Is language stricken from the CUTSA now an affirmative defense?

California employers frequently expend considerable resources preparing trade secret disputes for trial only to discover that certain CACI jury instructions inaccurately reflect California law. In particular, CACI 4420 adopts language that the Legislature struck from the California Uniform Trade Secrets Act ("CUTSA"). Not only does CACI 4420 utilize language stricken from the CUTSA, it purports to create "affirmative defense," which would excuse liability even if wrongdoing occurred. Despite multiple challenges to CACI 4420, it remains part of the official instructions used by California's trial courts.

In 1983, California's Legislature reviewed Assembly Bill 501, which was based on the Uniform Trade Secrets Act as proposed by the National Conference on Commissioners on Uniform State Laws (the Model Act). Under the Model Act, the definition of a "trade secret" pertained to information that "derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use." (14 West's U. Laws Ann. (1990) U. Trade Secrets Act, § 1, italics added.) The Model Act sought to create "uniformity" amongst the states in the definitions of what constitutes a "trade secret" and what liability attaches to a "misappropriation."

After months of debate and numerous revisions, California adopted its own statute, the CUTSA. The most significant revision to the Model Act was California's unique definition of a "trade secret," which pertains to information that "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." (Civil Code § 3426.1(d).) Notably, the Legislature struck from the CUTSA the Model Act's "and not being readily ascertainable by proper means" language.

Courts have recognized the importance of California's unique definition of a "trade secret." After engaging in a lengthy review of Assembly Bill 501's legislative history, the court in Abba Rubber Company v. Seaquist, 235 Cal.App.3d 1, 21 (1991) concluded that "whether a fact is 'readily ascertainable' is not part of the definition of a trade secret in California." Abba Rubber recognized:

That deletion apparently resulted from arguments that conditioning the scope of a trade secret on the extent to which the information was not readily ascertainable would 'mudd[y] the meaning of the term trade secret' and 'invite[] the various parties to speculate on the time needed to discover a secret.' (235 Cal.App.3d at 21.)

Accordingly, under California law, even if the alleged trade secret could be found in public sources, the internet, or trade directories, under California's definition, it can meet the definition of a trade secret, if the information remains unknown to competitors. (Id., at 21.) Abba Rubber also explains that while California's Legislature struck the "readily ascertainable by proper means'' standard from the definition of a "trade secret" whether information is "readily ascertainable by proper means" remains relevant to the issue of whether a "misappropriation" occurred. Citing to the Senate Judiciary Committee's reports for Assembly Bill 501, Abba Rubber concluded that:

[T]he assertion that a matter is readily ascertainable by proper means remains available as a defense to a claim of misappropriation. ... That defense, however, will be based upon an absence of misappropriation, rather than the absence of a trade secret. (Id., at 21, fn.9.)

Following Abba Rubber's rationale, multiple courts have concluded that the "readily ascertainable by proper means" standard remains relevant to a factual defense to the misappropriation element of a claim. (IMAX Corporation v. Cinema Technologies, Inc., 152 F.3d 3d 1161, 1169 (9th Cir. 1998) ["It is available as a defense, however, 'based on the absence of misappropriation, rather than the absence of a trade secret.'"]; SEIU v. Rosselli, Case No. C 09-00404 WHA, 2009 WL 138229, *4 (N.D. Cal. May 14, 2000) ["It is true that whether or not information is 'readily ascertainable' is not part of the 'trade secret' definition and has been found instead to constitute 'a defense ... based on the absence of misappropriation.'" ]; Brescia v. Angelin, 172 Cal.App.4th 133, 147 fn. 1 (2009) ['that the alleged trade secret is readily ascertainable by proper means is a defense to the element of misappropriation."]; Massimo Corporation v. True Wearables, Inc., Case No. SACV 18-2001-JVS (JDEx), 2021 WL 6104823, * 14 (C.D. Cal. Oct. 15, 2021) ["under the CUTSA, ready ascertainability is a defense that 'will be based upon an absence of misappropriation, rather than the absence of a trade secret.'"].) In summary, a defendant can put on a defense to the misappropriation element by offering evidence that they derived independently or reverse engineered the claimed trade secret from readily available, public information, and thus engaged in no wrongdoing.

In 2007, the Judicial Council adopted the 4400 series of CACI instructions regarding actions under the CUTSA. CACI 4420 provides: 4420. Affirmative Defense - Information Was Readily Ascertainable by Proper Means

[Name of defendant] did not misappropriate [name of plaintiff]'s trade secret[s] if [name of defendant] proves that the [select short term to describe, e.g., information] [was/were] readily ascertainable by proper means at the time of the alleged [acquisition/use/ [or] disclosure]. There is no fixed standard for determining what is "readily ascertainable by proper means." In general, information is readily ascertainable if it can be obtained, discovered, developed, or compiled without significant difficulty, effort, or expense. For example, information is readily ascertainable if it is available in trade journals, reference books, or published materials. On the other hand, the more difficult information is to obtain, and the more time and resources that must be expended in gathering it, the less likely it is that the information is readily ascertainable by proper means.

None of CACI 4420's cited authority mention that it creates an "affirmative defense." Unlike disproving an element of a claim, proving the elements of affirmative defense discharges liability if established. (Schwing, California Affirmative Defenses (2016 Ed.) § 1.1, p. 4.) Under CACI 4420, a former employee could steal the most mission-critical information, and argue that none of the information is protectable as a "trade secret" because some or all of it could be found publicly or on the internet. Indeed, according to CACI 4420, "There is no fixed standard for determining what is "readily ascertainable by proper means."

The language stricken from the CUTSA supports a factual defense to disprove that a misappropriation occurred, not an affirmative defense that discharges wrongdoing. Until CACI 4420 is modified or removed, it remains available to defendants.

On Sept. 20, the undersigned submitted a third challenge to CACI 4420.