Penal Code 499c PC | Theft of Trade Secrets

Penal Code 499c PC – Theft of Trade Secrets

Trade secrets are a big deal in California. Companies invest lots of time and money into developing trade secrets that give them a competetive advantage. Things like secret formulas, manufacturing techniques, upcoming product launches, customer lists, pricing strategies, and research data. Under California law, theft of trade secrets is illegal under Penal Code 499c.

Basically, 499c PC makes it a crime to steal, take, carry away, or use someone else’s trade secret without their permission. The crime can be charged as either a misdemeanor or felony, punishable by up to a year in county jail or several years in state prison. There are also civil penalties like injunctions and damages.

What Makes Something a Trade Secret?

For information to be considered a trade secret under 499c PC, it must:

  • Not be commonly known to the public
  • Provide economic value because its a secret
  • Be subject to reasonable efforts to maintain its secrecy

This means trade secrets are confidential information that companies try to keep secret to maintain an advantage over competitors. As long as its not public knowledge, provides value, and is kept confidential, it can be a trade secret. Things like:

  • Customer lists
  • Pricing information
  • Formulas and recipes
  • Manufacturing techniques
  • Upcoming product releases
  • Source code
  • Business strategies

Its a pretty broad definition. Basically any confidential business info that has value and is kept secret. As long as reasonable efforts are made to maintain secrecy like encryption, NDAs, access controls, etc.

Elements of Theft of Trade Secrets

To be convicted under 499c PC, prosecutors must prove:

  1. You knew information was a trade secret
  2. You knew the trade secret was acquired by improper means
  3. You possessed, sold, or used the misappropriated trade secret

Lets break these down.

Knowledge of Trade Secret Status

First, you have to knowingly steal a trade secret. This means being aware the information was confidential and protected as a trade secret. Like you knew it was an unpublished chemical formula, not public knowledge.

If you didn’t realize something was a trade secret, you may have a defense. But willful blindness won’t work. You can’t bury your head in the sand if there were obvious signs. Like ignoring confidential labels or non-disclosure agreements.

Knowledge Info Was Misappropriated

You also have to know the trade secret was acquired improperly. For example, you knew your coworker stole secret client lists instead of gathering the info properly. This prevents people from using trade secrets they didn’t know were stolen.

Possession, Use or Sale

Finally, you possessed, used, or sold the misappropriated trade secret. Its not enough to just learn a trade secret. You have to actually steal, possess, or use it in California. Or try to sell it to others. Mere awareness of the secret is not enough.

Penalties for Violating PC 499c

Trade secret theft can be prosecuted as a misdemeanor or felony in California. This depends on the facts and circumstances of the case. Possible penalties include:

  • Misdemeanor – up to 1 year in county jail
  • Felony – 16 months, 2 years, or 3 years in state prison
  • Up to a $5,000 fine
  • Restitution to the victim
  • Probation

Prosecutors tend to file misdemeanors in less serious cases. Like small scale theft without significant economic harm. Felonies are more common in large scale, malicious, or damaging cases. Factors like:

  • Value of stolen secrets
  • Scale of the theft
  • Intent to harm the victim
  • Actual economic harm caused
  • Use of stolen secrets by defendant
  • Prior criminal record

Felonies are more likely with valuable secrets, widespread theft, intent to damage the victim, high economic loss, exploiting the secrets for gain, and prior convictions.

Defenses to Trade Secret Theft

There are several defenses if wrongly accused of stealing trade secrets:

  • You didn’t know it was a trade secret
  • You didn’t know the info was stolen
  • You didn’t possess, use, or try to sell the secret
  • The information wasn’t actually a trade secret
  • You had permission to use the secret
  • You discovered the secret through proper means

For example, if you independently discovered the secret formula through your own research, you didn’t steal it. Or if you had permission to use a client list for work purposes. Accidentally coming across confidential documents wouldn’t be theft either if you didn’t try to use them.

Its also a defense if the alleged “secret” wasn’t actually confidential. Like a manufacturing technique already patented and disclosed. Then the info wouldn’t qualify as a trade secret.

Related Offenses

Trade secret theft under 499c PC often involves other crimes, like:

  • Embezzlement – Stealing trade secrets belonging to an employer
  • Bribery – Offering bribes to access secrets
  • Extortion – Threats to expose secrets
  • Receipt of Stolen Property – Receiving secrets known to be stolen
  • Criminal Threats – Threatening to disclose secrets

These may be charged alongside or instead of trade secret theft depending on the circumstances. Prosecutors often stack additional charges to increase penalties.

Civil Penalties for Trade Secret Theft

In addition to criminal charges, stealing trade secrets can also lead to civil lawsuits under the Uniform Trade Secrets Act and non-disclosure agreements. Possible civil remedies include:

  • Injunctions to prevent use of the secret
  • Damages for actual losses and unjust enrichment
  • Attorney’s fees
  • Terminating employment

Companies often pursue civil action against employees and competitors even without criminal charges. Its easier to prove civil violations and recover losses through lawsuits. NDAs also create contractual obligations regarding secret information.

Reporting Trade Secret Theft

If you believe someone stole your trade secrets, consider:

  • Documenting evidence like emails, files, downloads etc.
  • Conducting an internal investigation
  • Contacting police to file a report
  • Consulting an attorney about civil action
  • Sending cease and desist letters
  • Increasing security measures

Quick action can help minimize damages and prevent further misuse. Both civil remedies and criminal charges are options. An experienced trade secret attorney can help assess options and navigate investigations, lawsuits, and prosecutions.

Consult an Attorney

Theft of trade secrets is a serious matter with both criminal and civil consequences. If facing prosecution under PC 499c or a civil lawsuit, its critical to consult an attorney. An experienced lawyer can evaluate defenses and negotiate the best resolution. They can also advise on protecting trade secrets from misuse if your company was victimized. Don’t hesitate to contact a trade secret attorney for assistance.