The Uniform Trade Secrets Act (UTSA) is a significant piece of legislation established by the Uniform Law Commission (ULC). This act is crucial because it provides a uniform legal framework across states for defining and protecting trade secrets. The UTSA not only defines what constitutes a trade secret but also outlines the legal recourse available when trade secrets are misappropriated. As of 2024, the UTSA has been adopted in 48 states, along with the District of Columbia, the U.S. Virgin Islands, and Puerto Rico, demonstrating its widespread acceptance and importance in U.S. law.
Defining a Trade Secret Under the UTSA
UTSA’s Core Definition
The UTSA offers a precise definition of a “trade secret,” which is central to understanding the scope of protection it provides. According to the Act, a trade secret is defined as:
- Information, which can include a formula, pattern, compilation, program, device, method, technique, or process, that meets a dual criteria:
- It must derive independent economic value, whether 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.
- It must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
This definition emphasizes two key aspects: the information’s economic value stemming from its secrecy and the reasonable efforts taken by the trade secret holder to maintain that secrecy. Both elements must be present for information to qualify as a trade secret under the UTSA.
Historical Context: Pre-UTSA Definition
Before the UTSA, trade secret law was primarily governed by common law tort principles. The Restatement of Torts (1939), particularly Sections 757 and 758, provided foundational principles that were widely used by U.S. courts. Specifically, §757, comment b, laid out six critical factors for determining if information could be considered a trade secret. These factors offer a more granular view of what courts considered before the uniform act:
- The extent to which the information is known outside of the claimant’s business.
- The extent to which the information is known by employees and others involved in the business.
- The measures taken by the claimant to guard the secrecy of the information.
- The value of the information to the business and to its competitors.
- The amount of effort or money the business expended in developing the information.
- The ease or difficulty with which the information could be properly acquired or duplicated by others.
These factors highlight the importance of secrecy, value, and effort in establishing a trade secret, principles that are echoed in the UTSA’s more concise definition.
Essential Elements of a Trade Secret Claim
To successfully bring a trade secret claim under the Uniform Trade Secrets Act, there are typically three essential elements that must be established:
- Subject Matter Qualification: First, the information in question must indeed qualify for trade secret protection. This means it must meet the UTSA’s definition of a trade secret, possessing economic value from secrecy and being subject to reasonable secrecy efforts.
- Reasonable Precautions: The holder of the trade secret must demonstrate that they took reasonable measures to prevent the disclosure of the secret information. What is considered “reasonable” can vary depending on the circumstances and industry, but it generally includes measures like confidentiality agreements, restricted access, and security protocols.
- Misappropriation or Wrongful Taking: The trade secret holder must prove that the information was misappropriated or wrongfully taken. Misappropriation, as defined under the UTSA, can occur through improper acquisition, disclosure, or use of a trade secret without consent.
It’s important to note that not all uses of another’s trade secret are considered misappropriation. The law distinguishes between legal and illegal means of obtaining trade secrets. Legal methods include independent discovery, reverse engineering, and inadvertent disclosure if the holder fails to take reasonable protective measures. However, misappropriation occurs when trade secrets are obtained through unlawful means or a breach of confidence. Misappropriation of trade secrets is considered a form of unfair competition, further detailed in the Restatement (Third) of Unfair Competition.
Criminal Misappropriation: The Economic Espionage Act
In certain situations, the misappropriation of trade secrets transcends civil tort law and becomes a federal crime. This is largely due to the Economic Espionage Act (EEA).
The Economic Espionage Act (EEA)
Enacted in 1996, the Economic Espionage Act, codified as 18 U.S.C. §§1831-1839, makes certain types of trade secret misappropriation a federal crime. The EEA targets two main categories of offenses:
- Economic Espionage (18 U.S.C. §1831): This section addresses theft of trade secrets intended to benefit a foreign government, instrumentality, or agent. It carries severe penalties, reflecting the national security implications of such activities.
