I have a secret? Applying the Uniform Trade Secrets Act to confidential information that does not rise to the level of trade secret status.

AuthorPiper, Julie
PositionCOMMENTS

INTRODUCTION I. THE HISTORY AND DEVELOPMENT OF TRADE SECRET LAW A. Sources of Trade Secret Law B. Classification of Confidential Information II. HOW COURTS HAVE DETERMINED WHETHER THE UTSA ABROGATES CLAIMS A. Category One Analysis B. Category Two Analysis C. Category Three Analysis III. BALANCING COMPETING INTERESTS IV. HOW TO PROTECT CONFIDENTIAL INFORMATION NOT DEEMED TO BE A TRADE SECRET UNDER THE UTSA CONCLUSION INTRODUCTION

The Uniform Trade Secrets Act ("UTSA") is a uniform law that serves as a guide for states to use when drafting their own respective trade secret legislation. (1) Because the UTSA is merely a guide, even after its enactment, state legislatures were, and still are, free to choose which sections of the UTSA to adopt within their respective states. (2) As a result, some states have adopted the UTSA as written, while others have made alterations by leaving some sections out. In general, seven states adopted the original 1979 version of the UTSA immediately upon enactment, and thirty-nine states and the U.S. Virgin Islands adopted the UTSA with the 1985 amendments. (3) Additionally, both the New York and New Jersey legislatures are considering whether to adopt pending versions of the UTSA. (4) In general, the UTSA has been widely adopted.

In spite of the National Conference of Commissioners on Uniform State Laws' ("NCCUSL") best attempt to (1) promote even development of trade secret law, and (2) relieve the uncertainty surrounding trade secret protection, ambiguity and uncertainty persist within trade secret law. More specifically, judicial disputes regarding what exactly constitutes a trade secret and how to protect confidential information that does not quite rise to the level of a trade secret have arisen within the context of employer-employee relationships. (5) Several courts throughout the country have held that the UTSA does not abrogate all other civil remedies based on the misappropriation of confidential information if a court deems that the information is not a trade secret. (6) In other words, some courts have held that an employer may only bring a claim under the UTSA for the misappropriation of information legally defined as a trade secret. As a result of this interpretation of the UTSA, businesses are free to bring a variety of other civil tort claims for the misappropriation of information that falls just short of trade secret status. Other courts, however, have held that the UTSA does abrogate other civil tort remedies based on the misuse of confidential information deemed not to be a trade secret. (7) As a result of these conflicting judicial opinions, the type of information that departing employees are free to use is unclear. Consequently, the result of these conflicting interpretations of the UTSA may have a detrimental effect on employees, employers, and even competing businesses.

In general, then, courts and legislatures need to determine whether the UTSA should allow, under its umbrella, "a claim that a defendant has misused commercial information that is not a trade secret." (8) This question may seem to be of little consequence in practice; however, as Attorney Tait Graves points out in his analysis of California trade secret and tort law, there are significant public policy implications resulting from this interpretation of the UTSA. (9) If the UTSA abrogates other tort claims for the misappropriation of information deemed not to be a trade secret, employees will be afforded much greater protection because claims for such misappropriation would be limited to only those claims allowed under the UTSA. (10) This interpretation of the UTSA would also further the overall public policy supporting a mobile workforce by preventing departing employees from being overly concerned about using marginally confidential information or information deemed to be general knowledge. (11)

In general, "the degree to which individuals and [competing] businesses ... are free to use information that does not qualify as a trade secret" (12) should be scrutinized to eliminate the ambiguity that currently exists. In the future, courts should seek to create a "beneficial balance between innovation and competition" by affording protection to confidential information held to be of significant value to companies and businesses, even if the information does not rise to the level of a trade secret. (13) The law in this area should work towards "minimiz[ing] the incentives to obtain competitively valuable information through corrupt practices, rather than through independent effort." (14)

Thus, in general, this Comment will examine which interpretation of the UTSA, as interpreted and adopted by the states, is more consistent with the public policy underlying the UTSA. Part I discusses the history and development of trade secret law to depict how the law developed as it exists today. Next, Part II explains how different courts have interpreted the UTSA's abrogation clause in fact patterns involving three different types of confidential information. Part III explains the competing interests that underlie the public policy supporting trade secret law and the protection of confidential information. Finally, Part IV discusses the policy reasons behind protecting information that is confidential, but does not rise to the level of a trade secret, and goes on to discuss which interpretation of the UTSA best comports with the public policy of the UTSA and the interests of businesses and employees.

