Due to a recent ruling, a plaintiff suing for misappropriation of trade secrets may be preempted from bringing additional state common law claims that are based on the same general facts as that trade secret claim. For such cases, plaintiff suits may be limited solely to the trade secret cause of action. In the noteworthy decision of K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 09 C.D.O.S. 2624 (Cal. Ct. App. Mar. 3, 2009), the California Court of Appeal for the Sixth District unanimously confirmed the preemptive effect of California’s Uniform Trade Secrets Act (CUTSA) on common law claims “based on the same nucleus of facts” as a trade secrets claim.
This litigation arose from wireless banking software developed by K.C. Multimedia (KCM) for Bank of America (BofA), pursuant to two written contracts. KCM sued BofA in California state court for misappropriating KCM’s trade secret technology. KCM also brought state common law claims for breach of confidence, tortious interference with contract, and unfair competition. During pre-trial motions, the trial court dismissed the state law claims as preempted by CUTSA, leaving only the trade secret misappropriation claim. The trade secret misappropriation jury trial resulted in a verdict for BofA. KCM appealed this verdict and the common law claims’ dismissal.
In the Court of Appeal’s analysis of KCM’s arguments against preemption of the common law claims, the court reviewed CUTSA in detail, and reviewed prior federal court interpretations of CUTSA’s preemptive effects. The court agreed with the broad view that “CUTSA’s ‘comprehensive structure and breadth’ suggests a legislative intent to occupy the field” and so to preempt common law claims relating to trade secret misappropriation. The court examined subdivision (b)(2) of section 3426.7, which states that the section does not affect “other civil remedies that are not based upon misappropriation of a trade secret.” The court found that this section would be rendered meaningless if trade secret misappropriation claims were not preempted. Thus, the court agreed with prior federal cases’ standards, holding that CUTSA preempts common law claims which are “based on the same nucleus of facts as the misappropriation of trade secrets claim.”
Applying this analysis to KCM, the court found that KCM’s state law claims generally alleged the same conduct alleged by KCM’s trade secret misappropriation claim. In other words, each claim’s core was focused on the theft of KCM’s trade secrets. The breach of confidence claim was directed to disclosure of trade secrets to BofA by a former KCM employee, the interference with contract claim centered around BofA’s encouragement of that employee’s disclosure, and the unfair competition claim asserted only a violation of CUTSA. The court thus concluded that the trial court correctly found that CUTSA preempted KCM’s state law claims. The broader effect now given to CUTSA will help narrow the focus of future trade secret litigations. Plaintiffs must demonstrate clearly how their common law claims factually differ from their trade secret misappropriation claims, or risk being limited to trade secret causes of action alone.