Uniform Trade Secrets Act
Encyclopedia
The Uniform Trade Secrets Act (U.T.S.A.), published by the Uniform Law Commission (ULC)
National Conference of Commissioners on Uniform State Laws
The National Conference of Commissioners on Uniform State Laws is a non-profit, unincorporated association commonly referred to as the U.S. Uniform Law Commission. It consists of commissioners appointed by each state, the District of Columbia, the Commonwealth of Puerto Rico and the United States...

 1979 and amended in 1985, was a uniform act
Uniform Act
In the United States, a Uniform Act is a proposed state law drafted by the U.S. Uniform Law Commission and approved by its sponsor, the National Conference of Commissioners on Uniform State Laws ....

 promulgated in an effort to provide legal framework for improved trade secret protection for industry in all 50 states within the United States of America
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

. The U.T.S.A. aimed to codify and harmonize the remedies and standards which had emerged in common law on a state to state basis regarding misappropriation
Misappropriation
In law, misappropriation is the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate or by any person with a responsibility...

 of trade secrets.

As of 2010, framework of the U.T.S.A. was enacted by 45 states and the District of Columbia, Puerto Rico
Puerto Rico
Puerto Rico , officially the Commonwealth of Puerto Rico , is an unincorporated territory of the United States, located in the northeastern Caribbean, east of the Dominican Republic and west of both the United States Virgin Islands and the British Virgin Islands.Puerto Rico comprises an...

, and U.S. Virgin Islands. Massachusetts
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...

, New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...

, New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...

, North Carolina
North Carolina
North Carolina is a state located in the southeastern United States. The state borders South Carolina and Georgia to the south, Tennessee to the west and Virginia to the north. North Carolina contains 100 counties. Its capital is Raleigh, and its largest city is Charlotte...

 and Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...

 had 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).

Motivations for the Uniform Trade Secrets Act

A prefatory note to the U.T.S.A. states some original motivations for the act:
The U.T.S.A. made note of the commercial value and competitive advantages that were inherent to trade secrets. Unlike patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....

 protection, which was addressed at the federal
Federal government of the United States
The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...

 level, trade secret misappropriation was addressed at the state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

 level.

In the United States there existed a prevalence of interstate commercial transactions that extended beyond the jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...

 of individual state legislation. For example, goods may have been manufactured in State A, warehoused in State B, sold from State C, and delivered in State D.

As a result the U.T.S.A sought to alleviate the uneven development and "uncertainty concerning the parameters of trade secret protection" by recommending a uniform trade secret law and, at the same time, allowing the states the flexibility to meet local circumstances by modifying the U.T.S.A.'s text as enacted in each state.

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
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...

 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
Restatement of Torts, Second
The American Restatement of Torts, Second is an influential treatise issued by the American Law Institute. It summarizes the general principles of common law United States tort law...

.

Overview of the Uniform Trade Secrets Act

The U.T.S.A. contained a prefatory note followed by 12 sections of proposed law.
Each section was followed by a "comments" section which provided clarifications and examples as to the intent of the law.
Section 1 presented definitions of key terms as they are used throughout the act.
Sections 2-4 provided remedies
Legal remedy
A legal remedy is the means with which a court of law, usually in the exercise of civil law jurisdiction, enforces a right, imposes a penalty, or makes some other court order to impose its will....

 for potential wrongs committed in violation of the act, including injunctive relief
Injunction
An injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...

, damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 and attorney's fee
Attorney's fee
Attorney's fee is a chiefly United States term for compensation for legal services performed by an attorney for a client, in or out of court. It may be an hourly, flat-rate or contingent fee. Attorney fees are separate from fines, compensatory and punitive damages, and from court costs in a...

s.
Sections 5-12 made additional provisions related to the implementation of the law, and the relationship of this law to other laws.

Key Definitions

The U.T.S.A. provided several definitions of terms as they are used throughout the act. Some of these definitions are replicated here for the benefit of the reader.
Although not included in the definition itself, the original text of the U.T.S.A. provided clarification regarding the definition of proper and improper means.
The comments refined the definition by listing several methods which were proper means of discovery, including, discovery by independent invention, reverse engineering
Reverse engineering
Reverse engineering is the process of discovering the technological principles of a device, object, or system through analysis of its structure, function, and operation...

, licensing arrangement
License
The verb license or grant licence means to give permission. The noun license or licence refers to that permission as well as to the document recording that permission.A license may be granted by a party to another party as an element of an agreement...

 and published literature.
The comments also clarified that improper means included those which were, "...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."
The U.T.S.A. noted that the types of accidents or mistakes which would lead to use of a learned trade secret being misappropriated did not include actions or mistakes which, "...constitute a failure of efforts that are reasonable under circumstances to maintain its [the trade secret's] secrecy."
The U.T.S.A. also provided refinement through comments to the definition of a trade secret itself:
  • 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 U.T.S.A. maintained that actions such as restricting access to a "need to know basis" and informing employees that the information is secret met the criteria for reasonable efforts.
The U.T.S.A. stated that the courts do not not require procedures to protect against "flagrant industrial espionage" were not necessary.

Remedies

The U.T.S.A. provided for several potential remedies
Remedies
Remedies is the debut album by The Herbaliser, released on Ninja Tune in 1995.-Track listing:# "Intro" 2:23# "Scratchy Noise" 7:18# "Blomp" 0:46# "Styles" 6:25# "Interloodle" 1:36# "Bust a Nut" 4:31# "Herbalize It" 2:10# "Real Killer Pt...

 for wrongs committed under the act, including injunctive relief
Injunction
An injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...

, damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 and attorney's fee
Attorney's fee
Attorney's fee is a chiefly United States term for compensation for legal services performed by an attorney for a client, in or out of court. It may be an hourly, flat-rate or contingent fee. Attorney fees are separate from fines, compensatory and punitive damages, and from court costs in a...

s.

Injunctive Relief

Section 2 of the U.T.S.A. provided for injunctive relief from trade secret misappropriation.
Section 2(a) stipulated that, "Actual or threatened misappropriation may be enjoined."
However, the length of the injunction was 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 could have been obtained by misappropriation of the trade secret.

In addition to the possible enjoinment described in section 2(a), section 2(b) allowed for the payment of reasonable royalties
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...

 in place of an injunction under exceptional circumstances.
The U.T.S.A., in the comments for section 2, referenced a court case in which a misappropriated trade secret was used to build military technology for use during the Vietnam War
Vietnam War
The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...

. As an injunction may have prevented necessary equipment from reaching U.S. armed forces, the judge ordered that the misappropriator pay an appropriate royalty to the trade secret owner rather than imposing an injunction.

Damages

In addition to the injunctive relief which may be offered under the U.T.S.A., parties may also receive damages.
Section 3(a) stated 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 stated 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 duration of damages as well.

Attorney's Fees

Section 4 of the U.T.S.A. stipulated 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.

Other Provisions

  • Section 5 provided for the "preservation of secrecy"; namely that a court should take reasonable means to protect a trade secret during any legal action concerning the trade secret. These secretive measures can include sealing records and gag order
    Gag order
    A gag order is an order, sometimes a legal order by a court or government, other times a private order by an employer or other institution, restricting information or comment from being made public.Gag orders are often used against participants involved in a lawsuit or criminal trial...

    s.
  • Section 6 provided a statute of limitations
    Statute of limitations
    A statute of limitations is an enactment in a common law legal system that sets the maximum time after an event that legal proceedings based on that event may be initiated...

    , 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 stated that the U.T.S.A. superseded any existing "...tort, restitutionary, and other law of this State providing civil
    Civil law (common law)
    Civil law, as opposed to criminal law, is the branch of law dealing with disputes between individuals or organizations, in which compensation may be awarded to the victim...

     remedies for misappropriation of a trade secret." The section also made clear that the U.T.S.A. did not affect (1) contractual remedies, (2) civil remedies not based on trade secret misappropriation, or (3) criminal
    Criminal law
    Criminal law, is the body of law that relates to crime. It might be defined as the body of rules that defines conduct that is not allowed because it is held to threaten, harm or endanger the safety and welfare of people, and that sets out the punishment to be imposed on people who do not obey...

     remedies, which may otherwise be of use to the aggrieved party.
  • Section 8 stated the goal of making trade secret law uniform among states enacting the U.T.S.A.
  • Section 9 provided a short title to refer to the act and section 10 described the severability
    Severability
    In law, severability refers to a provision in a contract which states that if parts of the contract are held to be illegal or otherwise unenforceable, the remainder of the contract should still apply...

     of the act.
  • Sections 11 and 12 provided a date on which the act took effect and the opportunity to explicitly list other acts to be repealed.

Adoption by U.S. 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 in some form, 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
Code (law)
A code is a type of legislation that purports to exhaustively cover a complete system of laws or a particular area of law as it existed at the time the code was enacted, by a process of codification. Though the process and motivations for codification are similar in common law and civil law...

 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 amendments.

Notable decisions involving the Uniform Trade Secrets Act

The following cases have directly referenced the U.T.S.A.:
  • Rivendell Forest Prods. v. Georgia-Pacific Corp.
    Rivendell Forest Prods. v. Georgia-Pacific Corp.
    Rivendell Forest Prods. v. Georgia-Pacific Corp., 28 F.3d 1042 was a case in which the United States Court of Appeals for the Tenth Circuit reversed the decision of the United States District Court for the District of Colorado, which had decided that Rivendell had failed to establish the existence...

  • Comprehensive Techs. Int'l, Inc. v. Software Artisans, Inc.
    Comprehensive Techs. Int'l, Inc. v. Software Artisans, Inc.
    Comprehensive Technologies International v. Software Artisans 3 F.3d 730 was a case in which the U.S. Court of Appeals for the Fourth Circuit discussed tests used for software copyright infringement, and ruled that trade secret misappropriation requires more than circumstantial evidence...

  • DVD Copy Control Association, Inc. v. Bunner
    DVD Copy Control Association, Inc. v. Bunner
    DVD Copy Control Association, Inc. v. Bunner, was a lawsuit that was filed by the DVD Copy Control Association in California, accusing Andrew Bunner and several others of misappropriation of trade secrets under California's implementation of the Uniform Trade Secrets Act...

  • 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 Internationally

Due to the size, scale, nuance, and complexity of international law
International law
Public international law concerns the structure and conduct of sovereign states; analogous entities, such as the Holy See; and intergovernmental organizations. To a lesser degree, international law also may affect multinational corporations and individuals, an impact increasingly evolving beyond...

 and trade agreements, uniformity among trade secret acts is understandably not nearly as uniform as it is among U.S. states. The following are international examples of attempts at harmonizing trade secret code.

The North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...

 (NAFTA) has provisions providing for uniform minimum standards for protecting trade secrets.
Trade Secrets in Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

 are dealt with on a Country by Country basis. In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

, specifically England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

, trade secret protection is predicated upon the common law concept of "breach of confidence
Breach of confidence in English law
Breach of confidence in English law is an equitable doctrine which allows a person to claim a remedy where their confidence has been breached. A duty of confidence arises when confidential information comes to the knowledge of a person in circumstances where it would be unfair if it were disclosed...

." Meaning that, regardless of the existence of a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

, individual(s) who obtain the trade secret in confidence shall not take unfair advantage of it without consent.

In Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

, their Act against Unfair Competition states, "...any person who, in the course of business activity for purposes of competition, commits acts contrary to honest practices" and hold violators responsible for damages.

See also

  • Economic Espionage Act of 1996
    Economic Espionage Act of 1996
    The Economic Espionage Act of 1996 was a 6 title Act of Congress dealing with a wide range of issues, including not only industrial espionage , but the insanity defense, the Boys & Girls Clubs of America, requirements for presentence investigation reports, and the United...

  • Glossary of legal terms in technology
  • Biswamohan Pani
    Biswamohan Pani
    Biswamohan Pani is a former design engineer at Intel. In November 2008 he was charged with stealing $1 billion worth of trade secrets from Intel while he worked for its main rival, Advanced Micro Devices . The information he apparently obtained is believed to be related to Intel's next-generation...

    , charged in 2008 with stealing $1 billion worth of trade secrets from Intel
  • Data General Corp. v. Digital Computer Controls, Inc.
    Data General Corp. v. Digital Computer Controls, Inc.
    Data General Corp. v. Digital Computer Controls, Inc. was a 1971 case in which the Delaware Court of Chancery determined that widespread, confidential disclosure of trade secrets does not necessarily compromise their secrecy...

    addressing secrecy given widespread disclosure
  • The Case for a Federal Trade Secrets Act
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