New Law Gives Employers Another Tool To Combat Theft Of Trade Secrets

Title:

New Law Gives Employers Another Tool To Combat Theft Of Trade Secrets

Date:

January 27, 2012

Publication:

The January 2012 Riker Danzig Labor & Employment Alert

Author(s):

Daniel W. Zappo, Stephanie R. Wolfe, Meghan Meade

Area(s) of Practice:

Labor & Employment

On January 9, 2012, New Jersey enacted the New Jersey Trade Secrets Act ("NJTSA" or "the Act"), becoming the 46th state to adopt a version of the Uniform Trade Secrets Act ("UTSA"). When combined with company policies, employee training, agreements with key employees and data security measures, the Act provides employers with potent ammunition to combat the theft or threatened theft of trade secrets by employees or others.

Prior to the adoption of the Act, New Jersey employers could only seek redress for theft or misuse of trade secrets under common or judge-made law. The NJTSA supersedes existing New Jersey tort and restitutionary law providing civil remedies for misappropriation of a trade secret, but the rights, remedies and prohibitions of the Act are otherwise "in addition to and cumulative of" those available under New Jersey common law and statutory law. In particular, the Act prohibits:

(1) 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

(2) Disclosure or use of a trade secret of another without express or implied consent of the trade secret owner 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 the knowledge of the trade secret was derived or acquired through improper means; or

(c) before a material change of position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired through improper means.

In general, a "trade secret" is information that has economic value because it is kept secret, not known to others outside an organization, and cannot be derived through such proper means as through license agreement, independent invention, reverse engineering and public observation. Rather, the Act prohibits the acquisition of trade secrets through such "improper means" as theft, bribery, misrepresentation, and breach of an express or implied duty to maintain the secrecy of, or to limit the use or disclosure of, the trade secret.  

In addition to providing broad definitions of "trade secret" and "improper means," the Act sets out the following provisions that affect an employer's potential remedies:

• A three-year statute of limitations now applies in contrast to the previous six-year statute of limitations for misappropriation. The statute-of-limitations period begins to run when "the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered."

• The NJTSA authorizes a Court to enjoin both actual and threatened misappropriation.

• Damages can include both the actual loss and unjust enrichment caused by misappropriation.

• In exceptional circumstances, a court may condition a misappropriating party's future use of a trade secret on the payment of a reasonable royalty to the plaintiff.

• Even after a trade secret ceases to exist, a court may continue an injunction for an additional period of time to prevent a commercial advantage that a defendant might otherwise derive from the misappropriation.

• If the defendant has acted willfully and maliciously, punitive damages are available.

• Similarly, the Court may award reasonable attorneys' and expert fees to the prevailing party if: (a) willful and malicious misappropriation exists; (b) a claim of misappropriation is made in bad faith; or (c) a motion to terminate an injunction is made or resisted in bad faith.

To be sure, the NJTSA provides employers with more powerful weapons to fight theft of trade secrets and, in some cases, to obtain earlier settlements, than was true previously; e.g., the availability of attorneys' fees, expert fees and punitive damages. As with any new legislation, it remains to be seen how courts will interpret New Jersey's version of the UTSA.

The Act's three-year statute of limitations, coupled with the usual test an employer must satisfy to obtain temporary or preliminary injunctive relief, sends a strong signal that employers should not delay when it comes to monitoring the use of their trade secrets and, if necessary, seek court intervention to enforce their rights. At a minimum, your organization should regularly evaluate its policies and employment agreements and consider working with counsel to address any questions on how best to protect and monitor the use of your trade secrets.