Trade secrets are among the most valuable intangible assets held by small and midsize businesses, particularly those employing technical personnel, R&D staff, or key executives with access to proprietary information. In California, trade secret protection is governed primarily by the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civ. Code §§ 3426–3426.11, and, at the federal level, the Defend Trade Secrets Act of 2016 (“DTSA”), 18 U.S.C. §§ 1836 et seq. Both statutes define a trade secret as information that derives independent economic value from not being generally known and that is the subject of reasonable efforts to maintain its secrecy. See Cal. Civ. Code § 3426.1(d); 18 U.S.C. § 1839(3).
The scope of protectable subject matter is broad. Courts routinely protect computer source code and software architecture (see DVD Copy Control Ass’n, Inc. v. Bunner, 116 Cal. App. 4th 241 (2004); see also Waymo LLC v. Uber Techs., Inc., No. 17-cv-00939 (N.D. Cal.)); chemical formulations and recipes in the food, beverage, cosmetics, and fragrance industries; manufacturing processes and technical know-how (Altavion, Inc. v. Konica Minolta Sys. Lab., Inc., 226 Cal. App. 4th 26 (2014)); and customer lists compiled through substantial effort (Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514 (1997)). What matters is not the nature of the information but whether the holder has taken reasonable steps to preserve its confidentiality—such as confidentiality agreements, access controls, password protection, marking documents confidential, and limiting disclosure on a need-to-know basis.
California’s landscape is distinct. Under Business and Professions Code § 16600, employee non-compete covenants are generally void, and California courts have rejected the “inevitable disclosure” doctrine. See Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443 (2002). As a practical matter, trade secret law—not restrictive covenants—is the primary mechanism through which California employers protect proprietary information when key personnel depart for competitors. Employers should accordingly take affirmative steps, well before any departure, to identify and document what qualifies as a trade secret, limit its dissemination, and obtain written acknowledgments of confidentiality obligations at hire and at exit.
Liability for misappropriation extends directly to the departing employee. Civil remedies under CUTSA and the DTSA include injunctive relief, actual damages, disgorgement of unjust enrichment, or, in the alternative, a reasonable royalty; where the misappropriation is willful and malicious, exemplary damages of up to twice the compensatory award, along with attorneys’ fees, are available. Cal. Civ. Code §§ 3426.2–3426.4; 18 U.S.C. § 1836(b)(3). The DTSA also authorizes ex parte civil seizure of misappropriated materials in extraordinary circumstances. 18 U.S.C. § 1836(b)(2). Beyond civil exposure, the individual actor may face criminal prosecution under the Economic Espionage Act, 18 U.S.C. §§ 1831–1832, which criminalizes the theft of trade secrets and imposes heightened penalties where the benefit flows to a foreign government or instrumentality. California likewise imposes criminal liability under Penal Code § 499c, with fines and imprisonment for the theft or unauthorized acquisition of trade secrets.
Critically, liability does not end with the departing employee. A new employer that receives, uses, or discloses a trade secret knowing—or having reason to know—that it was acquired by improper means is independently liable as a misappropriator under both CUTSA and the DTSA. Cal. Civ. Code § 3426.1(b); 18 U.S.C. § 1839(5). Organizations themselves may also face criminal exposure under 18 U.S.C. § 1832(b), which authorizes fines against entities up to the greater of $5 million or three times the value of the stolen trade secret. This underscores the importance of onboarding protocols—particularly for lateral hires from competitors—that screen for and prevent the importation of another company’s proprietary information.
Small and midsize business employers with technical or formulation-driven operations should work with qualified legal counsel to audit their trade secret inventory, implement tailored confidentiality and invention-assignment agreements, and develop protocols for both the hiring and departure of employees with access to sensitive information.