Does The Alabama Trade Secrets Act Limit Remedies For Theft Of Information?

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Alabama enacted the Alabama Trade Secrets Act (the “ATSA”) in 1987.  However, since that time, there have been relatively few reported court decisions analyzing the impact of the ATSA on common law claims.  A federal district court in Alabama recently grappled with these issues.  Relying on interpretations of other states’ laws based on the Uniform Trade Secrets Act, Judge Blackburn read the ATSA’s preemption provision broadly, holding that the ATSA preempted any common law claims based on “the same underlying facts.”  Madison Oslin, Inc. v. Interstate Resources, Inc., 2012 U.S. Dist. LEXIS 142082 (N.D. Ala., Sept. 30, 2012).

In Madison Oslin, the plaintiff was an Alabama-based paper-coating company who had developed a novel process for using polyester instead of wax to coat corrugated cardboard.  Whereas traditional wax-coated cardboard cannot be recycled, the new polyester-coated cardboard would be fully recyclable, saving landfill costs.

This Alabama paper-coating company was approached by a cardboard-box manufacturer with facilities in Maryland, and the two companies proposed forming a joint venture to manufacture polyester-coated corrugated cardboard boxes.  Under the proposed joint venture agreement, the box manufacturer would pay the paper-coating company an initial lump-sum fee of $6 million, and thereafter, the two would evenly split profits from the sale of recyclable boxes through the joint venture.

However, after the cardboard-box manufacturer signed a confidentiality agreement and had been allowed to observe the polyester-coating process during tours of the paper-coating company’s facilities in Alabama, the cardboard-box manufacturer allegedly began advertising (and manufacturing) a “recyclable corrugated box.”  The proposed joint venture agreement apparently remained unsigned, and the box manufacturer did not compensate the paper-coating company for use of its proprietary processes.  The paper-coating company, as plaintiff, then brought a multiple-count complaint against several defendants, including the cardboard-box manufacturer and its subsidiary in Maryland that operated the box-manufacturing facility.   The counts included a cause of action under the ATSA, as well as common law claims for conversion, unjust enrichment, breach of fiduciary duty, misrepresentation, and suppression, among others.

The defendants moved to dismiss the plaintiff’s common law claims, arguing that these claims were subsumed by the ATSA claim, and also moved to have the action transferred to Maryland.  In evaluating the motion to dismiss, Judge Blackburn noted that there was very little Alabama case law on point.  Thus, the court analyzed the comments to the ATSA and to the Uniform Trade Secrets Act and also examined other courts’ analyses of this issue under trade secrets statutes enacted in Georgia.  As noted in one of the Georgia cases, statutes protecting trade secrets are intended to encourage the free flow of information.  Under this analysis, claims involving “theft of information” should be limited to cases in which the information can be shown to be a trade secret; allowing claims for the theft of “non-proprietary” information or for the theft of “unguarded” proprietary information could arguably discourage this free flow of information.  Finding this reasoning persuasive, Judge Blackburn in Madison Oslin determined that the ATSA preempted any common law causes of action arising from the same factual allegations as ATSA claims and thus dismissed the plaintiff’s claims for conversion, unjust enrichment, breach of fiduciary duty, misrepresentation, and suppression.  The plaintiff was, however, allowed to proceed with its breach-of-contract claims, as well as its ATSA claims.  Because Judge Blackburn also granted the defendants’ request for a transfer, these remaining claims are now being litigated in Maryland.

A “take away” from the Madison Oslin decision is that an Alabama employer faced with the theft of information may want to begin its analysis of potential legal remedies by looking at the ATSA.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.