The California Evidence Code and Trade Secrets

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The important relationship between the California Uniform Trade Secrets Act and the California Evidence Code may not be readily apparent to parties engaged in trade secret litigation.  When an employee leaves their employment, the subsequent lawsuit by a former employer often involves issues relating to nondisclosure agreements, noncompetition clauses, non-solicitation provisions and injunctive relief, all of which are covered in the California Uniform Trade Secrets Act at Civil Code Sections 3426 et seq.  By contrast, the California Evidence Code is normally associated with setting forth the rules for the admission and exclusion of evidence at trial.  However, a recent victory by the Louderback Law Group on the behalf of its clients in a Temporary Restraining Order (“TRO”) hearing illustrates that the two code sections can be closely intertwined in the context of a meritless trade secret lawsuit.

After many years of experience in the high-tech industry, our clients joined the plaintiff corporation and its marketing department thereby substantially enhancing the capacity of their employer to market its products.  A number of years later, when it became apparent that our clients could improve upon the customer service that was being provided, they formed their own corporation.  Unfortunately, they were then immediately hit with an application for a TRO from their former employer, which significantly disrupted their fledgling business.  The purpose of the TRO filing was to prevent our clients from competing in California in violation of Business & Professions Code Section 16600.

If the TRO had been granted against our clients, it would have had a devastating effect and most likely would have closed down their business.  Additionally, the plaintiff’s employment contract had a provision prohibiting an employee from engaging in any competitive activity for a period of 365 days after leaving the plaintiff’s employment.  This contractual provision was directly contrary to California Business & Professions Code Section 16600 which provides as follows: “... [e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  This statute has been reinforced through a long history of California case law supporting the strong public policy in favor of allowing free competition within the borders of California.

The plaintiff’s TRO application made numerous inflammatory and derogatory comments, recited legal arguments and presented misleading facts that were purported to be true.  In opposing the TRO on behalf of our clients, we used the Evidence Code to demonstrate that the plaintiff’s declarations in support of the TRO were fraught with hearsay and in some instances multiple layers of hearsay.  The case law interpreting the Uniform Trade Secrets Act requires that a plaintiff demonstrate that it is likely to prevail at trial based upon the evidence and law set forth in the TRO application

The Louderback Law Group, relying on the California Evidence Code and its hearsay provisions was able to demonstrate to the court that the only evidence before the court in the temporary restraining application was inadmissible and therefore the plaintiff could not meet its burden of proof to show that it would prevail at trial.  The court agreed and denied the injunction.

We effectively utilized the principles set forth in the Court of Appeals decision of Perlan Therapeutics, Inc. v. Superior Court of San Diego County (2009) 178 Cal.App.4th 1333, requiring specificity in the identification of disputed trade secrets to prevent plaintiffs from using the discovery process as a means to obtain a defendant’s trade secrets.

This victory is an excellent illustration of how the California Evidence Code can be utilized to protect an employer from a meritless trade secret claim designed to punish the departing employee.  The statutory authorities, related case law, and the public policy of the state of California are supportive of an employer who wishes to engage in fair and open competition.