In a previous post, I discussed the Uniform Trade Secret Act’s (UTSA) preemption provision. Essentially, the UTSA and the parties’ contracts are the only mechanisms for remedying trade-secret misappropriation, as all other claims are preempted.
A recent District of Arizona case—Food Services of America, Inc. v. Carrington, 2013 WL 3199691 (D. Ariz. June 24, 2013)—discussed a related issue: Is there a common-law claim for misappropriating confidential information that does not rise to the level of a trade secret?
Here, a food-services company sued its former employees, who allegedly misappropriated confidential information “and now work in positions where they could use that information to their new employers’ competitive advantage.” The plaintiff brought claims for violating the UTSA, the Computer Fraud and Abuse Act, and Arizona’s Anti-Racketeering Statute, along with claims for breach of fiduciary duty, conversion, and unjust enrichment.
The court dismissed the racketeering, fiduciary duty, conversion, and unjust enrichment claims as preempted by the UTSA. While the primary issue in this case involved whether the UTSA violates the Arizona Constitution’s anti-abrogation clause*, the plaintiff also raised a novel argument: The UTSA does not preempt common-law claims for misappropriating confidential information that does not qualify as a trade secret, and thus its common-law claims should survive.
The court rejected this argument. It looked to Arizona law and that of other states and concluded that the common law only protected information that qualified as a trade secret. Essentially, if the information is not a trade secret under the UTSA, there is no action for misappropriation.
Certainly, companies have confidential information that may not qualify as a trade secret. For example, a company may have highly confidential information about its customers, such as their social security numbers. If this information is improperly disclosed or used, the results could be devastating. But companies likely cannot rely on either the UTSA or other common-law causes of action to seek relief. Instead, they should require that employees with access to this information sign a nondisclosure agreement. That way, any misappropriation can be the subject of a breach-of-contract action.
*The anti-abrogation clause provides that “the right of action to recover damages for injuries shall never be abrogated, and the amount recovered shall not be subject to any statutory limitation.”
Two thoughts on this matter; if the employer does not have some sort of a written non- disclosure agreement chances are they would lose under a UTSA action even if the info was a trade secret for failing to take reasonable steps to protect the info. Secondly if the information was on something physical that got taken, a DVD, CD or paper then they could sue for conversion. That is not much comfort in this day when data is easily copied and transmitted.
Great result. It is frustrating to see so many claims based on “confidential” information that does not rise to the level of TS. If the information does not have independent economic value there should be no claim and even if there is a breach of contract claim, merely “confidential” information is rarely, if ever, the proximate cause of any damages.
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Great post! Been reading a lot about misappropriation thoughts. Thanks for sharing!
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