A Civil Action for Trade Secret Misappropriation
| Author | Joanna H. Kim-Brunetti - Jeffrey K. Riffer - Gregory S. Bombard - Emily J. Friedman |
| Pages | 123-159 |
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CHAPTER 5
A Civil Action
for Trade Secret
Misappropriation
Substantive and procedural law concerning trade secret litigation var-
ies significantly from jurisdiction to jurisdiction. Differences in ca se law
interpretation involve issues as fundamental as what constitutes a trade
secret, what constitutes misappropriation, when a state trade secret
statute preempts related common law, and what remedies are ava ilable
to trade secret owners.1 Together with differences in procedural rules
adopted by state courts and the fundamental procedural differences
between state and federal court, they significa ntly affect how a partic-
ular claim of trade secret misappropriation will fare. Wh ile differences
between the Defend Trade Secrets Act (DTSA), the Uniform Trade Secrets
Act (UTSA), and common law approaches among the law of the different
states are discussed throughout this book, this chapter focuses on strate-
gic concerns presented by a civil action for trade secret misappropriation.
I. Forum Selection and Choice of Law
The first decision facing a plaintiff seeking to assert a t rade secret mis-
appropriation claim is where to bring the action. Two significant ques-
tions are what substantive law will be applied and what procedural
rules will govern the action.
A. Forum Selection Clauses
The first and most obvious question is whether the prospective par ties
are bound by an enforceable forum selection clause. An employment or
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Guide to Protecting and Litigating Trade Secrets
124
confidentiality agreement containing such a provision may dictate that
a lawsuit be brought in a particular jurisdiction or court. It may also
contain a binding arbitration provision. In either case, these clauses
may affect where the action is pursued. Forum selection clauses often
expressly apply to all future disputes between the partie s, whether or
not arising from the contract containing the forum selection clause. In
some cases, however, the forum selection clause language refers only
to disputes arising out of the parties’ contract. In either case, courts
generally honor the parties’ selection of a part icular forum so long as it
(a forum-selection clause is prima facie valid and should be enforced
unless “unreasonable” under the circumstances).2 The breadth
afforded a forum selection clause—for insta nce, whether tort claims
are also covered—“depends upon the intention of the parties reflec ted
in the wording of particular clauses a nd the facts of each case.” Ter ra
Int’l, Inc. v. Mississippi Chem. Corp., 119 F.3d 6 88, 693 (8th Cir. 1997). Gen-
erally, a forum selection clause is read to cover both contract- and tort-
based claims arising out of the pa rties’ relationship. See, e.g., Advent
Elec., Inc. v. Samsung Semiconductor, Inc., 709 F. Supp. 84 3, 846 (N.D. Ill.
1989) (clause specifying forum for “[a]ny litigation under [the] Agree-
ment” governs any duty that “arises from the contract”); Crescent Int’l,
Inc. v. Avatar Communities, Inc., 857 F.2d 943, 944 (3d Cir. 1988) (contract
providing that “any litigation upon any of [its] terms . . . shall be main-
tained in Florida” covered tort claims that “arise out of the contractual
relation and implicate the contract’s terms”). Cf. Xantrex Tech. Inc. v.
Advanced Energies, Inc., 2008 WL 2185882, at *7 (D. Colo. May 23, 2008)
(forum selection clause applied to tort claims arising out of contract
but did not apply to independent trade secret claims). The rationale for
a broad reading of forum selection clauses is that “[a]plaintiff should
not be allowed to vitiate the effect of a forum selection clause simply by
alleging peripheral claims t hat fall outside its apparent scope.” Jacob-
son v. Mailboxes Etc. U.S .A., Inc., 646 N.E.2d 741, 74 6 (Mass. 1995); accord
Crescent Int’l, Inc. v. Avatar Communities, Inc., 857 F.2d at 944 (court
should not permit a party to avoid a disadvantageous forum merely by
pleading tort rather than breach of contract claims).
B. Choice of Law
Absent a contractual provision, decisions concerning forum selection
and the related issue of choice of law can be critical, and a prospec-
tive plaintiff with a trade secret claim should consider choice of law
issues carefully. The law applied can frequently affect or even deter-
mine the outcome of a case. When trade secret cases involve part ies
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A Civil Action for Trade Secret Misappropriation
125
from different jurisdictions, or when the alleged misappropriation did
not take place in the trade secret owner’s home state, there will likely
be a dispute about which jurisdiction’s law applies.3
Choice of law disputes are on the rise in trade secret litigation.
Between 1950 and 2007, parties in trade secret case s disagreed about
which law applied in only about 5 percent of the cases, according to a
2009 survey of nearly 4 00 federal district court opinions; in 2008 , this
percentage more than doubled to 12 percent.4 Given the number of
issues on which there is a potentially outcome determinative conflict
between laws, the increase is not surprising. The following subsec-
tions identify the areas in which conf licts most often arise.5
1. Variance in Substantive Trade Secret Law
The wide variety in approaches and results a mong our state and fed-
eral courts is one broad theme of this book. Differences in substa ntive
trade secret law generally reflect variances be tween the fundamental
approaches to trade secret law (DTSA, UTSA or common law) as well
as the numerous additional differences between the states’ versions of
the UTSA .6 A plaintiff or a defendant contemplating trade secret litiga-
tion will need to think strategically about choice of law issues touching
on a variety of substantive area s:
• Is it a trade secret? The DTSA and UTSA defi nition of “trade
secret” is not congruent with that of the Restatement, and
Chapter 1 outlines some differences. One example: to be a
trade secret under the Restatement of Torts, information must
be used continuously in the owner’s business; neither the
DTSA nor the UTSA has such requirement.
• Has it been misappropr iated? Again the DTSA and UT SA defini-
tions of “misappropriation” diverge from the common law, and
these differences are discussed in Chapter 2. One example:
under the federal acts, improper acquisition of a trade secret
constitutes “misappropriation”—even if the trade secret is
not subsequently used or disclosed—while the Restatement
requires subsequent use or disclosure. Furthermore, states
adopting the UTSA have fine-tuned t he uniform act, add-
ing their own specific examples of conduct that constitutes
“improper me ans.”
• When must I sue? As discussed in this chapter, statutes of limi-
tations vary, even among UTSA jurisdictions, a s do positions
on the discovery rule and whether trade secret misappropria-
tion is a “continuing tort.”
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