Step Aside! Trade Secret Preemption of Other Claims

by Orrick - NorCal IP Group
Contact

Order Granting in Part and Denying in Part Motion to Dismiss, Henry Schein, Inc. v. Cook, et al., 16-cv-03166-JST (Judge Jon Tigar)

One purpose of the California Uniform Trade Secrets Act (“CUTSA”) is to preempt and displace many common law causes of action that could arguably apply in a trade secrets case, such as conversion. Nevertheless, it is still common for plaintiffs in trade secrets cases to plead a great variety of causes of action. A recent decision from Judge Tigar helps clarify when such causes of action are preempted and when they can coexist with a cause of action for trade secret misappropriation.

Henry Schein, Inc. (“HSI”) alleged that Cook had misappropriated its trade secrets and had provided them, along with other proprietary information, to her new employer, which is a competitor of HSI. HSI also alleged that Cook had attempted to divert HSI customers to her new employer and had assisted her new employer in setting up accounts for the customers whom she planned to bring over from HSI. HSI additionally alleged that Cook had begun working on behalf of her new employer while still employed at HSI.

Cook moved to dismiss 5 of the 12 causes of action in the Complaint because, according to Cook, they were preempted by CUTSA. In its opinion, the Court restated the rule that CUTSA preempts a claim when it is “based on the same nucleus of facts” as a misappropriation of trade secrets claim. “The preemption inquiry is a factual one, focusing on whether other claims are no more than a restatement of the same operative facts supporting trade secret misappropriation.” (By statute, CUTSA does not preempt breach of contract claims).

Applying these standards, the Court declined to dismiss the causes of action for 1) breach of fiduciary duty/duty of loyalty, 2) tortious interference with prospective economic relations, or 3) unfair competition. Although those claims mentioned Cook’s alleged trade secret misappropriation, they did not rely solely on overlapping allegations. Rather, they went beyond trade secret misappropriation by touching on Cook’s alleged attempts to deceive HSI’s customers and lure them to her new employer. The Court found that, as pled, Cook did not necessarily rely on HSI’s trade secrets when she allegedly attempted to prod HSI’s customers to switch over.

The Court dismissed the cause of action for violation of California Penal Code § 502, however. That statute imposes liability on any person who knowingly accesses and without permission takes, copies, or makes use of any data from a computer, computer system, or computer network. HSI alleged that Cook had knowingly accessed HSI’s computer system and, after her employment was terminated, copied documents containing HSI trade secrets. The Court found that the section 502 claims “cannot survive after the trade secret facts are removed.”

The Court also dismissed the cause of action for conversion. A conversion cause of action is preempted unless the value of the converted property is rooted in something other than the information it contains. The Court interpreted HSI’s Complaint to allege that the value of the converted documents was entirely derived from their status as trade secrets, leaving nothing to support a separate conversion claim.

Trade secret preemption can be something of a trap for unwary attorneys new to trade secret practice. Judge Tigar’s recent order can help those attorneys craft their Complaint to avoid a potentially distracting motion to dismiss or demurrer, and provide guidance to defendants on which causes of action may be successfully eliminated on preemption grounds.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick - NorCal IP Group | Attorney Advertising

Written by:

Orrick - NorCal IP Group
Contact
more
less

Orrick - NorCal IP Group 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.
Feedback? Tell us what you think of the new jdsupra.com!