Uniform Trade Secrets Act (UTSA)

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The Uniform Trade Secrets Act provides a legal framework for improved trade secret protection for industry. The Uniform Trade Secrets Act was completed by the Uniform Law Commissioners in 1979, and amended in 1985. It was endorsed by the American Bar Association

The Uniform Trade Secrets Act (UTSA) has been enacted in the following territories: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, U.S. Virgin Islands, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming.

The 2015 Introductions were: Massachusetts, New York

One commentator observed:
“Under technological and economic pressures, industry continues to rely on trade secret
protection despite the doubtful and confused status of both common law and statutory
remedies. Clear, uniform trade secret protection is urgently needed. . . .”
Comment, “Theft of Trade Secrets: The Need for a Statutory Solution”, 120
U.Pa.L.Rev. 378, 380-81 (1971).
In spite of this need, the most widely accepted rules of trade secret law, § 757 of the
Restatement of Torts, were among the sections omitted from the Restatement of Torts, 2d
(1978).
The Uniform Act codifies the basic principles of common law trade secret protection,
preserving its essential distinctions from patent law. Under both the Act and common law principles, for example, more than one person can be entitled to trade secret protection with
respect to the same information, and analysis involving the “reverse engineering” of a lawfully
obtained product in order to discover a trade secret is permissible. Compare Uniform Act,
Section 1(2) (misappropriation means acquisition of a trade secret by means that should be
known to be improper and unauthorized disclosure or use of information that one should know is
the trade secret of another) with Miller v. Owens-Illinois, Inc., 187 USPQ 47, 48 (D.Md.1975)
(alternative holding) (prior, independent discovery a complete defense to liability for
misappropriation) and Wesley-Jessen, Inc., v. Reynolds, 182 USPQ 135, 144-45, (N.D.Ill.1974)
(alternative holding) (unrestricted sale and lease of camera that could be reversed engineered in
several days to reveal alleged trade secrets preclude relief for misappropriation).
For liability to exist under this Act, a Section 1(4) trade secret must exist and either a
person’s acquisition of the trade secret, disclosure of the trade secret to others, or use of the trade
secret must be improper under Section 1(2). The mere copying of an unpatented item is not
actionable.
Like traditional trade secret law, the Uniform Act contains general concepts. The
contribution of the Uniform Act is substitution of unitary definitions of trade secret and trade
secret misappropriation, and a single statute of limitations for the various property, quasicontractual,
and violation of fiduciary relationship theories of noncontractual liability utilized at
common law. The Uniform Act also codifies the results of the better reasoned cases concerning
the remedies for trade secret misappropriation.

UNIFORM TRADE SECRETS ACT
WITH 1985 AMENDMENTS
SECTION 1. DEFINITIONS. As used in this [Act], unless the context requires
otherwise:
(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;
(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
5
(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.
(3) “Person” means a natural person, corporation, business trust, estate, trust,
partnership, association, joint venture, government, governmental subdivision or agency, or any
other legal or commercial entity.
(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.
COMMENT
One of the broadly stated policies behind trade secret law is “the maintenance of
standards of commercial ethics.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974). The
Restatement of Torts, Section 757, Comment (f), notes: “A complete catalogue of improper
means is not possible,” but Section 1(1) includes a partial listing.
Proper means include:
1. Discovery by independent invention;
2. Discovery by “reverse engineering”, that is, by starting with the known product and
working backward to find the method by which it was developed. The acquisition of the known
product must, of course, also be by a fair and honest means, such as purchase of the item on the
open market for reverse engineering to be lawful;
3. Discovery under a license from the owner of the trade secret;
4. Observation of the item in public use or on public display;
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5. Obtaining the trade secret from published literature.
Improper means could include otherwise lawful conduct which is 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. E. I. du Pont de Nemours & Co., Inc.
v. Christopher, 431 F.2d 1012 (CA5, 1970), cert. den. 400 U.S. 1024 (1970). Because the trade
secret can be destroyed through public knowledge, the unauthorized disclosure of a trade secret
is also a misappropriation.
The type of accident or mistake that can result in a misappropriation under Section
1(2)(ii)(C) involves conduct by a person seeking relief that does not constitute a failure of efforts
that are reasonable under the circumstances to maintain its secrecy under Section 1(4)(ii).
The definition of “trade secret” contains a reasonable departure from the Restatement of
Torts (First) definition which required that a trade secret be “continuously used in one’s
business.” The broader definition in the proposed Act extends protection to a plaintiff who has
not yet had an opportunity or acquired the means to put a trade secret to use. The definition
includes information that has commercial value from a negative viewpoint, for example the
results of lengthy and expensive research which proves that a certain process will not work could
be of great value to a competitor.
Cf. Telex Corp. v. IBM Corp., 510 F.2d 894 (CA10, 1975) per curiam, cert. dismissed
423 U.S. 802 (1975) (liability imposed for developmental cost savings with respect to product
not marketed). Because a trade secret need not be exclusive
to confer a competitive advantage, different independent developers can acquire rights in the
same trade secret.
The words “method, technique” are intended to include the concept of “know-how.”
The language “not being generally known to and not being readily ascertainable by
proper means by other persons” does not require that information be generally known to the
public for trade secret rights to be lost. If the principal person persons who can obtain economic
benefit from information is are aware of it, there is no trade secret. A method of casting metal,
for example, may be unknown to the general public but readily known within the foundry
industry.
Information is readily ascertainable if it is available in trade journals, reference books, or
published materials. Often, the nature of a product lends itself to being readily copied as soon as
it is available on the market. On the other hand, if reverse engineering is lengthy and expensive,
a person who discovers the trade secret through reverse engineering can have a trade secret in the
information obtained from reverse engineering.
Finally, reasonable efforts to maintain secrecy have been held to include advising
employees of the existence of a trade secret, limiting access to a trade secret on “need to know
7
basis”, and controlling plant access. On the other hand, public disclosure of information through
display, trade journal publications, advertising, or other carelessness can preclude protection.
The efforts required to maintain secrecy are those “reasonable under the circumstances.”
The courts do not require that extreme and unduly expensive procedures be taken to protect trade
secrets against flagrant industrial espionage. See E. I. du Pont de Nemours & Co., Inc. v.
Christopher, supra. It follows that reasonable use of a trade secret including controlled
disclosure to employees and licensees is consistent with the requirement of relative secrecy.
SECTION 2. INJUNCTIVE RELIEF

