Trade Secrets Law in Rhode Island and Massachusetts: Three Important Differences, and One Big New Similarity, 1217 RIBJ, RIBJ, 66 RI Bar J., No. 3, Pg. 5
| Author | Christopher R. Blazejewski, Esq. Sherin and Lodgen LLP, Providence Jessica G. Kelly, Esq. Sherin and Lodgen LLP, Boston |
November, 2017
Christopher R. Blazejewski, Esq. Sherin and Lodgen LLP, Providence
Jessica G. Kelly, Esq. Sherin and Lodgen LLP, Boston
Knowledge is power, especially in the knowledge economy. Establishing power in the marketplace often means using and protecting your knowledge. While some information is publicly available and widely disseminated, other knowledge is secret, and can only be obtained with intense study, hard work, and time.
In the business context, confidential and proprietary knowledge is a trade secret. Trade secrets can take many forms, including customer lists, pricing information, manufacturing processes, membership lists, product specifications, financial data, recipes, supplier information, purchasing histories, and strategic plans, among many others. Acquiring and using confidential information is often the key for individuals or businesses to differentiate themselves in the competitive global market.
Disputes concerning trade secrets are inevitable. Those who have secret information will fight to keep and protect it, while others may try to appropriate secret information for their own use. Trade secret disputes can arise in a variety of contexts, such as when an employee leaves to join her employer’s direct competitor, or when a business’s supplier or manufacturer is acquired by a competing company. Smart businesses will go to great lengths to preserve the confidentiality of their proprietary information and the goodwill and market power it engenders. Smart competitors will go to great lengths to obtain trade secrets a business fails to properly protect and keep confidential.
While disputes are inevitable, the law of trade secrets is not. Indeed, trade secret laws in Rhode Island and Massachusetts vary in several important respects. With many employers and employees crossing the border to work in Rhode Island and Massachusetts, it is necessary for attorneys to know the law in both states, in addition to the impact of federal law on trade secret claims.
This article will highlight three important differences all lawyers should know between trade secrets law in Rhode Island and Massachusetts. It will also summarize the big new similarity – the Defend Trade Secrets Act of 2016.
1. Rhode Island joins the vast majority of states – Massachusetts goes it (nearly) alone.
Rhode Island, along with forty-seven other states, follows the Uniform Trade Secrets Act.1 First published in 1979 and amended in 1985, the UTSA was developed to provide continuity, consistency, and predictability for securing trade secrets and preventing misappropriation. Rhode Island adopted the UTSA in 1986, and now joins nearly all of the states, including most recently Texas in 2013, along with the District of Columbia and several U.S. territories.
Practitioners in trade secret law will find the Rhode Island statute familiar. Rhode Island courts have consistently applied the Uniform Trade Secrets Act to bar trade secret misappropriation through injunctive relief and award aggrieved parties with compensatory and punitive damages and attorneys’ fees (see below). While trade secret case law in Rhode Island is not extensive, Rhode Island state and federal courts have so far been in lock-step with other states in applying the UTSA, mostly in cases involving purloined customer lists and product information.
Massachusetts, however, joins just two other states (New York and North Carolina) in declining to adopt the Uniform Trade Secrets Act, instead creating protections against the theft of trade secrets through a hodgepodge of statutory and common law. While out-of-state trade secret lawyers will find many of the precepts similar (such as, for example, the three-year statute of limitations for a trade secrets misappropriation tort claim under M.G.L. c. 260 § 2A), they will find wrinkles in the law nearly everywhere else they look (such as, to continue the example, the four-year statute of limitations for trade secret claims brought under the Massachusetts consumer protection statute, Chapter 93A, § 11).
2. Massachusetts law generally takes the “use it or lose it” approach to trade secrets – but Rhode Island law has not adopted these requirements.
Two fundamental questions in any trade secret dispute law are: (1) is the information a trade secret?; and (2) if so, was the trade secret misappropriated? Rhode Island and Massachusetts take different paths to answering these questions – unlike states following the Uniform Trade Secrets Act, including Rhode Island, Massachusetts law generally provides for a “use” requirement.
A. Is the information a trade secret?
Rhode Island law defines a trade secret as any information that (1) derives independent economic value, actual or potential, 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 (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.2 Rhode Island law does not provide that the trade secret must be used, or in continuous use, by an individual or business for it to be a protectable trade secret – just that it has independent economic value, and is subject to efforts to keep it secret.
Unlike Rhode Island law, Massachusetts case law – including a seminal case from the Massachusetts Supreme Judicial Court – requires a party to prove that its trade secret has been in continuous use to be protected. In J. T. Healy & Son, Inc. v. James A. Murphy & Son, Inc.,3 the Massachusetts Supreme Judicial Court, adopting the Restatement of Torts § 757, stated that “[a] trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it […]. A trade secret is a process or device for continuous use in the operation of the business.” Courts applying Massachusetts law have barred or dismissed trade secret misappropriation claims by aggrieved parties who are unable to allege or prove that the trade secret was in continuous use by the business.4
Another critical element of proving the misappropriation of a trade secret is proof that the holder of the alleged trade secret took affirmative measures to keep the secret confidential. While there is more law in Massachusetts than Rhode Island on this element, Massachusetts is generally stricter when it comes to the efforts a holder of trade secrets must take to keep its proprietary information confidential. For example, Massachusetts requires a holder to “take all proper and reasonable steps to keep it a secret” and to “exercise external vigilance,” which may require “constant warnings to all persons to whom the trade secret has become known and obtaining from each an agreement, preferably in writing, acknowledging its secrecy and promising to respect it.”5 Rhode Island courts, on the other hand, simply look to the “nature” of the information the holder seeks to protect,[6] and “how readily ascertainable the information is for a person conducting an independent investigation.”7
Employment lawyers and business litigators should be aware of these important distinctions between Rhode Island and Massachusetts law. On the one hand, Rhode Island law may be more useful for...
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