Secrets, Sovereigns, and States: Analyzing State Government's Liability for Trade Secret Misappropriation

• Publication year: 2021

Secrets, Sovereigns, and States: Analyzing State Government's Liability for Trade Secret Misappropriation

Grant Cole

University of Georgia School of Law

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SECRETS, SOVEREIGNS, AND STATES: ANALYZING STATE GOVERNMENT'S LIABILITY FOR TRADE SECRET MISAPPROPRIATION

Grant Cole^*

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Table of Contents

I. INTRODUCTION..............................................................................................133

II. Background................................................................................................137

A. Trade Secrets Generally............................................................137
B. Trade Secrets Versus Other Forms of Intellectual Property...............................................................................................137
C. Trade Secret Misappropriation................................................138
D. Economic Importance of Trade Secrets..............................139
E. Sovereign Immunity.......................................................................140
F. Waivers of Sovereign Immunity in Versions of the UTSA.......................................................................................................141
G. UTSA Variations Among States................................................143
H. State Agent Liability....................................................................144

III. Analysis.........................................................................................................144

A. Current Landscape.........................................................................144
B. Arguments For Waiver o f Sovereign Immunity in the UTSA.......................................................................................................146
C. Arguments for the One Sixty over Ninety Approach ... 147
D. Policy Arguments for Waiver of Sovereign Immunity...............................................................................................148
E. Arguments Against Allowing the Government to be Sued for Trade Secret Misappropriation............................149

IV. Conclusion..................................................................................................151

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I. Introduction

"When a secret is revealed, it is the fault of the man who confided it."¹ Though this anachronistic position might be philosophically true, it does not offer any practical solution on how to protect a company's trade secrets.² It is often not feasible to keep trade secrets absolutely secret, and even if it was, there would be a lack of utility as businesses sometimes must share their trade secrets with employees or in proposals to acquire work.³

This problem of keeping trade secrets "secret" is especially acute when the owner of the trade secret is either a government contractor or a private company hired by the government.⁴ Typically, when the government has a project that they want a private company to undertake, they will solicit either a "request for proposal" (RFP) or a "request for quote" (RFQ) from prospective government contractors.⁵ Trade secrets are often disclosed in these RFPs or RFQs, though under ostensible confidentiality.⁶

In situations where the government does not respect the confidential nature of the trade secret and discloses it, one would surmise that the contractor would want to bring suit against the government and recover damages. However, the doctrine of sovereign immunity prevents a party from bringing suit against the state unless the state has expressly consented to it.⁷ This doctrine exacerbates the damage caused by the inability to sue state governments for trade secret misappropriation as "trade secrecy is more important than ever as an economic

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complement and substitute for other intellectual property protections, particularly patents."⁸

However, depending on the state, there are some limited options to bring suit against the state government notwithstanding the doctrine of sovereign immunity. For example, although many states have enacted a Tort Claims Act or similar laws making them amenable to suit, these acts vary in the degree to which they waive sovereign immunity.⁹ The Uniform Trade Secrets Act (UTSA) makes the issue of state governmental liability even more complicated. Despite the UTSA being broadly adopted by forty-eight states,¹⁰ state trade secret statutes vary significantly.¹¹ This lack of uniformity created by the disjointed implementation of the UTSA has lead trade secret law becoming increasingly complex and less predictable, to the chagrin of businesses and individuals.¹² This wide variation in state trade secret laws goes against the UTSA's purpose of creating more uniform trade secret laws.¹³ The UTSA also purports to preempt common law "remedies for misappropriation of a trade secret"¹⁴ which further complicates the inquiry into the state's liability.

Furthermore, concerns regarding the relationship between sovereign immunity and intellectual property are not exclusive to trade secrets.¹⁵ The tension between State sovereign immunity and intellectual property also looms

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large in both patent¹⁶ and copyright law.¹⁷ This tension was evident in Allen v. Cooper, a copyright infringement case that was decided by the Supreme Court during their October 2019-2020 term.¹⁸ In Allen v. Cooper, the Supreme Court held Congress could not abrogate states' Eleventh Amendment sovereign immunity from copyright infringement suit.¹⁹ However it is worth noting that, during oral arguments, "the justices plundered North Carolina's argument that it enjoyed sovereign immunity from suit for damages for copyright infringement."²⁰ Moreover, the Court in Allen gave Congress an open invitation to pass a valid copyright law that could abrogate State sovereign immunity while noting that "kind of tailored statute can effectively stop States from behaving as copyright pirates."²¹ Allen helps highlight how important protecting intellectual property rights are, even when that protection is from the government itself. Furthermore, trade secrets, unlike patents or copyrights, need stronger protections from the government because once they are misappropriated, third parties can freely use the information. This is because once public, a trade secret loses its protection.²²

This Note argues that the best approach to protect businesses and individuals is to allow them to sue state governments for trade secret misappropriation. This Note also argues that this is best accomplished by amending the UTSA to include an express waiver of sovereign immunity. This Note recognizes although this would be the best solution, the disjointed implementation of the UTSA by states raises concerns about whether states will adopt a new version of the UTSA.²³

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This Note will also analyze a well-reasoned alternative approach to allow states to be sued for trade secret misappropriation under a tort theory set out by the GeorgiaCourt of Appeals in Board of Regents of the University System of Georgia v. One Sixty Over Ninety, L.L.C.²⁴ That case held that a government contractor can sue the state for trade secret misappropriation because misappropriation is a tort, and the state waived its sovereign immunity for certain torts committed by the state when it passed the Georgia Tort Claims Act.²⁵ It should be noted that Georgia's version of the UTSA is also silent on the issue of sovereign immunity.²⁶ The outcome in One Sixty Over Ninety makes sense because states which have adopted the UTSA should not then have greater immunity than they had before the act was passed.²⁷

This Note also recognizes that using the One Sixty OverNinety approach adds an additional complication to the analysis not present if states adopt an amended version of the UTSA. This is because if the state waived its sovereign immunity expressly in its trade secret statute, an aggrieved party could bring suit and not have to rely on a tort claims act for waiver of sovereign immunity.²⁸ Thus, if the state does not waive its sovereign immunity expressly in its trade secret statute, this creates complications for bringing suit because every state does not have a tort claims act or a functional equivalent source of law that waives sovereign immunity for torts such as misappropriation.²⁹ Even though it would be ideal if states did have similar tort claims acts, this Note recognizes that the One Sixty Over Ninety approach is limited to those states that are amenable to tort suits like misappropriation.

Finally, this Note will address the challenges to both approaches, as well as the issues arising from advocating for federal intervention under the Defend

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Trade Secrets Act of 2016.³⁰ The policy arguments for waiving state sovereign immunity for trade secret misappropriation will also be addressed, regardless of which approach is chosen.

II. Background

A. TRADE SECRETS GENERALLY

Trade secrets are a form of intellectual property³¹ that derive their value from not being generally known.³² As noted above, forty-eight states have adopted some form of the UTSA.³³ For the two states thathave not adopted the UTSA, or for cases that predate the UTSA, the definition of a trade secret comes from the comment to section 757 of the Restatement (First) of Torts.³⁴ A fundamental difference between the UTSA and the Restatement definition of a trade secret is that the Restatement requires continuous use in business and puts less emphasis on secrecy than the UTSA.³⁵ The UTSA rejected the Restatements continuous use rule because of the "requirement that the secret have independent economic value from not being generally known."³⁶ This helps encourage innovation. For example, if a company develops a newer trade secret protected manufacturing process, they still would want to protect the old one from being discovered, as it would still be valuable to the company's competitors.³⁷ Thus, if a government contractor submitted a response to an...