At my last Massachusetts Bar Association (MBA) Civil Litigation Section meeting, I learned about a bill to adopt the Uniform Trade Secrets Act (UTSA) that has been floating around the Massachusetts Legislature since late January. Forms of the UTSA have been adopted in 46 states in addition to the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Only New York, Texas, North Carolina, and Massachusetts have not adopted it.
The last action on the bill was a hearing before the Massachusetts Joint Committee on the Judiciary on February 28, 2012. Testimony before the Committee and a copy of the bill with both official comments on the UTSA and comments specific to the version proposed in Massachusetts, which is slightly different, are available here. Importantly, the bill supersedes the definitions, procedures, and remedies applied in Massachusetts chapter 93A actions (regulating unfair and deceptive trade practices) for trade secret misappropriation. The UTSA expands the definition of “trade secret” to include information that has not been “continuously used in one’s business.” It leaves in place contractual remedies (i.e., non-disclosure agreements) so long as, to the extent contracts rely on confidentiality of information, such confidentiality be determined according to the definition of “trade secret” in the UTSA. As the comments note, this addresses an anomaly in Massachusetts created by an overly restrictive definition of trade secrets which requires “continuous use” of the trade secret and employers’ need to protect by contract “confidential information” that does not meet the restrictive definition. The testimony emphasizes that the UTSA is intended to facilitate fair employee mobility to promote innovation, legitimate competition, and job creation by “clarifying what information belongs to an employer” and would limit “lawsuits alleging vague takings or enforcing employee non-competition agreements based on overly broad assertions of confidentiality.”
The testimony also addresses the bill’s effects on the “Employee Non-Compete Agreement” debate discussed here by Michael Rosen in prior posts. In particular, the bill does not change the enforceability of non-competition agreements but, “to the extent such remedies are based on confidentiality of information, such confidentiality shall be determined according to the [UTSA’s] definition of trade secret,” which, as noted above, is broader than Massachusetts common law. It also permits injunctions against former employees from working for competitors even absent a non-competition agreement if the employee would “inevitably disclose” the trade secret while working for the competitor. Such an injunction could last even longer than a non-competition agreement in order to protect the trade secret, “possibly in perpetuity.”
The UTSA has been endorsed by the MBA Business Law Section but has otherwise received a lukewarm response within the MBA. One reason litigators may not like the UTSA is because it replaces the familiar framework available under chapter 93A for multiple damages and attorney’s fees. But as the comments point out, the UTSA authorizes awards of twice the entire recovery for “willful and malicious misappropriation,” which could include “actual loss caused by misappropriation and the unjust enrichment [to a competitor] caused by misappropriation that is not taken into account in computing actual loss.” The UTSA also authorizes awards of attorney’s fees. Only actual damages may be doubled or trebled under current Massachusetts law. So a party’s recovery under the UTSA could be greater than current law. Once litigators realize this, the UTSA may receive more support.