Uniform Trade Secrets Act

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The Uniform Trade Secrets Act (UTSA), published by the Uniform Law Commission (ULC) in 1979 and amended in 1985, is a Uniform Act promulgated for adoption by states in the United States. One goal of the UTSA is to make the state laws governing trade secrets uniform, which is especially important for companies that operate in more than one state. Historically, the law governing misappropriation of trade secrets developed separately in each state. [1]

Contents

Of course, achieving the goal of uniformity depends upon the number of states that choose to adopt it. As of November 2020, the UTSA has been enacted by 48 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. [2] As with other Uniform Acts, some states have modified language in their version of the statute.

Motivation

A prefatory note to the UTSA states some original motivations for the act:

A valid patent provides a legal monopoly for seventeen years in exchange for public disclosure of an invention.

If, however, the courts ultimately decide that the Patent Office improperly issued a patent, an invention has been disclosed to competitors with no corresponding benefit.

In view of the substantial number of patents that the courts invalidate, many businesses now elect to protect commercially valuable information by relying on the state trade secret protection law.

Uniform Trade Secrets Act, Prefatory Note [1]

The UTSA made note of the commercial value and competitive advantages inherent in trade secrets. Unlike patent protection, which was addressed at the federal level, trade secret misappropriation was addressed at the state level. [1]

In the United States there existed a prevalence of interstate commercial transactions that extended beyond the jurisdiction of individual state legislation. For example, goods may have been manufactured in State A, warehoused in State B, sold from State C, and delivered in State D.

As a result, the UTSA sought to alleviate the uneven development and "uncertainty concerning the parameters of trade secret protection" by recommending a uniform trade secret law and, at the same time, allowing the states the flexibility to meet local circumstances by modifying the text as enacted in each state. [1]

In addition to providing some recourse for any uncertainty associated with a patent, the UTSA also serves to codify the common law remedies that have emerged in many states. These remedies are based on legal precedent set by previous cases, and therefore allow for greater uncertainty, particularly in less industrial states where there have been fewer trade secret cases.

The UTSA notes that any confusion caused by having strictly common law remedies to trade secret misappropriation was exacerbated by omitting trade secret rules from the second edition of the Restatement of Torts. [1]

Overview

The UTSA contained a prefatory note followed by 12 sections of proposed law. Each section was followed by a "comments" section that provided clarifications and examples as to the intent of the law. [1] Section 1 presented definitions of key terms as they are used throughout the act. Sections 2–4 provided remedies for potential wrongs committed in violation of the act, including injunctive relief, damages and attorney's fees. Sections 5–12 made additional provisions related to the implementation of the law, and the relationship to other laws. [1]

Key definitions

The UTSA provided several definitions of terms as they are used throughout the act. Some of these definitions are replicated here for the benefit of the reader.

UTSA § 1.1

"Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.

Although not included in the definition itself, the original text of the UTSA provided clarification regarding the definition of proper and improper means. The comments refined the definition by listing several proper means of discovery, including discovery by independent invention, reverse engineering, licensing arrangement, and published literature. The comments also clarified that improper means included actions that were, "improper under the circumstances; e.g., an airplane overflight used as aerial reconnaissance to determine the competitor's plant layout during construction of the plant". [1]

UTSA § 1.2

"Misappropriation" means:
(i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(ii) disclosure or use of a trade secret of another without express or implied consent by a person who
(A) used improper means to acquire knowledge of the trade secret; or
(B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was
(I) derived from or through a person who had utilized improper means to acquire it;
(II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(C) before a material change of his [or her] position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

The UTSA noted that the types of accidents or mistakes that would lead to use of a learned trade secret being misappropriated did not include actions or mistakes that "constitute a failure of efforts that are reasonable under circumstances to maintain its [the trade secret's] secrecy". [1]

UTSA § 1.4

"Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(i) 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, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The UTSA also provided refinement through comments to the definition of a trade secret itself:

Regarding reasonable efforts to maintain secrecy, the UTSA maintained that actions such as restricting access to a "need-to-know basis" and informing employees that the information is secret met the criteria for reasonable efforts. The UTSA stated that the courts do not require procedures to protect against "flagrant industrial espionage" were not necessary. [1]

Remedies

The UTSA provided for several potential remedies for wrongs committed under the act, including injunctive relief, damages, and attorney's fees. [1]

Injunctive relief

Section 2 of the UTSA provided for injunctive relief from trade secret misappropriation. Section 2(a) stipulated, "Actual or threatened misappropriation may be enjoined". However, the length of the injunction was limited to the length of time the trade secret exists (i.e., remains unknown to some party who could profit from knowing the secret) plus sufficient time to eliminate any competitive advantage that could have been obtained by misappropriation of the trade secret. [1]

In addition to the possible enjoinment described in section 2(a), section 2(b) allowed for the payment of reasonable royalties in place of an injunction under exceptional circumstances. The UTSA, in the comments for section 2, referenced a court case in which a misappropriated trade secret was used to build military technology for use during the Vietnam War. As an injunction may have prevented necessary equipment from reaching U.S. armed forces, the judge ordered that the misappropriator pay an appropriate royalty to the trade secret owner rather than imposing an injunction. [1]

Damages

In addition to injunctive relief offered under the UTSA, parties may also receive damages. Section 3(a) states that, "Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss". [1] Furthermore, the act stated in section 3(b) that if misappropriation is, "willful and malicious" the court may award damages up to twice what would otherwise be entitled under section 3(a). Restrictions similar to those imposed on the duration of injunctive relief are imposed on the duration of damages as well. [1]

Attorney's fees

Section 4 of the UTSA stipulated that the court may award attorney's fees to the prevailing party for actions made in "bad faith or willful and malicious misappropriation". [1]

Other provisions

Adoption by U.S. states

As of June 2019, the UTSA has been adopted by all states except New York and North Carolina (but its law is very similar and seems to borrow heavily from the act ). On May 2, 2013, Texas enacted Senate Bill 953, [3] becoming the 47th state to adopt the UTSA. [4] The Texas statute took effect on September 1, 2013. [4]

Massachusetts adopted the Uniform Trade Secrets Act effective October 1, 2018. [5]

The UTSA has also been adopted in the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. [2] [6] States are not required to pass the act exactly as is, and some have made amendments. [7]

Notable cases

The following cases have directly referenced the UTSA:

International application

Trade secret law varies more from country to country.

The North American Free Trade Agreement (NAFTA) has provisions providing for uniform minimum standards for protecting trade secrets.

Each party shall provide the legal means for any person to prevent trade secrets from being disclosed to, acquire by, or used by others without the consent of the person lawfully in control of the information in a manner contrary to honest commercial practices, in so far as:

NAFTA Article 1711(1) [16]

Trade Secrets in Europe are dealt with on a country-by-country basis.[ citation needed ] In England and Wales, trade secret protection is predicated upon the common law concept of "breach of confidence"—i.e., regardless of the existence of a contract, those who obtain the trade secret in confidence shall not take unfair advantage of it without consent. [16]

Germany's Act Against Unfair Competition states, "any person who, in the course of business activity for purposes of competition, commits acts contrary to honest practices" and hold violators responsible for damages. [16]

See also

Related Research Articles

Trade secrets are a type of intellectual property that comprise formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily ascertainable by others, and which the owner takes reasonable measures to keep secret. In some jurisdictions, such secrets are referred to as confidential information.

Injunction a legal order to stop doing something

An injunction is a legal and equitable remedy in the form of a special court order that compels a party to do or refrain from specific acts. "When a court employs the extraordinary remedy of injunction, it directs the conduct of a party, and does so with the backing of its full coercive powers." A party that fails to comply with an injunction faces criminal or civil penalties, including possible monetary sanctions and even imprisonment. They can also be charged with contempt of court. Counterinjunctions are injunctions that stop or reverse the enforcement of another injunction.

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Privacy laws of the United States

The privacy laws of the United States deal with several different legal concepts. One is the invasion of privacy, a tort based in common law allowing an aggrieved party to bring a lawsuit against an individual who unlawfully intrudes into their private affairs, discloses their private information, publicizes them in a false light, or appropriates their name for personal gain.

Age Discrimination in Employment Act of 1967 United States labor law

The Age Discrimination in Employment Act of 1967 is a US labor law that forbids employment discrimination against anyone at least 40 years of age in the United States. In 1967, the bill was signed into law by President Lyndon B. Johnson. The ADEA prevents age discrimination and provides equal employment opportunity under conditions that were not explicitly covered in Title VII of the Civil Rights Act of 1964. It also applies to the standards for pensions and benefits provided by employers, and requires that information concerning the needs of older workers be provided to the general public.

United States v. Reynolds, 345 U.S. 1 (1953), is a landmark legal case in 1953 that saw the formal recognition of the state secrets privilege, a judicially recognized extension of presidential power.

Economic Espionage Act of 1996

The Economic Espionage Act of 1996 was a 6 title Act of Congress dealing with a wide range of issues, including not only industrial espionage, but the insanity defense, matters regarding the Boys & Girls Clubs of America, requirements for presentence investigation reports, and the United States Sentencing Commission reports regarding encryption or scrambling technology, and other technical and minor amendments.

