I’ve previously written about the Uniform Trade Secrets Act’s (UTSA) preemption provision, which preempts tort and other claims providing civil remedies for trade-secret misappropriation. Yesterday, the Arizona Supreme Court held that the Arizona Trade Secrets Act (ATSA), which is based on the UTSA, does not preempt common-law claims for misappropriation of information that is not a trade secret.
In this case, the former president of a public relations firm was sued by that firm when she left to start a competing PR firm. The plaintiff PR firm brought a claim for unfair competition, which was based on the use of confidential information the defendant learned while working for the plaintiff. The trial court dismissed the claim, finding that the ATSA preempts claims arising from the misuse of confidential information, even where the information does not rise to the level of a trade secret.
The Arizona Supreme Court disagreed, relying primarily on the plain language of the ATSA. The court did acknowledge the fact that other states have held that these types of claims are preempted. In states where misappropriation claims based on non-trade-secret confidential information are viable, it is often advisable to bring both a trade-secrets misappropriation claim and an alternative (or independent) claim for misappropriation or conversion of confidential information.
This case contains one other point of note. The defendant argued that allowing claims for misappropriation of confidential information would result in an “absurd” result. She noted that a plaintiff could obtain more in punitive damages on the misappropriation claim than it could on an ATSA claim, which allows for exemplary damages of twice actual damages where the misappropriation is willful and malicious.
In response, the court offered very helpful language to a plaintiff seeking to prove exemplary damages under the ATSA:
That AUTSA authorizes a trial court, rather than a jury, to award exemplary damages of no more than twice the amount of actual damages . . . is not necessarily anomalous. In cases of willful and malicious misappropriation, punitive damages might be easier to obtain under AUTSA than under our common law, which requires clear and convincing evidence of a defendant’s “evil mind” for a punitive damages.
Since many misappropriation of trade secrets are based on willful conduct, this case may be worth citing when seeking exemplary damages.