Injunctions restraining future use and disclosure of misappropriated trade secrets
frequently are sought. Although punitive perpetual injunctions have been granted, e.g., Elcor
Chemical Corp. v. Agri-Sul, Inc., 494 S.W.2d 204 (Tex.Civ.App.1973), Section 2(a) of this Act
adopts the position of the trend of authority limiting the duration of injunctive relief to the extent
of the temporal advantage over good faith competitors gained by a misappropriator. See, e.g., K-
2 Ski Co. v. Head Ski Co., Inc., 506 F.2d 471 (CA9, 1974) (maximum appropriate duration of
both temporary and permanent injunctive relief is period of time it would have taken defendant
8
to discover trade secrets lawfully through either independent development or reverse engineering
of plaintiff’s products).
The general principle of Section 2(a) and (b) is that an injunction should last for as long
as is necessary, but no longer than is necessary, to eliminate the commercial advantage or “lead
time” with respect to good faith competitors that a person has obtained through misappropriation.
Subject to any additional period of restraint necessary to negate lead time, an injunction
accordingly should terminate when a former trade secret becomes either generally known to
good faith competitors or generally knowable to them because of the lawful availability of
products that can be reverse engineered to reveal a trade secret.
For example, assume that A has a valuable trade secret of which B and C, the other
industry members, are originally unaware. If B subsequently misappropriates the trade secret
and is enjoined from use, but C later lawfully reverse engineers the trade secret, the injunction
restraining B is subject to termination as soon as B’s lead time has been dissipated. All of the
persons who could derive economic value from use of the information are now aware of it, and
there is no longer a trade secret under Section 1(4). It would be anti-competitive to continue to
restrain B after any lead time that B had derived from misappropriation had been removed.
If a misappropriator either has not taken advantage of lead time or good faith competitors
already have caught up with a misappropriator at the time that a case is decided, future disclosure
and use of a former trade secret by a misappropriator will not damage a trade secret owner and
no injunctive restraint of future disclosure and use is appropriate. See, e.g., Northern
Petrochemical Co. v. Tomlinson, 484 F.2d 1057 (CA7, 1973) (affirming trial court’s denial of
preliminary injunction in part because an explosion at its plant prevented an alleged
misappropriator from taking advantage of lead time); Kubik, Inc. v. Hull, 185 USPQ 391
(Mich.App.1974) (discoverability of trade secret by lawful reverse engineering made by
injunctive relief punitive rather than compensatory).

Section 2(b) deals with the special situation in which future use by a
misappropriator will damage a trade secret owner but an injunction against future use
nevertheless is inappropriate due to exceptional circumstances. Exceptional circumstances include
the existence of an overriding public interest which requires the denial of a prohibitory injunction
against future damaging use and a person’s reasonable reliance upon acquisition of a
misappropriated trade secret in good faith and without reason to know of its prior
misappropriation that would be prejudiced by a prohibitory injunction against future damaging
use. Republic Aviation Corp. v. Schenk, 152 USPQ 830 (N.Y.Sup.Ct.1967) illustrates the public
interest justification for withholding prohibitory injunctive relief.

The court considered that
enjoining a misappropriator from supplying the U.S. with an aircraft weapons control system
would have endangered military personnel in Viet Nam. The prejudice to a good faith third
party justification for withholding prohibitory injunctive relief can arise upon a trade secret
owner’s notification to a good faith third party that the third party has knowledge of a trade secret
as a result of misappropriation by another. This notice suffices to make the third party a
misappropriator thereafter under Section 1(2)(ii)(B)(I). In weighing an aggrieved person’s interests and the interests of a third party who has relied in good faith upon his or her ability to
utilize information, a court may conclude that restraining future use of the information by the
third party is unwarranted. With respect to innocent acquirers of misappropriated trade secrets,
Section 2(b) is consistent with the principle of 4 Restatement Torts (First) § 758(b) (1939), but
rejects the Restatement’s literal conferral of absolute immunity upon all third parties who have
paid value in good faith for a trade secret misappropriated by another. The position taken by the
Uniform Act is supported by Forest Laboratories, Inc. v. Pillsbury Co., 452 F.2d 621 (CA7,
1971) in which a defendant’s purchase of assets of a corporation to which a trade secret had been
disclosed in confidence was not considered to confer immunity upon the defendant.

When Section 2(b) applies, a court is given has discretion to substitute an injunction
conditioning future use upon payment of a reasonable royalty for an injunction prohibiting future
use. Like all injunctive relief for misappropriation, a royalty order injunction is appropriate only
if a misappropriator has obtained a competitive advantage through misappropriation and only for
the duration of that competitive advantage. In some situations, typically those involving good
faith acquirers of trade secrets misappropriated by others, a court may conclude that the same
considerations that render a prohibitory injunction against future use inappropriate also render a
royalty order injunction inappropriate. See, generally, Prince Manufacturing, Inc. v. Automatic
Partner, Inc., 198 USPQ 618 (N.J.Super.Ct.1976) (purchaser of misappropriator’s assets from
receiver after trade secret disclosed to public through sale of product not subject to liability for
misappropriation).
A royalty order injunction under Section 2(b) should be distinguished from a reasonable
royalty alternative measure of damages under Section 3(a). See the Comment to Section 3 for
discussion of the differences in the remedies.
Section 2(c) authorizes mandatory injunctions requiring that a misappropriator return the
fruits of misappropriation to an aggrieved person, e.g., the return of stolen blueprints or the
surrender of surreptitious photographs or recordings.
Where more than one person is entitled to trade secret protection with respect to the same
information, only that one from whom misappropriation occurred is entitled to a remedy.

SECTION 3. DAMAGES

Like injunctive relief, a monetary recovery for trade secret misappropriation is
appropriate only for the period in which information is entitled to protection as a trade secret,
plus the additional period, if any, in which a misappropriator retains an advantage over good
faith competitors because of misappropriation. Actual damage to a complainant and unjust
benefit to a misappropriator are caused by misappropriation during this time alone. See Conmar
Products Corp. v. Universal Slide Fastener Co., 172 F.2d 150 (CA2, 1949) (no remedy for
period subsequent to disclosure of trade secret by issued patent); Carboline Co. v. Jarboe, 454
S.W.2d 540 (Mo.1970) (recoverable monetary relief limited to period that it would have taken
misappropriator to discover trade secret without misappropriation). A claim for actual damages
and net profits can be combined with a claim for injunctive relief, but, if both claims are granted,
the injunctive relief ordinarily will preclude a monetary award for a period in which the
injunction is effective.
As long as there is no double counting, Section 3(a) adopts the principle of the recent
cases allowing recovery of both a complainant’s actual losses and a misappropriator’s unjust
benefit that are caused by misappropriation. E.g., Tri-Tron International v. Velto, 525 F.2d 432
(CA9, 1975) (complainant’s loss and misappropriator’s benefit can be combined). Because
certain cases may have sanctioned double counting in a combined award of losses and unjust
benefit, e.g., Telex Corp. v. IBM Corp., 510 F.2d 894 (CA10, 1975) (per curiam), cert. dismissed,
423 U.S. 802 (1975) (IBM recovered rentals lost due to displacement by misappropriator’s
products without deduction for expenses saved by displacement; as a result of rough
approximations adopted by the trial judge, IBM also may have recovered developmental costs
saved by misappropriator through misappropriation with respect to the same customers), the Act
adopts an express prohibition upon the counting of the same item as both a loss to a complainant
and an unjust benefit to a misappropriator.
As an alternative to all other methods of measuring damages caused by a
misappropriator’s past conduct, a complainant can request that damages be based upon a
demonstrably reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade
secret. In order to justify this alternative measure of damages, there must be competent evidence
of the amount of a reasonable royalty.

The reasonable royalty alternative measure of damages for a misappropriator’s past
conduct under Section 3(a) is readily distinguishable from a Section 2(b) royalty order
injunction, which conditions a misappropriator’s future ability to use a trade secret upon payment
of a reasonable royalty. A Section 2(b) royalty order injunction is appropriate only in
exceptional circumstances; whereas a reasonable royalty measure of damages is a general option.
Because Section 3(a) damages are awarded for a misappropriator’s past conduct and a Section
2(b) royalty order injunction regulates a misappropriator’s future conduct, both remedies
cannot be awarded for the same conduct. If a royalty order injunction is appropriate because of a
person’s material and prejudicial change of position prior to having reason to know that a trade
secret has been acquired from a misappropriator, damages, moreover, should not be awarded for
past conduct that occurred prior to notice that a misappropriated trade secret has been acquired.
Monetary relief can be appropriate whether or not injunctive relief is granted under
Section 2. If a person charged with misappropriation has acquired materially and prejudicially
changed position in reliance upon knowledge of a trade secret acquired in good faith and without
reason to know of its misappropriation by another, however, the same considerations that can
justify denial of all injunctive relief also can justify denial of all monetary relief. See Conmar
Products Corp. v. Universal Slide Fastener Co., 172 F.2d 1950 (CA2, 1949) (no relief against
new employer of employee subject to contractual obligation not to disclose former employer’s
trade secrets where new employer innocently had committed $40,000 to develop the trade secrets
prior to notice of misappropriation).
If willful and malicious misappropriation is found to exist, Section 3(b) authorizes the
court to award a complainant exemplary damages in addition to the actual recovery under
Section 3(a) an amount not exceeding twice that recovery. This provision follows federal patent
law in leaving discretionary trebling to the judge even though there may be a jury, compare 35
U.S.C. Section 284 (1976).
Whenever more than one person is entitled to trade secret protection with respect to the
same information, only that one from whom misappropriation occurred is entitled to a remedy.

SECTION 4. ATTORNEY’S FEES.

Section 4 allows a court to award reasonable attorney fees to a prevailing party in
specified circumstances as a deterrent to specious claims of misappropriation, to specious efforts
12
by a misappropriator to terminate injunctive relief, and to willful and malicious
misappropriation. In the latter situation, the court should take into consideration the extent to
which a complainant will recover exemplary damages in determining whether additional
attorney’s fees should be awarded. Again, patent law is followed in allowing the judge to
determine whether attorney’s fees should be awarded even if there is a jury, compare 35 U.S.C.
Section 285 (1976).

SECTION 5. PRESERVATION OF SECRECY

If reasonable assurances of maintenance of secrecy could not be given, meritorious trade
secret litigation would be chilled. In fashioning safeguards of confidentiality, a court must
ensure that a respondent is provided sufficient information to present a defense and a trier of fact
sufficient information to resolve the merits. In addition to the illustrative techniques specified in
the statute, courts have protected secrecy in these cases by restricting disclosures to a party’s
counsel and his or her assistants and by appointing a disinterested expert as a special master to
hear secret information and report conclusions to the court.

SECTION 6. STATUTE OF LIMITATIONS

There presently is a conflict of authority as to whether trade secret misappropriation is a
continuing wrong. Compare Monolith Portland Midwest Co. v. Kaiser Aluminum & Chemical
Corp., 407 F.2d 288 (CA9, 1969) (no not a continuing wrong under California law – limitation
period upon all recovery begins upon initial misappropriation) with Underwater Storage, Inc. v.
U. S. Rubber Co., 371 F.2d 950 (CADC, 1966), cert. den., 386 U.S. 911 (1967) (continuing
wrong under general principles – limitation period with respect to a specific act of
misappropriation begins at the time that the act of misappropriation occurs).
This Act rejects a continuing wrong approach to the statute of limitations but delays the
commencement of the limitation period until an aggrieved person discovers or reasonably should
have discovered the existence of misappropriation. If objectively reasonable notice of
misappropriation exists, three years is sufficient time to vindicate one’s legal rights.

SECTION 7. EFFECT ON OTHER LAW

This Act does not deal with criminal remedies for trade
secret misappropriation and is not a comprehensive statement of civil remedies. It applies to
a duty to protect competitively significant secret information that
is imposed by law. It does not apply to duties a duty voluntarily assumed through an express or
an implied-in-fact contract. The enforceability of covenants not to disclose trade secrets and
covenants not to compete that are intended to protect trade secrets, for example, are is governed
by other law. The Act also does not apply to duties a duty imposed by law that are is not
dependent upon the existence of competitively significant secret information, like an agent’s duty
of loyalty to his or her principal.

SECTION 11. TIME OF TAKING EFFECT.

The Act applies exclusively to misappropriation that begins after its effective date.
Neither misappropriation that began and ended before the effective date nor misappropriation
that began before the effective date and continued thereafter is subject to the Act.

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