Uniform Trade Secrets Act

The Uniform Trade Secrets Act is a law that seeks to give federal authority over trade secret laws to better protect sensitive trade information.6 min read

The Uniform Trade Secrets Act: What Is It?

The Uniform Trade Secrets Act is a law that seeks to give federal authority over trade secret laws to better protect sensitive trade information.

Why Is the Uniform Trade Secrets Act Important?

A trade secret is information with monetary value. This information can take many forms. Almost every industry uses trade secrets. Misuse of trade secrets can cause serious economic damage.

Misuse of a trade secret is called misappropriation. This usually means the secret was found out through illegal means. This can include industrial espionage, bribery, and threat. Misappropriation often involves disclosing trade secrets illegally. The common law in most states allows trade secret owners to pursue money damages for misuse of these secrets

Laws applying to trade secrets at the state level are often unclear. This is why the Uniform Trade Secrets Act (UTSA) was passed. This act seeks to clarify trade secrets law. It also provides rights and legal remedies to owners of trade secrets.

Trade Secrets and Copyrights

Trade secrets are important business information with economic value. These can include:

Formulas
Patterns
Compilations
Programs
Devices
Methods
Techniques
Processes
Financial data
Lists of customers or suppliers

If this information gets leaked, it can damage a business. Most businesses are covered by some form of trade secret protection. However, these protections may be weak. This is because trade secret laws only allow for damages after a secret gets leaked. They don't protect the secrets themselves.

If your business depends on trade secrets, you might want to protect your intellectual property (IP) in other ways. Some forms of business IP are eligible for copyrights or patents. This provides your trade secrets with an extra layer of protection.

Understanding the Defend Trade Secrets Act (DTSA)

The Defend Trade Secrets Act (DTSA) is like the UTSA. This law was adopted in May 11, 2016, in a nearly unanimous House vote. The DTSA's purpose is to provide rules that allow trade secret owners to file civil lawsuits in federal court. If you offer a commercial good or service, you can take advantage of the DTSA.

Previously, trade secret owners could only sue in state court. This was due to laws based on the USTA. The DTSA fixes this issue. Similarities between the two laws include:

A three-year statute of limitations
Injunctive relief
Awarding compensation for damages

The DTSA also provides protections to trade secret owners. These protections include:

Employee Injunctions: The DTS limits injunctions that can be used on former employees.
Attorney's Fees: Anyone accused of misappropriation can recover attorney's fees if the charge against them was made in bad faith.
Seizures: Hearings must be held within seven days of a trade secret owner ordering a trade secret seizure.
Notice of Immunity: People who share a trade secret with a government official when reporting a crime are immune to liability.
Nondisclosure Agreements: Employers must include nondisclosure agreements in employee contracts if they want to be able to sue for misappropriation.

The DTSA does not avoid state law. This means trade secret owners can still sue in state court if they wish. It also does not require trade secret owners to describe their secrets when filing. This law also disallows injunctive relief based on the disclosure doctrine.

Companies should update their policies to comply with the DTSA. They should also:

Place confidentiality agreements in all employee contracts.
Decide how aggressive your company will be in pursuing DTSA claims.
Review the company's trade secrets and make sure protections are in place.
Create a plan for handling misappropriation and seizure orders. This is particularly important in industries with high employee turnover.

Understanding the Uniform Trade Secrets Act (UTSA)

The UTSA is known as a model act. This means states can adopt their own laws based on it. Forty-eight states and Washington D.C. have trade secret laws modeled after the UTSA. Massachusetts, New York, and Texas have not fully adopted the UTSA. These states use common law principles instead.

The UTSA uses four main definitions, including:

Person: This includes people, corporations, business trusts, partnerships, and other commercial/legal entities.
Trade Secret: Any information that has an independent economic value dependent on maintaining secrecy.
Misappropriation: Acquiring a trade secret through improper means. This can include failing to keep a trade secret confidential.
Improper Means: This includes espionage, breach of duty, theft, or bribery.

The UTSA provides protections in the form of:

Injunctive Relief: This can be granted if misappropriation has occurred or has been threatened. This relief will be lifted when the trade secret no longer exists. Injunctions can sometimes include royalty payments. A court order can grant active protection.
Damages: The UTSA allows monetary damages to be awarded. This can include money lost due to misappropriation. It can also include money gained unlawfully by the plaintiff. Malicious misappropriation might result in double damages.
Fees: Attorney's fees will be granted to defendants in the event of bad faith. Plaintiffs can be awarded fees if misappropriation has been proved.
Secrecy Preservation: Courts will attempt to keep trade secrets secret.

Adopting the UTSA is voluntary. When these rules are adopted, they replace conflicting state rules. In Texas, for instance, businesses can no longer sue for misappropriation using the Texas Theft Liability Act (TTLA). The UTSA does not affect contractual remedies or remedies unrelated to trade secrets.

Differences in State Law

Protections can differ based on the interaction between state and federal law. For example, some states have inevitable disclosure doctrines. This doctrine allows courts to prevent employees from accepting new positions if it's likely they will use their former employer's trade secrets. Other states, like California, reject this doctrine, stating that it unfairly restricts employees.

The DTSA also rejects the inevitable disclosure doctrine. However, it does allow courts to limit employment in certain ways. For instance, employment can be restricted if an employee has threatened misappropriation.

Because the DTSA does not preempt state laws, it's possible for federal courts to use state laws to order injunctions. This means anyone considering a trade secret claim should be very careful about which laws they use.

Some states have broader protections for trade secrets. Texas, for example, outlaws reverse engineering. Tennessee only requires the secrecy exists, not that it is absolute. Tennessee also allows claims involving public domain information when combined with other information to create a trade secret. In addition, Tennessee forbids improper use of a trade secret even when modification is present.

New York State has not adopted the UTSA. This means New York treats trade secrets differently than the UTSA. For instance, New York uses a six-item test to find out if a trade secret exists:

How much of the information is publicly known.
How much of the information is known within a business.
The extent of protective measures being used.
The value of the information.
How expensive it was to develop the information.
How hard it would be for another party to develop the information.

The UTSA only examines the value of the information and the efforts taken to keep it secret. New York also does not consider a single, secret event to be a trade secret. The secret must be continuous to get protections. No similar provision exists in the UTSA.

The UTSA allows trade secret status to be destroyed under reasonable circumstances. However, it does not describe what these circumstances are. This has led to complications in state-level cases. For instance, some courts have ruled that only revealing trade secrets outside of a business removed its protections. Disclosure to investors or employees would leave the protection intact.

The main difference in California's version of this law has to do with damages. If awarding damages is unfair, California provides injunctive relief instead. Both Illinois and Texas extend protections to customer lists. Illinois' statute of limitations is five years as opposed to the standard three. Additionally, Illinois includes nondisclosure agreements, which are not mentioned in the UTSA.

Neither Texas nor California include an equity exemption. This means monetary damages are available in cases where secrets are revealed accidentally.