What do you do if someone misappropriates confidential information that is not deemed (ultimately by a court, when push comes to shove in such matters) a trade secret?  Well, depending upon what state in the U.S. has jurisdiction in your case, you may have some options. 

Almost all states in the U.S. have adopted some version of the Uniform Trade Secrets Act (“UTSA”), and the UTSA preempts you from bringing a common law or other civil lawsuit regarding trade secret misappropriation, with an exception for breach of contract claims.  But state courts are splitting as to whether other confidential information that does not rise to the level of a trade secret can be the subject of a lawsuit based on their version of the UTSA.  Depending upon the circumstance of the information misappropriation, there have been a variety of conflicting rulings from one state to another (e.g., Washington, Nevada, Ohio, Hawaii, and Utah having pro-UTSA preemption rulings, while New Jersey and Pennsylvania noted for anti-USTA preemption rulings), and even within the same state (I’m looking at you, California), as to whether or not the USTA preempts you from filing a lawsuit for mishandling of non-trade secret confidential information.  A recent ruling in Arizona’s Supreme Court flipped the trend in that state toward an anti-UTSA stance, so this issue is in flux in each state.  Hint: you will need to consult your local attorney to get the inside baseball for your state’s recent court decisions on this issue.

Your first line of defense to avoid being caught in the trap of having non-trade secret information misappropriated and the USTA preempting you from other lawsuits is to use all the techniques we have previously described in this series to side step this issue: keep as much of your business information providing a competitive advantage as is possible strictly confidential so it is classified as a trade secret.  But of particular note, having all your non-disclosure/confidentiality agreements in place that you normally use to protect trade secrets will be very useful in showing that the misappropriated information was at least confidential per a contract agreement.  The UTSA generally excludes claims to breach of contract, giving you the opportunity to add clauses in your agreements to the effect that any non-public information is confidential, with a time-limit as to how long the information is to be held in confidence.  Doing so may keep the door open for you to make breach of contract and theft of information claims even in pro-UTSA preemption states, rather than leave you with only a trade secret misappropriation claim to pursue.

The types of contract claims that you may want to look over to base a lawsuit if such business information is taken include conversion, breach of duty of loyalty, tortious interference with a contractual relationship, tortious interference with business expectancy, unfair competition, and breach of fiduciary duty.  On the bright side, the burden of proof for such actions is often lower than trade secret cases, where you must show what specific information qualifies as a trade secret, rather than information misused in breach of contract.  However, you may want to evaluate the misappropriated information carefully before disclaiming it as not being a trade secret in public record.

Conversion generally refers to someone treating your property as theirs, including property that accidentally comes into their hands, or intentionally giving the impression the property belongs to them.  To establish conversion, generally you will need to show that harm was done by use, disclosure, or possession of the information, and that the information was obtained improperly to advance a competing business.  In KF Jacobsen v. Gaylor an employee of Jacobson was accused of “exercised control over copied information … in a manner inconsistent to Jacobsen’s rights as the owner of the information,” i.e., he copied document and took them with him after leaving the company.  The United States Districts Court of Oregon found that the conversion suit for the “taking, retaining, and disclosing” the non-trade secret “confidential and proprietary information” was not preempted by a claim to misappropriation of trade secrets under Oregon’s UTSA.  However, the court specified that conversion covered “chattel or tangible property,” and the issue of whether intangible electronic forms of information are to be so treated was not addressed.

Breach of duty of loyalty generally refers to a corporate fiduciary or employee use of company information, assets or business opportunities for personal gain (i.e., in a conflict of interest).  Examples that may enter the realm of confidential information including soliciting business from an employer’s clients prior to leaving the employer to start a competing business, and misappropriating or disclosing confidential information.  Breach of fiduciary duty generally follows the same fact pattern, but limited to fiduciaries of the company who are expected to maintain a greater degree of good behavior than employees.

Tortious interference with a contractual relationship relates to intentionally damaging a contractual business relationship, which generally requires a showing of that the defendant knew of the contract and intentionally acted improperly resulting in harm to the plaintiff.  Tortious interference with business expectancy is similar, but relates to non-contractual business relationships (e.g., a contract being negotiated, a prospective business relationship or economic advantage).  Misappropriation of confidential information generally is a basis for establishing the defendant acted improperly in these types of suits.  However, depending upon the court, there can be odd exceptions such as a case in Virginia where reconstituting, from memory, a confidential client list to solicit business was not deemed improper.  Unfair competition claims may also be asserted for wrongly interfering with prospective or existing business relationships, such as using confidential information to get the business of your existing or potential clients, as well as for passing off your goods as being theirs.

In the scenario that you are considering to pursue a non-trade secret cause of action, consider the financial cost-benefit analysis of whether financial losses occurred that may be recovered, as well as whether an injunction against use or dissemination of the misappropriated information are available in your state.  Given the legal uncertainties noted above, whether you want to be the case that sets precedent after many appeals needs to be thought through.

So, it’s sort of a free-for-all when it comes down to deciding whether or not there are some state causes of action other than trade secret misappropriation available to protect your confidential information.  But, the mere fact you know this will impress the hell out of any lawyer you talk to about your case.  That by itself has a certain value … in terms of comic relief anyway.