Federal Circuit Addresses Uniform Trade Secrets Act Discovery Rule

In Phillip M. Adams & Assoc., LLC v. Dell Computer Corp., 2013 WL 1092719 (Fed. Cir. March 18, 2013), the Federal Circuit addressed the discovery rule applicable to Utah’s Uniform Trade Secrets Act (UTSA).

The plaintiff had patents and trade secrets relating to a process for detecting data-corruption defects in floppy disks. One of the defendants later created similar software, after which the plaintiff brought a misappropriation claim under the UTSA (and other patent-related claims).

Under the UTSA, a trade-secret claim must be brought within three years after the misappropriation is discovered or should have been discovered by the exercise of due diligence.

Here, the Federal Circuit applied the discovery rule, “under which a statute of limitations is triggered when a plaintiff first has actual or constructive knowledge of the relevant facts forming the basis of the cause of action,” to determine whether the plaintiff’s claim was time-barred under the UTSA’s three-year statute of limitations.

The Court focused on an email sent by the plaintiff, which showed that the plaintiff knew the defendant obtained the plaintiff’s detection program from one company (IBM) and passed it to another. The plaintiff’s email described this as a “potential theft.”

According to the Federal Circuit, this email showed the plaintiff’s constructive knowledge of the misappropriation. The Court noted that, as of sending the email, the plaintiff knew the defendant disclosed a trade secret that was either (1) “derived from or through a person who owed a duty . . . to maintain its secrecy” (if IBM was permitted to have the program) or (2) “derived from or through a person who had utilized improper means to acquire it” (if IBM was not permitted to have the program). Since both of these constitute misappropriation under the UTSA, the email demonstrated sufficient knowledge of a UTSA violation.

This case, along with many others interpreting the statute of limitations applicable to trade-secret misappropriation claims, emphasizes how important it is for a company to seek legal assistance as soon as it even suspects that its proprietary information has been stolen (or inadvertently disclosed). And it shows how important it is for attorneys to diligently and immediately investigate exactly when their client first learned of the potential misappropriation.

2 responses

  1. Pingback: Trade Secret | Noncompete – Issues and Cases in the News – April 2013 Update | Fair Competition Law

  2. Pingback: Friday Wrap-Up (March 29, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web | The Trade Secret Litigator

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