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Misappropriation of Trade Secrets May Also be a Tort

By John DiGiacomo

Trade secrets are important and valuable assets for any business. In general, a trade secret is information that the owner has taken “reasonable measures” to keep secret and that has commercial value from the fact that information is secret. The information/data can relate to almost anything including information about

  • Finances like the company’s profit and loss statements
  • Costs, expenses, revenue, and profit
  • Business methods, processes and procedures
  • Scientific and technical matters
  • Formulas
  • Designs
  • Programs and codes
  • And more

A trade secret can even be something as mundane as a customer list, again, as long as some efforts are made to keep the list confidential and there is some commercial value to the list derived from it being confidential.

Legally, trade secrets are protected under state and federal statutes. Most states have enacted variations on the uniform Trade Secrets Act. See, e.g., Mich. Comp. Laws § 445.1901 et seq. At the federal level, trade secrets are protected by the Defend Trade Secrets Act which is similar to the uniform Act. See 18 U.S.C. § 1831 et seq.

Under federal and state law, owners of trade secrets may sue to protect the trade secret from misappropriation. Money damages are available as are various levels of injunctive relief. At the federal level, if severe and willful enough, a defendant can face criminal penalties.

Legally, trade secrets are also protected under state and federal tort law. This is important for two reasons. First, suing under tort law gives owners of trade secrets a second cause of action that may enhance the money and punitive damages that can be obtained. Under some statutory and common law schemes, a different set of damages may be obtained under the tort regime. Likewise, enhanced damages may be easier to obtain under tort law.

Second, if a governmental agency or state-owned entity is involved, then suing for tort damages may allow owners of trade secrets to overcome the doctrine of sovereign immunity. In general, under longstanding law, governments are immune from being sued. However, this doctrine, called “sovereign immunity,” can be waived and, both the federal government and the various state governments have, by statute, waived sovereign immunity in many types of circumstances. The most common circumstances where sovereign immunity has been waived are circumstances where a tort has been committed. A “tort” is some violation of a private right or injury caused by one person/entity against another that is not merely a breach of contract. Car accidents are common examples; some driver of a vehicle has behaved negligently and caused a crash that injured another. The wrongdoer committed a “tort.”

The waiver of sovereign immunity in circumstances of tort is important because, otherwise, victims of torts caused by government employees could not sue for compensation. An example might be something like a car wreck caused by a police officer driving a police car while on duty. Police departments are, of course, governmental departments. Without waiver of sovereign immunity, the victim of the crash would not be able to sue.

In general, governments have NOT waived sovereign immunity with respect to protecting trade secrets. Thus, imagine that you are bidding for a government contract to provide marketing services to a state-owned university. As part of the bid process, your company provides the university officials with copies of documents containing your trade secrets which are promptly disclosed to all of your competitors (who are also bidding for the same work). Naturally, you would be very upset. As it turns out, your company cannot sue for trade secret misappropriation under the relevant trade secret laws because of sovereign immunity. But, your company CAN sue under tort law because, often, the state government has enacted law waiving immunity for torts. As a case example, see Board of Regents v. One Sixty Over Ninety, LLC, 830 SE 2d 503 (Georgia App. 2019). In that case, the court held that the Georgia Trade Secrets Act, based on the uniform Trade Secrets Act, did not contain an express waiver of sovereign immunity and also did not waive the state’s sovereign immunity by implication. However, the court held that a violation of the Georgia Trade Secrets Act “… constitutes a tort under Georgia law.” (p. 510).

If you have questions about protecting your trade secrets or if you need to initiate or defend trade secret litigation, contact the trade secret lawyers at Revision Legal at 231-714-0100.

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