|Intellectual property and Intellectual rights law|
|Sui generis rights|
The Uniform Trade Secrets Act (U.T.S.A.) was drafted by the National Conference of Commissioners on Uniform State Laws to codify the remedies and standards which had emerged in common law on a state to state basis regarding misappropriation of trade secrets. Unlike patent protection, which is addressed at the federal level, trade secret misappropriation is addressed at the state level. The U.T.S.A. has been adopted by 45 states and by the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Massachusetts, New Jersey, New York, North Carolina and Texas have not adopted the U.T.S.A.. In 2011, the U.T.S.A. was introduced in the state legislatures of Massachusetts (H.B. 23) and New Jersey (A.B. 921). The U.T.S.A. provides remedies such as injunctive relief and damages for acts of trade secret misappropriation.
Motivations for the U.T.S.A.
A prefatory note to the U.T.S.A. states some original motivations for the act. The note begins with an observation as follows:
A valid patent provides a legal monopoly for seventeen years in exchange for public disclosure of an invention. If, however, the courts ultimately decide that the Patent Office improperly issued a patent, an invention will have been disclosed to competitors with no corresponding benefit. In view of the substantial number of patents that are invalidated by the courts, many businesses now elect to protect commercially valuable information through reliance upon the state law of trade secret protection.— Uniform Trade Secrets Act, Prefatory Note
In addition to providing some recourse for any uncertainty which may be associated with a patent, the U.T.S.A. also serves to codify the common law remedies which have emerged in many states. These remedies are based on legal precedent set by previous cases, and therefore allow for greater uncertainty particularly in less industrial states in which there have been fewer trade secret cases. The U.T.S.A. notes that any confusion caused by having strictly common law remedies to trade secret misappropriation was exacerbated by omitting trade secret rules from the second edition of the Restatement of Torts.
Overview of the U.T.S.A.
The U.T.S.A., as published by the Uniform Law Commission (ULC) 1979 and amended in 1985, contains a prefatory note followed by 12 sections of proposed law. Each section is followed by a "comments" section in which the ULC provides clarifications and deeper insights as to the intended interpretation of the law. Section 1 presents definitions of key terms as they are used throughout the act. Sections 2-4 provide remedies for potential wrongs committed in violation of the act, including injunctive relief, damages and attorney's fees. Sections 5-12 make additional provisions related to the implementation of the law, and the relationship of this law to other laws.
The U.T.S.A. provides several definitions of terms as they are used throughout the act. Some of these definitions are replicated here for the benefit of the reader.
- U.T.S.A. § 1.1
- "Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.
Although not included in the definition itself, the original text of the U.T.S.A. provides a clarifying comment regarding the definition of improper means. The comment refines the definition, by listing several methods which are proper means of discovery, including, discovery by independent invention, reverse engineering, licensing arrangement and published literature. The comment also clarifies that improper means includes those which are "improper under the circumstances; e.g. an airplane overflight used as aerial reconnaissance to determine the competitor's plant layout during construction of the plant."
- U.T.S.A. § 1.2
- "Misappropriation" means:
- (i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
- (ii) disclosure or use of a trade secret of another without express or implied consent by a person who
- (A) used improper means to acquire knowledge of the trade secret; or
- (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was
- (I) derived from or through a person who had utilized improper means to acquire it;
- (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
- (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
- (C) before a material change of his [or her] position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
Note that the U.T.S.A. does add comment clarifying that the types of accidents of mistakes which would lead to use of a learned trade secret being misappropriation do not include those actions or mistakes which "constitute a failure of efforts that are reasonable under circumstances to maintain its [the trade secret's] secrecy."
- U.T.S.A. § 1.4
- "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, 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.
The original text of the U.T.S.A. also provides refinement through comments to the definition of a trade secret itself. The comments provide that:
- Multiple parties may hold rights to the same trade secret, as they may all individually derive value from it.
- A trade secret ceases to exist when it is common knowledge within the community in which it is profitable. This means that the secret does not need to be known by the general public, but only throughout the industry which stands to profit from the secret.
- A party which reverse engineers a trade secret may also obtain trade secret protection for their knowledge, provided the reverse engineering process is non-trivial.
- Knowledge preventing loss of funds, such as that a particular idea does not work, is valuable and as such qualifies for trade secret protection.
Regarding reasonable efforts to maintain secrecy, the ULC provides clarification that actions such as restricting access to a "need to know basis" and informing employees that the information is secret meet the criteria for reasonable efforts. The ULC explicitly states that procedures to protect against "flagrant industrial espionage" are not necessary.
Section 2 of the U.T.S.A. provides for injunctive relief from trade secret misappropriation. Section 2(a) stipulates that "Actual or threatened misappropriation may be enjoined." Note however, that the length of the injunction is limited to the length of time which the trade secret exists (i.e. remains unknown to some party which could profit from knowing the secret) plus sufficient time to eliminate any competitive advantage which the misappropriator could have obtained by misappropriating the trade secret.
