly tailored requests, allowing the court to strike the broader portions of relief while still allowing the more precise requests.  The relief justified will vary from case to case, where strong showings of the likelihood of success on the merits, as well as the likelihood of harm to the applicant should the relief not be granted, can lend themselves to broader protections from the court.

³ Although California law does not contain an example of such circumstances, the UTSA presents 2 possible scenarios: i) where the misappropriator makes “a material and prejudicial change of position prior to acquiring knowledge” or ii) where the plaintiff has “reason to know of misappropriation."  Uniform Trade Secrets Act, Section 37-25.1-02.2 and 03.1.

* The author, Jeffrey J. Zuber, Esq., is a partner of Zuber & Taillieu LLP, specializing in intellectual property litigation.

** This article is for informational purposes only. This article does not constitute legal advice and, in the absence of a fully executed retainer agreement, no attorney-client relationship exists between its reader and Zuber & Taillieu LLP or any of its attorneys. For more information, please read our disclaimer.

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