Indiana Joins the Emerging Majority Position on Uniform Trade Secrets Act Preemption of State-Law Tort Claims

by Wilson Sonsini Goodrich & Rosati
Contact

Last month, an Indiana appellate court became the latest court to adopt the majority position on the question of whether the Uniform Trade Secrets Act (UTSA) displaces state-law tort claims said to protect information that is described as confidential, but not a trade secret. The Indiana decision represents an accelerating trend among courts that have considered the question of UTSA preemption—one of the hottest topics in trade secret litigation in recent years. The outcomes of this decision and others like it directly affect the manner in which trade secret cases can be litigated, as well as the risks that employers take in hiring talent from other companies.

Most state enactments of the UTSA include a provision that preempts other civil claims that are based upon claims of trade secret misappropriation. By contrast, the UTSA does not preempt claims for breach of a non-disclosure contract or criminal actions brought by a prosecutor.

Especially during the past several years, courts have grappled with the issue of whether litigants in UTSA jurisdictions may proceed with civil claims, such as "conversion" or "unjust enrichment," as a backup in order to add a second layer of state-law intellectual property protection for information that fails to meet the more stringent definition of a UTSA trade secret.

Two different positions have emerged. Under one view—the emerging majority view—the UTSA provides a single layer of state-law intellectual property protection for business information, and information that does not qualify for protection under the statute is not protected and essentially free for all to use. Under a second view, states may permit a second layer of protection under loosely defined civil tort claims for information that fails to qualify as a trade secret.

The Indiana Court of Appeals addressed this question in HDNet, LLC v. North American Boxing Council (August 10, 2012). In HDNet, the plaintiff alleged a trade secret violation under the Indiana UTSA, and it also sought to pursue additional, alternative civil tort claims (such as "idea misappropriation") for information that did not qualify under the UTSA. The court of appeals, citing UTSA decisions from other jurisdictions, held that the Indiana UTSA displaces alternative civil claims and allows only one layer of intellectual property protection. The court noted that accepting the opposite position would "encourage piece meal litigation and would thus fail to implement the legislature's intended goal of uniformity" with respect to adopting the UTSA in the first place.

Indiana now joins a number of states—including Georgia, where the state's highest court ruled on the issue earlier this year, and California, where Wilson Sonsini Goodrich & Rosati contributed to the standard ultimately adopted by the California appellate courts through a 2005 win in Digital Envoy, Inc. v. Google Inc.—in barring alternative civil claims that seek to add a second layer of state-law intellectual property protection to information that is not a trade secret.

The emerging majority view on UTSA preemption affects how trade secret claims are litigated. In a state that does not permit a second layer of intellectual property protection, trade secret plaintiffs must take care to identify and prove the trade secrecy of the information at issue in a lawsuit without resorting to generalized, catch-all descriptions under backup tort labels such as "unjust enrichment." This requires early planning and collaboration between attorneys and engineers. Likewise, trade secret defendants should raise UTSA preemption arguments early in a litigation to clarify the claims at issue in order to establish that the claims do not qualify as trade secrets.

The majority position on UTSA preemption may have the greatest effect outside the litigation context. When companies hire talent from one another and need to set ground rules regarding the information learned at prior jobs that employees can and cannot use at new jobs, the majority position on UTSA preemption provides a clearer rule for what is protectable, and thus makes hiring and lawsuit prevention more predictable.

Wilson Sonsini Goodrich & Rosati is actively following developments around the country with respect to all aspects of the Uniform Trade Secrets Act, and the firm is available to assist companies, employees, newly formed businesses, and investors with trade secret litigation and counseling. For more information, please contact Fred Alvarez, Rico Rosales, Marina Tsatalis, Laura Merritt, Charles Tait Graves, or another member of the firm's employment and trade secrets litigation practice.

Written by:

Wilson Sonsini Goodrich & Rosati
Contact
more
less

Wilson Sonsini Goodrich & Rosati on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.