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Protecting proprietary information in California

Almost every California business possesses information that it deems vital to its success. Customer lists and financial information are common examples. Some companies employ manufacturing methods or chemical formulae that are not commonly known but which cannot be protected by a patent. A common issue for all such businesses is protection of this information, i.e., keeping the information out of the hands of competitors or potential start-up companies. California law provides two basic methods of protecting proprietary information: the Uniform Trade Secrets Act and confidentiality agreements. Whether either method should be used should be decided during the original business planning process.

The Uniform Trade Secrets Act (UTSA) defines a trade secret as information that (a) derives "independent economic value . . . from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." The critical test is whether the information possesses "economic value" from secrecy. A fact that is generally known, say, the formula for a common metal alloy such as brass, cannot be a trade secret. Trade secrets are protected by the statute, but many businesses incorporate the definition into confidentiality or non-disclosure agreements.

Confidentiality agreements can be used to protect information that may not be subject to the UTSA, such as customer lists, special management techniques, sales methods and the like. The scope of a confidentiality agreement can apply to more kinds of information than the UTSA, but its scope must nevertheless be reasonable for the industry in which it is being used.

Protecting corporate information can be a complex issue. The advice of an experienced business attorney can be very helpful in choosing the best method to protect information that the enterprise relies upon for its survival and success.

Source: California Civil Code, ยงยง3246-3426.11, accessed on March 21, 2016

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