Last month, two federal district courts reaffirmed that litigants may not plead around California's Uniform Trade Secrets Act (UTSA) by alleging common law tort claims said to protect business information that does not otherwise qualify for trade secret protection.
These rulings are important because some federal courts in California previously had issued inconsistent rulings on this question in the wake of two earlier California appellate rulings favoring broad UTSA preemption (or "supersession") of alternative common law claims. These recent decisions affirm California's broad preemption of alternative tort claims under the UTSA so that litigants may not pursue intellectual-property-like tort claims based on unprotectable information.
In XpertUniverse v. Cisco Systems, Inc., a court in the District of Delaware granted the defendant's motions for partial summary judgment regarding several issues, including whether the UTSA superseded several of the plaintiff's claims.1 The court, applying California law, rejected the plaintiff's argument that its breach of confidence claim was not preempted under the UTSA where it was "expressly based on the theft of non-trade secret, but otherwise protectable, confidential and proprietary information." The court noted that the "prime purpose" of the UTSA was to establish a "uniform set of principles" for determining when one is or is not liable for the acquisition, disclosure, or use of "information ... of value" as found in the UTSA's definition of a "trade secret." To permit otherwise would create "a new category of intellectual property beyond the contemplation of the Act."
Similarly, in RSPE Audio Solutions, Inc. v. Vintage King Audio, Inc., a court in the Central District of California reached the same conclusion on a motion to dismiss, noting that "[e]ven proprietary information that does not constitute a trade secret may fall within [the] CUTSA's ambit where the basis of the property interest is rooted in the information's private nature."2 The court noted that a determination of a UTSA supersession claim may be possible on a motion to dismiss "where a plaintiff includes only vague allegations regarding the nature of purportedly non-trade secret proprietary information."3 Both XpertUniverse and RSPE Audio Solutions thereby make clear that the UTSA preempts tort claims premised upon information claimed to be "confidential," whether or not such information is truly a trade secret.
In a similar case in December 2012, Sunpower Corp. v. SolarCity Corp., a federal judge in the Northern District of California ruled in favor of the defendants—represented in part by Wilson Sonsini Goodrich & Rosati—that claims styled as misappropriation of "non-trade secret proprietary information" are superseded by the UTSA, and granted a motion to dismiss.
These cases are consistent with a national trend. A strong majority of courts in jurisdictions with typical UTSA preemption statutes have ruled in favor of broad supersession. The result is that a litigant bringing claims over the alleged misuse of confidential business information is permitted to bring claims for breach of a confidentiality contract and a UTSA violation, but cannot allege other claims based on the same fact allegations, even if labeled "confidential but not secret."
The UTSA preemption question is important because it affects the scope of the information that is freely available for entrepreneurial activity when no trade secret has been misappropriated. It is also important to solidify trade secret law as a predictable body of intellectual property jurisprudence with clear rules for claims and defenses that will be applied in the same manner in every case. In patent and copyright law, for example, courts apply uniform standards of IP protection and do not permit efforts to change those standards through common law tort claims. The majority position on UTSA supersession similarly ensures that one set of procedural and substantive rules will govern each particular trade secret case. This makes cases easier to resolve, at lower cost, and may prevent lawsuits over information that is not a trade secret. It also better enables companies to enact policies and make decisions about hiring from competitors and addressing employee departures by referencing such predictable standards.
In jurisdictions that follow the majority position, plaintiffs must take care to define their trade secret rights carefully, and to take advantage of UTSA remedies that are in some cases more extensive than those permitted under pre-UTSA common law. For their part, defendants must not only raise UTSA supersession early in a case to clarify the claims at issue, but also take advantage of the UTSA's specific defenses and its special allowance for recovery of fees and costs in certain cases.
Wilson Sonsini Goodrich & Rosati is actively following developments around the country with respect to all aspects of trade secret law. The firm is available to assist companies, employees, newly formed businesses, and investors with counseling and litigation regarding these issues. For more information, please contact any member of the firm's employee mobility and trade secrets litigation and intellectual property litigation practices.