Penal Code § 499c PC – Theft of Trade Secrets

California Penal Code § 499c PC makes it a crime to steal trade secrets. A trade secret is information belonging to a business that is valuable because it is not known to the public (such as a pizza parlor’s “secret recipe” for its sauce).

A conviction under this section is a felony punishable by up to three years in jail.

Examples

• Gloria works at a deli, and upon getting fired, she immediately steals the deli’s recipe for its famous “secret sauce.”
• Len works at a cancer research center and steals one of the company’s programs that can detect a certain strand of cancer.
• Elli works for a business that makes “orange fizz” and she makes a duplicate of the company’s secret fizz formula.

Luckily, there are several legal defenses that a person can raise. These include showing that an accused party:

• did not engage in thievery;
• did not steal a “trade secret;” and/or,
• was the victim of a violation of California entrapment laws.

Penalties

Trade secret theft is charged as a felony under California law (as opposed to a misdemeanor or an infraction). This white collar crime is punishable by:

• imprisonment in the county jail for up to three years; and/or,
• a maximum fine of $5,000.

Our California criminal defense attorneys will discuss the following in this article:

• 1. How does California law define a trade secret?
• 2. What are common defenses to Penal Code 499c PC?
  • 2.1 No “theft”
  • 2.2 No “trade secret”
  • 2.3 Entrapment
• 3. Is there potential jail time?
• 4. Related offenses
  • 4.1 Grand theft – PC 487
  • 4.2 Embezzlement – PC 503
  • 4.3 Burglary – PC 459

1. How does California law define a trade secret?

Penal Code 499c PC is the California statute that says the theft of a company’s trade secret is a crime.¹

The statute sets forth specific definitions for the terms “theft” and “trade secret” under California state law.

According to PC 499c(b), “theft” occurs when a person intends to deprive an owner of a trade secret, and either:

1. steals, takes, carries away, or uses a trade secret without authorization;
2. uses fraud to show that the trade secret belongs to him;
3. unlawfully gains access to the trade secret and makes a copy of the same; or,
4. gains access to the trade secret by violating certain relationship boundaries and makes a copy of the same.²

Under Penal Code 499c(a)(9), a “trade secret” is a type of intellectual property that means:

• information that has an economic value for not being known to the public, and
• information that a company takes reasonable efforts to maintain its secrecy.³

Trade secrets are often in the form of information, but they may also include:

• formulas,
• patterns,
• compilations,
• programs,
• devices,
• methods,
• techniques, or
• processes.⁴

2. What are common defenses to Penal Code 499c PC?

A person can challenge stolen trade secret charges by raising a legal defense. A good defense can often get a charge reduced or even dismissed. Please note, though, that it is critical for an accused to hire a knowledgeable criminal defense attorney to get the most effective defense.

Three common defenses are:

1. no “theft”
2. no “trade secret;” and/or,
3. entrapment

2.1. No “theft”

Please recall that Penal Code 499c(b) provides a very specific definition of what “theft” is. This means that it is a valid legal defense for an accused to show that his actions did not come under the umbrella of the PC 499c(b) definition of “theft.”

2.2. No “trade secret”

Please also recall that PC 499c(a)(9) sets forth a specific definition of what a “trade secret” is. A solid legal defense, therefore, is for an accused to show that, while he may have stolen or taken something from a business, the item did not rise to the level of a trade secret. Please note, though, that the accused could still likely be found guilty of the taking under another California theft law.

2.3. Entrapment

In many cases, suspects are often arrested and accused after an undercover sting operation. Any later charges of theft of a trade secret, though, must get dropped if an officer lured a suspect into committing the crime.

This “luring” is known as entrapment. It applies to overbearing official conduct on the part of police officers – like pressure, harassment, fraud, flattery, or threats. Entrapment is an acceptable legal defense provided that the accused shows he only committed the crime because of the entrapment.

3. Is there potential jail time?

Theft of a trade secret is charged as a felony under California law. The crime is punishable by:

• imprisonment in the county jail for up to three years; and/or,
• a maximum fine of $5,000.⁵

Note that in lieu of jail time a judge may order a defendant to felony probation.

Also note that the trade secret owner can bring a civil action against the alleged thief. These cases often involve former employees who signed confidentiality agreements or non-disclosure agreements then using the employer’s trade secret information and other business information for their own economic benefit.

4. Related Offenses

There are three crimes related to theft of trade secrets cases. These are:

1. grand theft – PC 487;
2. embezzlement – PC 503; and,
3. burglary – PC 459.

4.1. Grand theft – PC 487

The crime of theft under California law is defined as the unlawful taking of someone else’s property.⁶

When the property taken is valued at more than $950, then the theft is considered the California crime of grand theft, per California Penal Code 487 PC.

Grand theft is a type of wobbler offense under California law. This means that it can be charged as either a misdemeanor or a felony.

The maximum potential sentence for misdemeanor grand theft is up to one year in county jail.⁷

For a felony grand theft conviction, a defendant may be imprisoned in the county jail for a term of:

• sixteen months,
• two years, or
• three years.⁸

4.2. Embezzlement – PC 503

Embezzlement is a crime under California Penal Code 503 PC.

The offense is defined as when a defendant fraudulently appropriates property that

1. belongs to someone else, and
2. has been entrusted to the defendant.⁹

Embezzlement in California is punished as a form of California grand theft or California petty theft, depending on the value and type of property that is stolen or borrowed.¹⁰

If the property is either

• worth more than $950,
• an automobile, or
• a firearm,

then California embezzlement is a form of grand theft. ¹¹

As such, it is a wobbler offense, meaning that it can be charged as either a misdemeanor or a felony, depending on the facts of the case.

Misdemeanor grand theft embezzlement can lead to up to one year in county jail, while felony grand theft embezzlement can lead to up to three years.¹²

With property worth less than $950, embezzlement is a form of petty theft—a misdemeanor punishable by up to six months in county jail.¹³

4.3. Burglary – PC 459

Per California Penal Code 459 PC, it is a crime for a person to commit burglary.

Under PC 459, “burglary” is when a person:

1. enters any residential or commercial building or room,
2. with the intent to commit a felony or a theft once inside.¹⁴

One commits the crime of burglary merely by entering the structure with the requisite criminal intent, even if the intended felony or theft is never actually completed.

California burglary law is divided into “first-degree burglary” and second-degree burglary.” First-degree burglary is burglary of a residence. Second-degree burglary is burglary of any other type of structure (including stores and businesses).¹⁵

First-degree burglary is a felony. The potential consequences include a state prison sentence of two, four or six years.¹⁶

Second-degree burglary is a wobble. Meaning it can be charged as either a felony or a misdemeanor.

A felony charge carries a possible county jail sentence of 16 months, two years or three years.¹⁷

A misdemeanor charge carries a possible county jail sentence of up to one year.¹⁸

For additional help…

If you or someone you know has been accused of a violation of trade secret law under Penal Code 499c PC, we invite you to contact us. Our criminal law firm can be reached 24/7.

See our related article on the federal crime of wire fraud. For the law in Colorado, please see our article on Theft of Trade Secrets – Colorado 18-4-408 CRS).

Helpful Links

• Uniform Trade Secrets Act
• Economic Espionage Act of 1996
• U.S. Department of Justice (Defend Trade Secret Act Reports)
• U.S. Attorney’s Office (DOJ)
• Federal Courts (uscourts.gov)
• Federal Law Enforcement Partners
• FBI – Economic Espionage: Protecting America’s Trade Secrets

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