- Theft of Trade Secrets (18 U.S.C. §1832): This broader section criminalizes the misappropriation of trade secrets related to products or services used in interstate or foreign commerce, regardless of whether a foreign entity benefits.
A relevant example is the case of United States v. Sazonov, currently in the United States District Court for the Southern District of New York. The defendant, Sazonov, is charged with violating the EEA for allegedly attempting to steal proprietary computer code from his employer, Susquehanna International Group, a financial services firm. This case highlights the application of the EEA in prosecuting individuals for trade secret theft in the context of competitive business environments.
Scope of Trade Secret Subject Matter
The protection of the Uniform Trade Secrets Act extends across various types of information. Understanding what can qualify as a trade secret is crucial for businesses.
Customer Lists as Trade Secrets
Customer lists and related customer business information can indeed qualify for trade secret protection under the UTSA. The key factor is whether this information is readily ascertainable from publicly available sources. If customer lists are developed through significant effort and are not easily duplicated, they are more likely to be protected.
The case of Morlife Inc. v. Perry, 56 Cal. App. 4th 1514 (1997) in California provides important insights. The court in Morlife determined that customer identities could be protected as trade secrets if they are not generally known within the relevant industry. The court also identified three helpful factors in determining trade secret status, particularly for customer information:
- Information Storage: How the entity stores the information (e.g., securely on computers).
- Access Control: Who has access to the information within the company.
- Confidentiality Provisions: Whether the information is subject to confidentiality agreements.
In Morlife, the court found that customer information stored on computers with restricted access and protected by confidentiality agreements, specifically referencing customer names and phone numbers, was indeed a trade secret. Furthermore, the court in Brocade Communication Systems Inc. v. A10 Networks Inc., 873 F. Supp.2d 1192 (N.D. Cal. 2012) affirmed that information such as “customer lists and contact information, pricing guidelines, historical purchasing information, and customers’ business needs/preferences” generally receives trade secret protection.
Beyond customer lists, specific manufacturing details not publicly known can also be protected. The case of Gates Rubber Co. v. Bando Chemical Industries Ltd., 9 F.3d 823 (10th Cir. 1993) offers further details on this aspect.
Remedies for Trade Secret Misappropriation
Remedies for trade secret misappropriation can vary depending on state law and whether the Economic Espionage Act is involved.
Under §1832(a) of the Economic Espionage Act, criminal penalties for misappropriating a trade secret used in interstate commerce or foreign commerce can include significant fines and imprisonment.
In civil cases under the Uniform Trade Secrets Act, remedies typically include:
- Injunctions: Courts can issue injunctions to prevent ongoing or future misappropriation.
- Damages: Plaintiffs can recover damages for actual losses caused by misappropriation and, in some cases, for unjust enrichment of the defendant. Punitive damages may also be available for willful and malicious misappropriation.
- Attorney’s Fees: In exceptional cases of willful and malicious misappropriation, courts may award attorney’s fees to the prevailing party.
For instance, under Texas’s adoption of the UTSA, a plaintiff seeking a preliminary injunction needs to show that the defendant possesses the trade secret and has the opportunity to use it, as illustrated in Hughes v. AGE Industries Ltd.. This example underscores the proactive measures courts can take to protect trade secrets from potential misuse.
Further Resources on Trade Secrets
For those seeking deeper knowledge about trade secrets and the Uniform Trade Secrets Act, the following resources offer valuable insights:
- The Public History of Trade Secrets, UC Davis Law Review: Link to UC Davis Law Review article on The Public History of Trade Secrets
- The Property Wars of Law Firms: Of Client Lists, Trade Secrets and the Fiduciary Duties of Law Partners, Florida State University Law Review: Link to Florida State University Law Review article
- A Primer on Florida Trade Secret Law: Unlocking the “Secrets” to “Trade Secret” Litigation, University of Miami Business Law Review: Link to University of Miami Business Law Review article
These articles provide comprehensive analyses of trade secret law, offering different perspectives and in-depth examinations of specific aspects of trade secret protection and litigation.
[Last reviewed in June of 2024 by the Wex Definitions Team]