For example, consider a situation in which A, B and C are the sole operators in an industry. Assume A develops a trade secret, B misappropriates the trade secret from A, and C independently reverse engineers the trade secret from A's product at some point. An injunction against B's use of the trade secret can last 2x the amount of time from when B misappropriated the secret up until C reverse engineers the secret. The period of time lasting from B's misappropriation until C's reverse engineering serves the purpose of enjoining B as long as the trade secret exists; recall that a trade secret no longer exists once all members of an industry (in this case A, B and C) are aware of its existence. The injunction may be extended by this same period of time beyond C's reverse engineering in order to prevent B from obtaining unfair advantage as a result of B's lead time gained by misappropriating the secret. Under this arrangement, once B is released from the injunction and able to bring a product to market, C will have had an amount of time to design products equal to the amount of lead time which B unjustly obtained through misappropriation.
In addition to the possible enjoinment described in section 2(a), section 2(b) allows for the payment of royalties in place of an injunction under exceptional circumstances. As an example of such circumstances, the U.T.S.A. references a situation in which a misappropriated trade secret was used to build military technology for use during the Vietnam War. As an injunction may have prevented necessary equipment from reaching US armed forces, the judge ordered that the misappropriator pay an appropriate royalty to the trade secret owner rather than imposing an injunction.
In addition to the injunctive relief which may be offered under the U.T.S.A., parties may also receive damages. The act states in section 3(a) that "Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss." Furthermore, the act states in section 3(b) that if misappropriation is "willful and malicious" the court may award damages up to twice what would otherwise be entitled under section 3(a). Restrictions simliar to those imposed on the duration of injunctive relief are imposed on the durration of damages as well.
Section 4 of the U.T.S.A. stipulates that in the case of actions made in bad faith or willful and malicious misappropriation, the court may award attorney's fees to the prevailing party.
Sections 5 - 12 contain additional provisions for the U.T.S.A. Section 5 provides for the "preservation of secrecy"; namely that a court shall take reasonable means to protect a trade secret during any legal action concerning the trade secret. These secretive measures may include sealing records and order personnel involved with the case to not disclose the secret. Section 6 provides a statute of limitations, requiring that any action under the U.T.S.A. must be "brought within 3 years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." Section 7 describes the effect of the U.T.S.A. on other law. This section states that the U.T.S.A. supersedes any existing laws or standards which may be enacted in the state related to providing remedies for misappropriation of a trade secret. The section also makes clear that the U.T.S.A. does not affect (1) contractual remedies, (2) civil remedies not based on trade secret misappropriation, or (3) criminal remedies, which may otherwise be of use to the aggrieved party. Section 8 states the goal of making trade secret law uniform among states enacting the U.T.S.A, section 9 provides a short title to refer to the act and section 10 describes the severability of the act. Sections 11 and 12 are state specific, providing a date on which the act takes effect and an opportunity to explicitly list other acts to be repealed.
Adoption by states
At present, the U.T.S.A. has been adopted by all states except Texas, New York, North Carolina, Massachusetts and New Jersey. Massachusetts and New Jersey have introduced the bill, but have not passed it. The U.T.S.A. has also been adopted in Puerto Rico. The following are links to the state codes of some of the states which have passed the U.T.S.A.: Nevada, Delware, Virginia, Indiana, Connecticut, West Virginia, Minnesota, Florida, Wyoming, Iowa, California. Note that states are not required to pass the act exactly as is, and some have made small amendments.
Cases involving the U.T.S.A.
The following cases have directly referenced the U.T.S.A.:
- Rivendell Forest Prods. v. Georgia-Pacific Corp.
- Comprehensive Techs. Int'l, Inc. v. Software Artisans, Inc.
- DVD Copy Control Association, Inc. v. Bunner
- Ajaxo Inc. v. E*Trade Financial Corp. 
- Silvaco Data Systems v. Intel Corp. 
- R.C. Olmstead, Inc. v. CU Interface, LLC 
- Justmed, Inc. v. Byce 
- Decision Insights, Inc. v. Sentia Group, Inc. 
- Cypress Semiconductor Corp. v. Superior Court 
- NCR v. Warner 
- Othentec Ltd. v. Phelan 
- S. Nuclear Operating Co., Inc. v. Elec. Data Sys. Corp. 
- "Uniform Trade Secrets Act with 1985 Ammendments". Retrieved 10/18/2011. Check date values in:
- "Legislative Fact Sheet - Trade Secrets Act". Retrieved 10/18/2011. Check date values in:
- "Acts: Trade Secrets Act". Retrieved 10/18/2011. Check date values in:
- "Justmed, Inc. v. Byce" (PDF). Retrieved 10/18/2011. Check date values in:
- "Ajaxo Inc. v. E*Trade Financial Corp.". Retrieved 10/18/2011. Check date values in:
- "Silvaco Data Systems v. Intel Corp." (PDF). Retrieved 10/18/2011. Check date values in:
- "R.C. Olmstead, Inc. v. CU Interface, LLC". Retrieved 10/18/2011. Check date values in:
- "Decision Insights, Inc. v. Sentia Group, Inc." (PDF). Retrieved 10/18/2011. Check date values in:
- "Cypress Semiconductor Corp. v. Superior Court" (PDF). Retrieved 10/18/2011. Check date values in:
- "NCR v. Warner" (PDF). Retrieved 10/18/2011. Check date values in:
- "Othentec Ltd. v. Phelan" (PDF). Retrieved 10/18/2011. Check date values in:
- "S. Nuclear Operating Co., Inc. v. Elec. Data Sys. Corp." (PDF). Retrieved 10/18/2011. Check date values in: