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Need to Protect Trade Secrets in Litigation? There’s a Privilege for That

Trade secrets are not necessarily outed in litigation. There’s a conditional privilege that protects owners of trade secrets from being forced to spill their secrets.

First, what constitutes a “trade secret”? The term is defined in CC §3426.1(d) as 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.

For the trade secrets privilege to protect the information against compulsory disclosure, it must meet two requirements (Evid C §1060):

  1. The disclosure would injure the owner’s business, and
  2. Disclosure isn’t essential to a determination of the parties’ rights.

The trade secrets privilege may apply to a secret formula, pattern, device, or compilation if it’s used in the owner’s business and enables the owner to obtain a competitive business advantage. Typical examples are customer lists, manufacturing processes, chemical formulas, and mechanical designs. To be protected, the trade secret must not be generally known or accessible to others in the trade.

In determining whether the trade secrets privilege applies, courts may consider the following factors (Uribe v Howie (1971) 19 CA3d 194, 208):

  • The extent to which the information is known outside the business;
  • The extent to which the information is known by employees and others inside the business;
  • The measures taken to protect the secrecy of the information;
  • The value of the information to competitors as well as to the party;
  • The expense and effort spent in developing the information; and
  • The difficulty of duplicating the information by others.

The privilege won’t be allowed if an injustice will result. Evid C §1060. For example, if disclosure is essential to establish a party’s substantive rights, the court must deny the privilege claim.

The privilege may be claimed by either the owner of the trade secret or by the owner’s agent or employee. Evid C §1060. Interestingly, an employee usually has not only a right but also a duty to claim the privilege because of the “implied obligation not to divulge or use confidential information which he acquires by reason of his employment.” By-Buk Co. v Printed Cellophane Tape Co. (1958) 163 CA2d 157, 164. Because of this obligation, Evid C §1060 will probably be construed as empowering a former employee to claim the privilege for trade secrets learned during his or her employment.

Learn all about using the trade secrets privilege in CEB’s California Trial Objections, chap 45. Get information on all aspects of trade secrets law in CEB’s Trade Secrets Practice in California.

Other CEBblog™ you may find useful:

© The Regents of the University of California, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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