Negotiate resolution of misappropriation claims, secure return of materials, and establish ongoing confidentiality protections
Settlement & Resolution California CUTSATrade secret litigation is expensive, unpredictable, and can expose sensitive business information through discovery. Settlement often serves both parties' interests—the trade secret owner gains certainty and stops ongoing harm, while the alleged misappropriator avoids the risk of injunctions, damages, and attorneys' fee awards.
If defendant responds constructively to your initial demand, settlement discussions may resolve the matter without court involvement. The demand letter establishes your leverage.
If you've obtained injunctive relief, defendant faces ongoing court supervision. This is often an optimal settlement moment—you've demonstrated strength but avoided trial costs.
As discovery reveals the scope of misappropriation (or defenses), both parties gain information to value the case. Mediation at this stage is common.
As trial approaches and costs mount, settlement pressure increases. Courts often require settlement conferences. Most trade secret cases settle before trial.
Sent by the trade secret owner proposing specific terms to resolve the dispute. Typically includes:
Formal statutory offer under California Code of Civil Procedure § 998. If defendant rejects and plaintiff obtains a more favorable judgment, defendant pays plaintiff's post-offer costs and expert fees. Creates powerful settlement pressure.
Exchange of term sheets leading to a negotiated settlement agreement. Often facilitated through mediator or direct counsel-to-counsel negotiation.
| Leverage Factor | How to Present |
|---|---|
| Strong evidence of misappropriation | Reference specific documents, data access logs, or witness statements (without full disclosure) |
| Willfulness (enhances damages) | Emphasize that defendant knew or should have known information was confidential |
| Mandatory attorneys' fees | Civil Code § 3426.4 requires fee award for willful misappropriation—this adds substantially to defendant's exposure |
| Injunction impact | If defendant's business depends on the trade secrets, injunction could be devastating |
| Reputational harm | Public litigation could damage defendant's professional reputation and future employment |
| Criminal referral possibility | Penal Code § 499c makes trade secret theft a crime; mention without threatening |
A comprehensive trade secret settlement agreement should address multiple issues beyond just monetary payment. These terms protect against future misappropriation and provide enforcement mechanisms.
One-time payment to resolve all claims. Most common structure. Typically paid at signing or within 30 days.
Considerations: Tax treatment, payment security, default provisions
Installment payments over time. Used when defendant cannot pay lump sum or when ongoing compliance is needed.
Considerations: Security/collateral, acceleration on default, interest
If defendant will continue using information (with permission), ongoing royalty payments may be appropriate.
Considerations: Audit rights, minimum payments, term limits
Separate payment for legal costs incurred. May be included in lump sum or itemized separately.
Considerations: Fee documentation, caps, timing
Remember: California Business & Professions Code § 16600 voids non-compete agreements. Settlement terms cannot impose broad employment restrictions. Permissible provisions include:
Right to inspect defendant's devices/systems to verify compliance. Typically limited to reasonable cause and frequency.
Pre-agreed damages for future violations. Must be reasonable estimate of harm, not a penalty.
Defendant agrees that breach justifies immediate injunctive relief without further proof of irreparable harm.
Prevailing party in enforcement action recovers attorneys' fees. Creates deterrent against breach.
| Provision | Purpose |
|---|---|
| Mutual Release | Both parties release claims arising from the dispute (carve out for breach of settlement) |
| Confidentiality of Settlement | Terms remain confidential; parties may disclose only that dispute was resolved |
| No Admission | Settlement is not admission of liability by either party |
| Dismissal with Prejudice | If lawsuit filed, it will be dismissed with prejudice upon performance |
| Governing Law | California law governs interpretation and enforcement |
| Jurisdiction | Consent to jurisdiction for enforcement actions (often specific California county) |
| Integration | Agreement is complete; no other representations or agreements exist |
Determining the right settlement number requires analyzing potential damages, litigation costs, and the probability of various outcomes. This section helps you develop a settlement range.
Lost profits you would have earned but for the misappropriation:
Profits defendant earned using your trade secrets:
Note: You can recover both actual loss AND unjust enrichment to the extent they don't overlap.
What a willing licensor and licensee would have agreed to for authorized use:
For willful and malicious misappropriation, court may award up to double actual damages:
| Phase | Typical Cost Range | Duration |
|---|---|---|
| Pre-suit investigation & demand | $5,000 - $25,000 | 1-4 weeks |
| TRO/Preliminary injunction | $25,000 - $100,000 | 1-3 months |
| Discovery (documents, depositions) | $75,000 - $300,000+ | 6-12 months |
| Expert witnesses | $50,000 - $200,000+ | Ongoing |
| Summary judgment | $50,000 - $150,000 | 2-4 months |
| Trial preparation & trial | $150,000 - $500,000+ | 2-6 months |
| Total through trial | $350,000 - $1,000,000+ | 18-36 months |
Consider these factors to establish minimum, target, and maximum settlement positions:
| Factor | Questions to Answer |
|---|---|
| Floor (walk-away point) | What's the minimum you would accept vs. proceeding to trial? Factor in litigation costs, time, and risk of losing. |
| Target | What recovery reflects fair compensation given evidence strength and likely damages? This is your realistic goal. |
| Opening demand | What number allows negotiating room to reach your target? Typically 30-50% above target, supported by damages analysis. |
| Probability of prevailing | How strong is your case? 80%+ = strong leverage. 50-60% = significant uncertainty. |
| Defendant's ability to pay | Can defendant actually pay? Individual vs. company? Insurance coverage? A judgment you can't collect is worthless. |
Scenario: Former sales director took customer database and pricing information to competitor.
| Damages Component | Estimated Range |
|---|---|
| Lost profits (customers lost to competitor) | $150,000 - $300,000 |
| Unjust enrichment (competitor's gain) | $100,000 - $200,000 |
| R&D value of customer database | $50,000 - $100,000 |
| Base damages range | $300,000 - $600,000 |
| Exemplary damages (2x if willful) | $600,000 - $1,200,000 |
| Estimated attorneys' fees through trial | $200,000 - $400,000 |
| Total exposure to defendant | $800,000 - $1,600,000 |
Settlement analysis:
In most cases, make a specific demand. Benefits include:
Exception: If you're uncertain about damages or want to hear defendant's opening position first, you might describe the "substantial" damages exposure without a specific number and invite a proposal.
A judgment you can't collect is worthless. Consider:
Get financial disclosures before finalizing settlement. Consider requiring security (personal guarantee, lien, etc.) for payment obligations.
Multiple verification mechanisms:
Include consequences for false certification (breach of agreement, perjury exposure, liquidated damages).
Often yes, but be aware of limitations:
Consider whether you want to limit statements about the dispute or broader statements about the parties. The former is more enforceable.
CCP § 998 is a powerful settlement tool available once litigation has begun:
Make sure your 998 offer is reasonable—courts won't shift costs if the offer was a token amount made in bad faith.
Yes, with limitations:
Include liquidated damages for breach of confidentiality to give the provision teeth.
Not required, but consider these options:
For ongoing injunctive obligations, court approval provides stronger enforcement. For simple payment-and-release settlements, private agreement is usually sufficient.
Your remedies depend on how the settlement was structured:
Draft your settlement agreement with enforcement in mind. Include consent to jurisdiction, fee shifting, and specific remedies for breach.
Estimate a reasonable settlement range for trade secret misappropriation claims under California CUTSA. This calculator helps develop negotiating positions by analyzing damages, litigation costs, and probability of success.
Generate a professional demand letter, CA court complaint, or arbitration demand