  1. THE HISTORY AND DEVELOPMENT OF TRADE SECRET LAW

    1. Sources of Trade Secret Law

      "American courts have granted protection for trade secrets against their misuse or unauthorized disclosure for over one-hundred years." (15) For decades, scholars have known that protecting trade secrets is important in order for businesses to remain "technologically competitive." (16) In spite of the murky common law and statutory remedies for trade secret misappropriation, industries continue to rely on trade secret protection. (17) In the late 1960s, the Patent Law Section of the American Bar Association discussed a resolution favoring the enactment of a uniform state law that protected against the misappropriation of trade secrets or other confidential information. (18) As a result, the NCCUSL drafted the UTSA, which was finally adopted in 1979. (19) The drafters at the NCCUSL were motivated to draft the UTSA for a number of reasons. First, the drafters understood how important trade secret law was in promoting and maintaining interstate business. (20) Second, the drafters realized that trade secret law had not "developed satisfactorily." (21) The drafters noted that trade secret law had developed unevenly and, as a result, there was "undue uncertainty concerning the parameters of trade secret protection." (22)

      The NCCUSL also recognized, when drafting the UTSA, that "[i]n view of the substantial number of patents that are invalidated by the courts, many businesses now elect to protect commercially valuable information ... [via] the state law of trade secret protection." (23) Furthermore, trade secret protection is more important now because there has been "unprecedented ... growth in the computer, biotechnical and communications industries." (24)

      Early trade secret law initially developed from the common law; and, today, the law of trade secrets has further developed from both the Restatement of Torts as well as from Congress' enactment of the UTSA. (25) The Restatement describes a trade secret as "any formula, pattern, device, or compilation of information which is used in one's business, and which gives [the holder] an opportunity to obtain an advantage over competitors who do not know or use it." (26) In previous cases, courts have protected a variety of information, including "nontechnological business information," which is likely at issue in the majority of cases between employers and former employees. (27)

      Next, according to the Restatement, the information must be secret and cannot be a matter of general knowledge. (28) Any information must also be somewhat novel. (29) Finally, information deemed to be a trade secret must be "used for business purposes and must provide a competitive advantage to the owner of the trade secret. Thus, it must be of value to the holder." (30) Under the Restatement, trade secret infringement occurs when one not normally privy to the trade secret improperly takes and discloses it. (31)

      After the 1985 amendments to the UTSA, the UTSA defined a trade secret as "information, including a formula, pattern, compilation, program, device, method, technique, or process." (32) That "information" must "derive[] independent economic value ... from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that ... maintain its secrecy." (33) State trade secret statutes, as adopted from the UTSA, typically follow the UTSA by defining what a trade secret is and what constitutes misappropriation. (34) In addition, these statues describe the damages allowed for misappropriation and that employers must take reasonable steps to protect their company's trade secrets. (35) Finally, the statute describes its effect on other laws. (36) The UTSA "creates a claim for damages and injunctive relief for misappropriation of trade secrets." (37) The statutes also focus on criminal sanctions and all states have criminal penalties for the misappropriation of trade secrets. (38) However, in spite of such attempts to codify and clarify the law of trade secrets, much confusion still exists. (39)

    2. Classification of Confidential Information

      To be afforded trade secret protection, the information at issue must satisfy the definition set forth by the UTSA. Though the definition is somewhat broad, it is often applied rigidly, leaving some valuable confidential information unprotected. (40)...

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