A Civil Action for Trade Secret Misappropriation

• Pages: 121-158

CHAPTER 5

A Civil Action

for Trade Secret

Misappropriation

Substantive and procedural law concerning trade secret litiga-

tion varies significantly from ju risdict ion to juris diction. Differ-

ences in case 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 available to trade secret owners.1 Tog eth er

with differences in procedural rules adopted by state courts and

the fundamental procedural differences between state and fed-

eral court, they significantly affect how a particular claim of trade

secret misappropriation will fare. While differences between the

Uniform Trade Secrets Act (UTSA) and common law approaches

and among the law of the different states are discussed through-

out this book, this chapter focuses on strategic 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 trade secret

misappropriation claim is where to bring the action. Two signifi-

cant questions are what substantive law will be applied and what

procedural rules will govern the action.

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Guide to Protecting and Litigating Trade Secrets

122

A. Forum Selection Clauses

The first and most obvious question is whether the prospective

parties are bound by an enforceable forum selection clause. An

employment or confidentiality agreement containing such a provi-

sion may dictate that a lawsuit be brought in a particular jurisdic-

tion 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 dis-

putes between the parties, 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 particular forum so long as it is reasonable.

The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972) (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 instance, whether tort claims are also

covered—“depends upon the intention of the parties reflected in

the wording of particular clauses and the facts of each case.” Terra

Int’l, Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 693 (8th Cir. 1997).

Generally, a forum selection clause is read to cover both contract-

and tort-based claims arising out of the parties’ relationship. See,

e.g., Advent Elec., Inc. v. Samsung Semiconductor, Inc., 709 F. Supp.

843, 846 (N.D. Ill. 1989) (clause specifying forum for “[a]ny litiga-

tion under [the] Agreement” 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 maintained in Florida” covered

tort claims that “arise out of the contractual relation and impli-

cate the contract’s terms”). Cf. Xantrex Tech. Inc. v. Advanced Ener-

gies, 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] plain-

tiff should not be allowed to vitiate the effect of a forum selection

clause simply by alleging peripheral claims that fall outside its

apparent scope.” Jacobson v. Mailboxes Etc. U.S.A., Inc., 646 N.E.2d

741, 746 ( Ma ss. 199 5); a ccord Cresce nt Int’ l, Inc. v. Avatar Commu nities,

Inc., 857 F.2d at 944 (court should not permit a party to avoid a dis-

advantage ous forum m erely by pleadi ng tort rathe r than bre ach of

contract claims).

A Civil Action for Trade Secret Misappropriation

123

B. Choice of Law

Absent a contractual provision, decisions concerning forum selec-

tion and the related issue of choice of law can be critical, and a pro-

spective plaintiff with a trade secret claim should consider choice

of law issues carefully. The law applied can frequently affect or

even determine the outcome of a case. When trade secret cases

involve parties 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 cases disagreed

about which law applied in only about 5 percent of the cases,

according to a 2009 survey of nearly 400 federal district court

opinions; in 2008, this percentage more than doubled to 12 per-

cent.4 Given the number of issues on which there is a potentially

outcome determinative conflict between laws, the increase is not

surprising. The following subsections identify the areas in which

conflicts most often arise.5

1. Variance in S ubstantive Trade Secret Law

The wide variety in approaches and results among our state and

federal courts is one broad theme of this book. Differences in sub-

stantive trade secret law generally reflect variances between the

fundamental approaches to trade secret law (UTSA or common

law) as well as the numerous additional differences between the

states’ versions of the UTSA.6 A plaintiff or a defendant contem-

plating trade secret litigation will need to think strategically about

choice of law issues touching on a variety of substantive areas:

• Is it a trade secret? The UTSA and Restatement definitions

of “trade secret” are not congruent, and chapter 1 outlines

some differences. One example: to be a trade secret under

the Restatement of Torts, information must be used con-

tinuously in the owner’s business; the UTSA has no such

requirement.

• Has it been misappropriated? Again the UTSA’s definition of

“misappropriation” diverges from the common law, and

these differences are discussed in chapter 2. One example:

under the UTSA, improper acquisition of a trade secret

constitutes “misappropriation”—even if the trade secret is