What's a UTSA? as appeared in New Jersey Law Journal

James P. Flynn

New Jersey is one of four states that has not yet adopted some form of the Uniform Trade Secrets Act ("UTSA"). The New Jersey Law Revision Commission has recently issued a report endorsing the adoption of such a law, which would leave New York, Massachusetts and Texas as the remaining outliers. This article will examine how the adoption of UTSA would impact New Jersey practice, and whether New Jersey should alter parts of UTSA before adopting any such legislation.

To understand the commission's recommendation, one may wish to understand UTSA's background. The National Conference of Commissioners on Uniform State Laws (NCCUSL) approved UTSA in 1979 and recommended it for adoption in all states. The idea was to create a uniform law that allowed for protection of trade secrets, complement enforcement of publicly disclosed patents, and codify the basic principles of common-law trade secret protection, while preserving the essential distinctions from patent law and the remedies for trade secret misappropriation as developed in case law. It was later amended to include sections on damages, injunctive relief, the effect on other law and the effective date of the act. Uniform trade secret protection appeared necessary because of the uncertainty concerning the parameters of trade secret protection and the appropriate remedies for misappropriation.

The UTSA provides a cause of action for actual or threatened misappropriation of trade secrets, and allows for injunctive relief and an award of damages that includes actual loss and unjust enrichment for misappropriation. Punitive damages, in an amount not exceeding twice any damage award, are recoverable for willful and malicious misappropriation. Attorney's fees are also recoverable. The UTSA provides for a three-year statute of limitations and permits the grant of protective orders and other discovery protections.

The key to invoking UTSA's protection is establishing theft of the trade secret by "improper means." Under UTSA "trade secret" is generally defined as information that derives economic value, actual or potential, from its proprietary nature and is the subject of reasonable efforts to maintain its secrecy. Misappropriation includes acquisition of a trade secret by a person who knows or has reason to know it was acquired by "improper means," as well as disclosure or use of it without consent by a person who uses "improper means." Misappropriation also includes other conduct relating to the perpetrator's knowledge of the secrecy or duty to maintain the secrecy of the trade secret.

With that background as to UTSA, one can now look to how New Jersey law has addressed such issues without adopting the UTSA. Trade secrets misappropriation law in New Jersey dates back to the early 1900s, or earlier, though no single definition of trade secret exists in New Jersey case law. Thus, our courts often look to the factors set forth in the Restatement of Torts (First) to determine whether information constitutes a trade secret. A New Jersey plaintiff generally must establish six elements to support a claim of misappropriation of trade secrets under state law, including that (1) a trade secret exists; (2) the secret was communicated by plaintiff to a third party in confidence; (3) the secret was disclosed by the third party to another in breach of such confidence; (4) the secret was acquired by a competitor with knowledge of the breach of confidence; (5) the secret was used by a competitor to the detriment of the plaintiff; and (6) the plaintiff took precautions to maintain the secrecy of the trade secret. In New Jersey, however, courts have held that information need not rise to the level of a trade secret to be protected. The key to determining whether information is protectable, as determined in Lamorte Burns & Co., Inc. v. Walters, 167 N.J. 285 (2001), is the relationship of the parties at the time of disclosure and the intended use of the information at that time. The common-law rule articulated in Lamorte has expanded New Jersey's protection of confidential information beyond traditional trade secrets misappropriation law.

In reviewing the UTSA, the commission considered New Jersey's rich common-law trade secret and related jurisprudence. Included in this jurisprudence is a common-law definition of "improper" or "undue means," which is not fully reflected in the Uniform Act definition, and a broader understanding of what may constitute a trade secret. Cf. Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 750 (1989) (1989) ("improper and unrighteous means" is an element of tortious interference claim). Consequently, the commission has suggested modifying the official text definitions of "improper means" and "trade secret." First, and most valuably, the New Jersey Law Revision Commission proposes to expand the definition of "improper means" to include the highlighted phrases:

"Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of an express or implied duty to maintain the secrecy of or to limit the use or disclosure of a trade secret, or espionage through electronic or other means, access that is unauthorized or exceeds the scope of authorization, or other means violative of a person's rights under the law of this State.

Second, the Commission has added the highlighted phrases to the uniform law definition:

"Trade secret" is defined as information, held by one or more people, without regard to form, including a formula, pattern, business data, compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype or process, that: (i) 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 (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Each change is in keeping the rich common-law tradition noted above. The commission also acted to make this new act attractive as an enforcement mechanism by allowing for the award of attorneys' fees.

The commission also significantly softened the pre-emptive language of the model statute, and instead stated that the act only superseded common-law claims "for misappropriation of a trade secret":

a. The rights, remedies and prohibitions accorded by the provisions of this act are hereby declared to be in addition to and cumulative of any other right, remedy or prohibition accorded by the common law or statutes of this State and nothing contained herein shall be construed to deny, abrogate or impair any such common law or statutory right, remedy or prohibition except as expressly superseded in subsection b.

b. This act shall supersede conflicting tort, restitutionary, and other law of this State providing civil remedies for misappropriation of a trade secret.

This is an important limitation on the reach of the proposed act, as it still allows employers to enforce contractual rights and, more importantly, it would seem to also continue to allow traditionally recognized New Jersey claims such as seen in Lamorte Burns and Co., Inc. v. Walters, 167 N.J. 285, 299-301 (2001), which specifically were not about "misappropriation of a trade secret." Compare Section 8b of proposed stature (emphasis added) with Lamorte Burns & Co., Inc. v. Walters , 167 N.J. at 299-301 ("The information need not constitute a trade secret, and indeed, may otherwise be publicly available... Other jurisdictions also have held that information not technically meeting the strict requirements of trade secrets may be protected as 'confidential information' and may serve as the basis for a tort action. The specific information provided to defendants by their employer, in the course of employment, and for the sole purpose of servicing plaintiff's customers, is legally protectable as confidential and proprietary information"). If, on the other hand, UTSA is read to displace New Jersey's rich tradition rather than supplement it, it may require further thought and the amendment of the commission's current proposal.

In the end, how does one answer the question "What's a UTSA?" Simply stated, it is a potentially useful addition to, but not a replacement for the body of New Jersey law that served the state, its inventors and its entrepreneurs well.

Flynn is a member and co-chair of the national intellectual property litigation practice of the Newark office of Epstein Becker & Green.