Trade Secrets Act Preemption – It’s Still A Mess

In 1979, the Uniform Trade Secrets Act (“UTSA”) was published in an attempt to provide a uniform legal framework for improved trade secret protection across all 50 U.S. states.  Although the UTSA has been enacted in various forms by 48 states, courts have taken inconsistent positions about whether the UTSA preempts claims for misappropriation of non-trade secret information.

On August 9, 2013, a district court in Minnesota ruled that a state law claim for conversion was preempted by Minnesota’s Uniform Trade Secrets Act (“MUTSA”).  The court held that MUTSA displaced “conflicting tort, restitutionary”, and other state laws “providing civil remedies for misappropriation of a trade secret.” The court reasoned that the plaintiff’s conversion claim was preempted because it was based on factual allegations that were identical to the plaintiff’s MUTSA claim.  In reaching its decision, the court noted that plaintiff did not allege the conversion or misappropriation of any information that was not also alleged to be a trade secret.

In ruling in this limited way, the Minnesota court avoided addressing a larger question that has recently been plaguing courts across the country: does the Uniform Trade Secrets Act (as enacted in various states) preempt claims based on the misappropriation of information, when that information does not qualify as a trade secret?  In other words, can there be a claim for the misappropriation of non-trade secret information?  The answer to that question varies across jurisdictions.  In many jurisdictions, such as Minnesota, the courts may simply avoid answering the question.

Among the states that have addressed the issue, as explained in Firetrace USA, LLC v. Jesclard, “[t]he majority interpretation appears to be that the UTSA preempts all common law tort claims based on misappropriation of information, whether or not it meets the statutory definition of a trade secret.”  This “majority interpretation” has recently been employed by courts in Arizona, Tennessee, Hawaii, and Indiana.

Of course, where there is a majority view, there is also a minority view.  For example, Pennsylvania courts consistently hold that claims based on the misuse of confidential information are not preempted by Pennsylvania’s Trade Secrets Act, as long as the confidential information in question does not qualify as a trade secret.  Similarly, a district court in Oregon recently held that a claim for conversion of “confidential and proprietary information” was not preempted by the Oregon Trade Secrets Act, because the language of the complaint was “broad enough . . . to allege that [defendant] may have in his possession information that is not trade secret information.”

In this confusing landscape, plaintiffs alleging misuse of confidential information should be mindful of where they file suit and carefully plead their claims.  While some states may allow other tort claims based on the use of non-trade secret information, others may not.

Companies should also take these issues into account when drafting choice-of-law clauses in contracts.  Such clauses may be drafted broadly in an attempt to secure the more favorable precedent.  For example, in the Minnesota case discussed above, a choice-of-law clause stated that Missouri law governed “th[e] Agreement and any dispute arising from the performance or breach” of the Agreement.  Based on that language, the court determined that the plaintiff’s tort claims against the defendant who had signed the contract, as well as the plaintiff’s contract claims against that same defendant, were governed by Missouri law.

 

Topics:  Preemption, Trade Secrets, Uniform Trade Secrets Acts

Published In: General Business Updates, Intellectual Property Updates, Labor & Employment Updates

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.

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