On Oct. 1, 2018, the Massachusetts Uniform Trade Secrets Act became effective, making Massachusetts one of the last states to adopt a version of the Uniform Trade Secrets Act. Accordingly, Massachusetts courts only recently began to interpret the statutory provisions.
In a case of first impression, on Oct. 29, the U.S. District Court for the District of Massachusetts found that the MUTSA does not preempt state law claims brought for theft of confidential and proprietary information.
The Massachusetts Legislature, like that of most other states, generally tracked the Uniform Trade Secrets Act when drafting the MUTSA. It defined a trade secret broadly to include specific information that provides economic advantage and is reasonably protected by the owner.
The statute also contains a preemption clause, stating that the MUTSA "supersede[s] any conflicting laws of the commonwealth providing civil remedies for the misappropriation of a trade secret." One of the four exceptions to the preemption clause is for "civil remedies to the extent that they are not based upon misappropriation of a trade secret."
A recent case arose after Facebook Inc. hired Aleksander Zlateski, formerly employed at Somerville, Massachusetts-based artificial intelligence startup Neural Magic Inc. Zlateski was a technology director and one of the startup's first employees. Neural Magic alleged that soon after Zlateski's departure, Facebook announced a data compiler that uses algorithms designed at Neural Magic.
Neural Magic sued for misappropriation of trade secrets under the MUTSA. Neural Magic also alleged several state law claims, including a Massachusetts General Law Chapter 93A claim, an unjust enrichment claim, and a tortious interference claim based on the theft of trade secrets and confidential and proprietary information. Facebook and Zlateski filed a motion to dismiss, on the grounds that the MUTSA preempts Neural Magic's state law claims — regardless of whether the confidential and proprietary information meets the definition of a trade secret. The court denied the motion to dismiss as to the Chapter 93A and tortious interference claims, holding that the MUTSA did not preempt them. There are four critical lessons to take away from the court's decision.
1. Strongly consider filing MUTSA claims in state court.
The court outlined a clear, three-step mode of statutory interpretation for examining the relatively new MUTSA in federal courts. The court examined (1) the explicit language of the statute, (2) Massachusetts precedent, and (3) how other courts interpret similar preemption clauses. As there are scarce MUTSA decisions currently on the books, the analysis will focus on the first and third steps.
Turning first to the text of the statute, the court found that the MUTSA does not specifically preempt other state law claims that do not solely allege misappropriation of trade secrets. Second, the court recognized that there is no Massachusetts precedent expressing whether the preemption clause applies to the theft of confidential and proprietary information.
In the third step, the court found that courts of other states are split on the scope of preemption. Some courts have found that similar statutory provisions preempt misappropriation claims, even when the information at issue does not rise to the level of trade secrets. Other courts found that a plain reading of the provisions does not preempt claims based on information that is not a trade secret.
This deferential federal framework encourages selection of a state court, rather than federal court, forum for parties involved in MUTSA claims until state courts rule on contested issues. The decision identifies the preemption clause as ambiguous as written and the absence of a prevailing view in other courts that have examined similar clauses.
Litigants are encouraged to bring action in state court and argue for a narrow interpretation of the MUTSA preemption clause. Defendants who might otherwise decamp to federal court should recognize the opportunity to advocate for a broad interpretation.
2. Strategically argue for — or against — a narrow preemption clause.
The court took an expansive view of legislative intent to avoid broadly preempting common law claims. The court emphasized the fact that the split of authority existed at the time the Massachusetts Legislature drafted the MUTSA. The Legislature was, therefore, on notice that a Massachusetts court may hold that the preemption clause does not cover theft of information that fails to meet the definition of a trade secret absent unambiguous language to the contrary. Notwithstanding this, the Legislature chose not to incorporate express language including confidential and proprietary information in the preemption clause.
As a result, the court supported a narrow interpretation of the state statute that flies in the face of the majority view that a broad preemption clause promotes uniformity in trade secrets law.
In effect, the court laid out a road map for plaintiffs to seek a narrow interpretation of the MUTSA preemption clause in state courts.
First, note that Massachusetts is among the last states to adopt a UTSA.
Second, lay out the existence of a split in other courts examining similar provisions.
Third, identify the ambiguity in the preemption clause.
And, fourth, highlight the reluctance of Massachusetts courts to displace common law causes of action and the potential injustice of leaving plaintiffs without a remedy.
Although the court's decision is helpful for plaintiffs seeking a narrow interpretation of the preemption clause, defendants are not without arguments to oppose such a narrow interpretation. The Massachusetts Legislature stated its intent that the MUTSA "shall be applied and construed to effectuate their general purpose to make uniform the law with respect [to] trade secrets." It is reasonable that applying the majority view of a broad preemption clause would increase the uniformity of the law in accordance with the intent of the Legislature.
Defendants may argue that this one-step interpretive analysis is more reasonable than the two-step analysis required by plaintiffs: (1) that the split in judicial interpretation created notice and (2) that failure to address information not rising to trade secrets should be read in favor of a narrow interpretation instead of a broad one.
3. There are two routes to a narrow preemption clause.
The court additionally opined that the focus in applying the civil remedy exception to the preemption clause should be on the causes of action themselves, rather than the underlying factual conduct.
Though dicta, the court expounded at length on an element-based method for determining whether a civil remedy should be preempted. In this method, a court would consider whether the elements of the cause of action are different from, or in addition to, the elements of a misappropriation of trade secrets claim. The court advocated against focusing on whether the varied causes of action are substantiated by the same facts.
Again, the court lays out a road map for plaintiffs to advocate in state court for a narrow interpretation of the MUTSA preemption clause. An element-focused analysis allows for multiple causes of action related to the same conduct and limits the extent to which the preemption clause can effectively reduce the civil remedies brought in a trade secrets claim.
Defendants, however, should argue that a factual determination of whether the information at issue is a trade secret or not is necessarily the first step of an element-focused analysis. In conjunction with the argument that a broad presumption clause increases the uniformity of trade secrets law, a fact-focused analysis may be dispositive of claims involving information that does not rise to the level of trade secrets.
Defendants should stress that it is the same information, and the same conduct, at issue. Granting common law protection to information that fails to meet the already broad definition of a trade secret counteracts the purpose of uniform trade secrets laws.
4. For now, add Chapter 93A claims to your MUTSA actions.
Although not binding precedent, the Neural Magic decision allows — and encourages — plaintiffs to structure their trade secrets complaints to include state law claims for the theft of confidential and proprietary information. This opens the door for plaintiffs to seek additional relief, such as treble damages and attorney fees, for Chapter 93A claims arising out of the same underlying conduct.
For counsel defending such conduct, the Neural Magic decision should encourage greater attention to the state common-law and Chapter 93A claims tacked on to a trade secrets claim. The court's emphasis on the elements of the respective causes of action, rather than the underlying factual conduct, also provides insight and instruction for effective defensive motion practice.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.