A California appellate court recently held that the statute of limitations for trade secret misappropriation claims against third parties who receive stolen trade secrets from others begins when the plaintiff, not the third party, suspects a misappropriation of trade secrets.
The Court stated: "We conclude that with respect to the element of knowledge, the statute of limitations on a cause of action for misappropriation begins to run when the plaintiff has any reason to suspect that the third party knows or reasonably should know that the information is a trade secret. The third party’s actual state of mind does not affect the running of the statute."
The Court indicated that the trade secret holder’s failure to take "prompt action" in notifying the third party about the purported misappropriation may diminish the holder’s trade secret misappropriation claim.
Justice Eugene M. Premo, the author of the court decision, stated "A trade secret loses its protected status if the owner does not undertake reasonable efforts to keep it secret."
The Court’s opinion is significant because the decision demonstrates that trade secret holders need to take "prompt action" once they suspect a misappropriation of trade secrets, including investigating potential misuses of their secrets.
A trade secret audit can be an invaluable part of protecting a company’s trade secrets before and after a company’s trade secrets have been compromised. For more information on Seyfarth Shaw LLP’s trade secret audit capabilities, click here.