<i>Computer Associates International, Inc. v. Altai, Inc.</i>

Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693 is a decision from the United States Court of Appeals for the Second Circuit that addressed to what extent non-literal elements of software are protected by copyright law. The court used and recommended a three-step process called the Abstraction-Filtration-Comparison test. The case was an appeal from the United States District Court for the Eastern District of New York in which the district court found that defendant Altai's OSCAR 3.4 computer program had infringed plaintiff Computer Associates' copyrighted computer program entitled CA-SCHEDULER. The district court also found that Altai's OSCAR 3.5 program was not substantially similar to a portion of CA-SCHEDULER 7.0 called SYSTEM ADAPTER, and thus denied relief as to OSCAR 3.5. Finally, the district court concluded that Computer Associates' state law trade secret misappropriation claim against Altai was preempted by the federal Copyright Act. The appeal was heard by Judges Frank X. Altimari, John Daniel Mahoney, and John M. Walker, Jr. The majority opinion was written by Judge Walker. Judge Altimari concurred in part and dissented in part. The Second Circuit affirmed the district court's ruling as to copyright infringement, but vacated and remanded its holding on trade secret preemption.

Magnuson–Moss Warranty Act

The Magnuson–Moss Warranty Act is a United States federal law. Enacted in 1975, the federal statute governs warranties on consumer products. The law does not require any product to have a warranty, but if it does have a warranty, the warranty must comply with this law. The law was created to fix problems as a result of manufacturers using disclaimers on warranties in an unfair or misleading manner.

The copyright law of the United States grants monopoly protection for "original works of authorship". With the stated purpose to promote art and culture, copyright law assigns a set of exclusive rights to authors: to make and sell copies of their works, to create derivative works, and to perform or display their works publicly. These exclusive rights are subject to a time limit, and generally expire 70 years after the author's death. In the United States, any work published before January 18, 1926, is generally considered public domain.

<i>Attorney General v Blake</i> English contract law case on damages for breach of contract

Attorney General v Blake[2000] UKHL 45, [2001] 1 AC 268 is a leading English contract law case on damages for breach of contract. It established that in some circumstances, where ordinary remedies are inadequate, restitutionary damages may be awarded.

Data General Corp. v. Digital Computer Controls, Inc. was a 1971 case in which the Delaware Court of Chancery determined that widespread, confidential disclosure of trade secrets does not necessarily compromise their secrecy. Data General Corporation distributed design documentation with its Nova 1200 minicomputer, notifying owners of the confidentiality of these design drawings through contractual agreements and explicit text on the drawings. After acquiring drawings with a Nova 1200 purchase, Digital Computer Controls designed its own nearly identical minicomputer. Digital Computer Controls maintained that its use of the documentation was proper because Data General Corporation inadequately maintained the secrecy of the design drawings by distributing them to many customers. The court found that Data General Corporation had sufficiently protected the secrecy of the drawings and that Digital Computer Controls was thus in violation of trade secret law for improperly using confidential information.

<i>Rivendell Forest Products, Ltd. v. Georgia-Pacific Corp.</i>

Rivendell Forest Prods. v. Georgia-Pacific Corp., 28 F.3d 1042 was a case in which the United States Court of Appeals for the Tenth Circuit reversed the decision of the U.S. District Court for the District of Colorado, which had decided that Rivendell had failed to establish the existence of a trade secret in its customized computer software system, "Quote Screen", which was used to quote lumber prices to customers.

<i>DVD Copy Control Assn, Inc. v. Bunner</i>

DVD Copy Control Association, Inc. v. Bunner was a lawsuit that was filed by the DVD Copy Control Association in California, accusing Andrew Bunner and several others of misappropriation of trade secrets under California's implementation of the Uniform Trade Secrets Act. The case went through several rounds of appeals and was last heard and decided in February 2004 by the California Court of Appeal for the Sixth District.

A patent holder in Canada has the exclusive right, privilege and liberty to making, constructing, using and selling the invention for the term of the patent, from the time the patent is granted. Any person who does any of these acts in relation to an invention without permission of the patent owner is liable for patent infringement.

In Canada, trade secrets are generally considered to include information set out, contained or embodied in, but not limited to, a formula, pattern, plan, compilation, computer program, method, technique, process, product, device or mechanism; it may be information of any sort; an idea of a scientific nature, or of a literary nature, as long as they grant an economical advantage to the business and improve its value. Additionally, there must be some element of secrecy. Matters of public knowledge or of general knowledge in an industry cannot be the subject-matter of a trade secret.

