How California Law Protects Your Trade Secrets

As defined by the Uniform Trade Secrets Act, a trade secret can be a pattern, formula, program, device, method, technique, compilation or process, that brings about potential or actual independent financial value by remaining unknown to the general public or to competitors.

The U.S Government’s Role in Protecting Companies’ Trade Secrets

Trade secrets laws has recently piqued the interest of the U.S. Government. For several years now, bipartisan bills have been pending in both the House of Representatives and the Senate. As a result, commentators have become excited by the growing possibility that lawmakers may now actually enact federal trade secrets legislation. Amidst the constant friction between the President and the Republican dominated House and Senate, it appears that the passing of a federal trade secrets law may be one of the few topics that both of them seem to agree on.

Moreover, supporters of a federal trade secrets act have pointed out that a federalized trade secret law would have more of a uniform structure, allowing companies more options to litigate in federal court. However, critics argue that a degree of uniformity of trade secret law already exists to a great extent through the publication of the Uniform Trade Secrets Act (“UTSA”), which most states have adopted, including California.

The California Civil Code contains the California Uniform Trade Secrets Act (“CUTSA”) located at sections 3426 to 3426.11. In layman’s terms, the CUTSA prohibits the unauthorized or improper (misappropriation) use of trade secrets. It provides legal solutions or remedies for companies who need to file a claim when their trade secrets have allegedly been violated.

California law may impose criminal penalties if a company’s trade secrets are compromised or unknowingly or knowingly acquired. Based on the California Civil Code § 3426.6., the statute of limitations for a trade secret claim in California is three years. California law has put the UTSA in force with a unique procedure: it requires that a plaintiff alleging misappropriation first identify its trade secrets in specific details. The following cases expose the complexity of alleged trade secrets violations and the arguments given by both the plaintiffs and defendants involved.

Social Media Accounts Used for Business Purposes

Social media plays a huge part in a business’s growth. According to the California Labor Code Section 2860, an employer owns trade secrets created by an employee. The question then arises is, Can a company claim rights to an employee’s social media account, especially when it is used for business purposes? A pending California lawsuit provides some insights on this subject.

Phonedog Media: The Plaintiff

A lawsuit was filed by Phonedog Media against ex-website writer Noah Kravitz after he quit his job in October 2010. The argument stems from Kravitz’s Twitter handle, “Phonedog_Noah” that is presently attached to his personal email, which he uses to connect to his fan base of 17,000 followers.

Phonedog argues that the Twitter account is actually a proprietary customer list, and therefore belongs to them instead of Kravitz. Phonedog is seeking damages of $340,000. This compensation sum represents every follower that engaged with Kravitz for the eight months he used the Twitter handle.

Noah Kravitz: The Defendant

Kravitz’s defense is that Phonedog Media assured him that he could still use his Twitter handle, “Phonedog_Noah” account in exchange for tweeting for the company every now and then. According to the NY Times, Kravitz states that his ex-employer filed the trade secret lawsuit in retaliation for his 15 percent stake in Phone Dog’s gross advertising revenue because of his position as a vested partner. Although this case is still pending,

the court’s decision will likely set the precedent for similar cases in the future, not only in how company ownership should be determined, but also may how Facebook friends and Twitter followers’ value should be calculated.

Jawbone: The Plaintiff

As reported by the NY Times, Jawbone filed suit against its fitness tracker rival Fitbit on May 27th in California State Court right on the heels of its product line launch to consumers. It accuses Fitbit of deliberately hiring ex-Jawbone employees to capitalize from Jawbone’s talents, trade secrets and intellectual property.

Jawbone alleges knowledge of Fitbit recruiters contacting roughly 30 percent of their employees in early 2015 and successfully coaxing at least five into quitting. It is believed that these five employees divulged secrets involving Jawbone’s business and its future plans. Jawbone states that Fitbit’s one intention was to completely undermine and destroy their presence in the market. The company is seeking compensation for the alleged damages to its business as well as punitive damages to make Fitbit and its five former Jawbone employees an example.

Fitbit: The Defendant

It may well be that Jawbone sees Fitbit’s success as nothing short of amazing since the company now dominates the fitness trackers market nationwide. Last year, Fitbit’s sales reached $745.4 million and it grossed $131.8 million in profit. not to mention that its IPO filing revealed strong financials and profitability.

Fitbit’s counterattack to Jawbone’s allegations is that it lacks the need to steal information from Jawbone or any other company, as an innovative provider of fitness products designed to make a consumer’s lifestyle healthier and more active. Fitbit also states that they are unaware of any confidentiality or proprietary information breaches made against Jawbone nor hold any of their trade secrets in their possession and intend to vigorously defend against Jawbone’s allegations.

Meanwhile, Jawbone has recently had to defend itself from numerous reports of having an unstable financial environment and challenges raising additional capital to keep the company from going bankrupt. According to a May Bloomberg report, Jawbone has failed to become profitable, and had to take out a $300 million loan from Blackrock Investments.

In response to this report, Jawbone argues that their products are in high demand, and there company’s financial health is strong. It claims to hold an impressive amount of capital and an exciting product line. Jawbone and its investors both believe that its financial future will be on the rise.

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