In Amron International Diving Supply, Inc. v. Hydrolinx Diving Communication, Inc., the Southern District of California recently issued a decision reinvigorating the growing tension between courts addressing the issue of California's Uniform Trade Secrets Act (UTSA) preemption – a tension that is likely to continue into the foreseeable future.
Amron is a manufacturer and supplier of commercial diving equipment, including radios and "unscramblers" that allow divers and surface personnel to communicate with one another. Saad Sadik was employed with Amron as an electrical engineer from October 2000 until April 2010. Both at the beginning and during the course of his employment, Sadik signed various nondisclosure agreements whereby he agreed not to disclose to others or use for his own or another's benefit any of Amron's confidential information or trade secrets. The nondisclosure agreements executed by Sadik further assigned all his interest in any ideas or inventions during the term of his employment to Amron and prohibited him from soliciting any customers, distributors, suppliers, or manufacturers who do business with Amron.
Amron terminated Sadik's employment in April 2010. After terminating Sadik, Amron conducted a forensic examination of two lab computers to which Sadik had access during his employment. This forensic examination revealed that Sadik had copied more than 100,000 files from Amron's computer systems and had purged thousands of engineering documents from the computer systems, as well. The files copied by Sadik included, among other things, details of Amron's products, internal test procedures and results, and vendor and customer account information.
After the termination of his employment with Amron, Sadik founded Hydrolinx Diving Communication, Inc. and began to compete with Amron in the diving communication equipment market. Amron's investigation into Sadik's employment also revealed that Sadik had tampered with Amron's product designs for a highly confidential project involving a Helium Speech Unscrambler, a device that allows divers to communicate with surface personnel from depths that require helium in the diver's air supply. While working on this project and while using Amron's resources and equipment, Sadik developed a superior product (without informing Amron), which he later incorporated into his Hydrolinx competing line of products.
Amron sued Hydrolinx and Sadik. Amron's complaint included a cause of action for trade secret misappropriation under the UTSA. Amron's complaint also included claims for, among others, breach of confidence, conversion, trespass to chattels, interference with prospective business advantage, unjust enrichment, unfair competition, common law misappropriation, and computer data access and fraud. Hydrolinx and Sadik asserted that these additional causes of action were preempted by Amron's trade secret misappropriation claim and moved to dismiss them.
The court in Amron first addressed the general inquiry to be applied in determining whether claims are preempted by the UTSA. Following the analyses set forth by federal courts applying California law on the issue, the Amron court determined that the UTSA preempts claims that are based on facts that are identical to the facts alleged to support a separate claim of trade secret misappropriation. However, the court also found that the UTSA will not preempt claims that rely on "additional or different facts or theories of liability than those forming the basis of the trade secret claim." The Amron court then concluded that the targeted causes of action were not preempted by UTSA because they did not allege identical facts as those alleged to support Amron's trade secret misappropriation claim.
The court additionally held that the preemption issue was prematurely raised at the pleading stage. In this regard, the court noted that the status of the information alleged to constitute a trade secret was just that – a matter of allegation. The court therefore concluded that it was premature to address the preemption issue until a distinction could be made between what information is determined to constitute a trade secret and Amron's other confidential or proprietary non-trade secret information.
For more on Amron, continue reading at Littler’s ASAP: A California Federal Court Reinvigorates the Growing Tension over the Preemptive Scope of California's Uniform Trade Secrets Act