Pfizer Inc. v. Government of India, 434 U.S. 308 (1978), decision of the Supreme Court of the United States in which the Court held that foreign states are entitled to sue for treble damages in U.S. courts, and should be recognized as "persons" under the Clayton Act.

<i>Christou v. Beatport, LLC</i>

Christou v. Beatport, LLC, 849 F. Supp. 2d 1055, was a District Court of Colorado case in which the court held that MySpace friend lists could constitute trade secrets. While the names in the friend lists could be found in public directories, the court considered that the "ancillary information" of the friend list provided a means of contact with permission that was not publicly available.

In addition to federal laws, each state has its own unfair competition law to prohibit false and misleading advertising. In California, one such statute is the Unfair Competition Law [hereinafter “UCL”], Business and Professions Code §§ 17200 et seq. The UCL “borrows heavily from section 5 of the Federal Trade Commission Act” but has developed its own body of case law.

<i>Ajaxo Inc. v. E*Trade Financial Corp.</i>

Ajaxo Inc. v. E*Trade Financial Corp., 187 Cal.App.4th 1295 (2010), is the second appeal on a dispute dated back to 1999. During the original 2000 case, defendant E*Trade, an online financial services company, was found liable for maliciously and willfully misappropriating trade secrets pertaining to wireless stock trading technology acquired from the plaintiff, Ajaxo. Under the Uniform Trade Secrets Act E*Trade was required under a mutually signed Non-disclosure agreement (NDA) to keep Ajaxo's trade secrets confidential. After a jury trial in 2003, E*Trade was fined $1.3 million to be paid to Ajaxo for the misappropriation and breach of NDA. The court denied Ajaxo's request for additional damages. All parties appealed. In 2005 the California courts of appeal affirmed the original ruling but remanded the case back to the trial court to determine additional damages. A jury verdict in 2008 rejected claims raised and demands for royalty damages from Ajaxo. In trade secret cases it is common for a plaintiff to seek royalty damages when they are unable to show an actual loss or that the defendant received some inequitable benefit from the misappropriation. In this case the court refused to allow evidence of royalty damages, claiming there were no net damages. Ajaxo appealed. In 2010 the California courts of appeal once again remanded the case back to the trial court reasoning that in such cases an exact quantitative measure of wrongful enrichment damages incurred by the plaintiff might not be sufficient to reject the claim of reasonable royalties based damages

References

  1. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 "Uniform Trade Secrets Act with 1985 Amendments" . Retrieved 2020-04-19.
  2. 1 2 "Legislative Fact Sheet - Trade Secrets Act" . Retrieved 2020-11-20.
  3. S.B. 953, Texas, 2013
  4. 1 2 Glatzer Mason, Jessica (May 8, 2013). "Texas Uniform Trade Secrets Act signed into law, becomes effective September 1, 2013". Lexology. Retrieved May 15, 2013.
  5. Glovsky, Mintz Levin Cohn Ferris; Renaud, Popeo PC-Michael T.; Armington, Nicholas W. "Massachusetts Adopts Uniform Trade Secrets Act | Lexology" . Retrieved 2018-09-10.
  6. The following are links to the state codes of some of the states that have passed the UTSA: California, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Minnesota, Nevada, New Jersey,Virginia, West Virginia, Wyoming.
  7. 1 2 "Justmed, Inc. v. Byce" (PDF). Retrieved 2011-10-18.
  8. "Ajaxo Inc. v. E*Trade Financial Corp" . Retrieved 2011-10-18.
  9. "Silvaco Data Systems v. Intel Corp" (PDF). Retrieved 2011-10-18.
  10. "R.C. Olmstead, Inc. v. CU Interface, LLC" . Retrieved 2011-10-18.
  11. "Decision Insights, Inc. v. Sentia Group, Inc" (PDF). Retrieved 2011-10-18.
  12. "Cypress Semiconductor Corp. v. Superior Court" (PDF). Retrieved 2011-10-18.
  13. "NCR v. Warner" (PDF). Retrieved 2011-10-18.
  14. "Othentec Ltd. v. Phelan" (PDF). Retrieved 2011-10-18.
  15. "S. Nuclear Operating Co., Inc. v. Elec. Data Sys. Corp" (PDF). Retrieved 2011-10-18.
  16. 1 2 3 "Overview of International Trade Secret Protection" . Retrieved 2011-11-07.
  17. "The Case for a Federal Trade Secrets Act" (PDF). Retrieved 2011-11-07.