Most state enactments of the Uniform Trade Secret Act (UTSA) include a provision that preempts other civil claims "based upon" or "relating to" claims of trade secret misappropriation. But do these preemption statutes bar a plaintiff from bringing state law tort claims designed to protect confidential information that does not rise to the level of "trade secret" status? Because trade secret plaintiffs commonly tack on state law tort claims, such as breach of confidence or misappropriation of ideas as an additional basis for liability, this is a frequently litigated issue on which courts have come out both ways.
The majority of courts presented with this question have held that state UTSA preemption statutes abolish all alternative causes of action for theft or misuse of confidential, proprietary, or otherwise secret information. An Indiana appellate court recently articulated the rationale for this interpretation in HDNET LLC v. North American Boxing Council, 972 N.E.2d 920 (Ind. Ct. App. 2012). In that case, plaintiff NABC, a professional boxing and mixed martial arts sanctioning body, accused defendant HDNET of misappropriating its confidential business ideas for creating a branded television fight series. NABC had shared its information in a series of email discussions with HDNET over a potential joint venture, though the parties never entered into a formal non-disclosure agreement. NABC brought a claim for trade secret misappropriation under Indiana's adoption of the UTSA and also asserted a common law claim for misappropriation of ideas.
HDNET moved for partial summary judgment, arguing that NABC was preempted under the Indiana Uniform Trade Secrets Act's (IUTSA's) preemption statute from asserting its claim for misappropriation of ideas as a secondary basis of liability to its trade secret claim. After the district court denied HDNET's summary judgment motion, the Court of Appeals of Indiana agreed to take up the issue in an interlocutory appeal. The appellate court reversed the lower court's decision, reasoning that the legislators' purpose in adopting the IUTSA was to displace prior laws relating to the protection of commercial information.
Not all courts, however, have accepted this interpretation of state UTSA preemption statutes. For example, in Stone Castle Financial, Inc. v. Friedman, Billings, Ramsey & Co., 191 F. Supp. 2d 652 (E.D. Va. 2002) (quoting Frantz v. Johnson, 999 P.2d 351 (Nev. 2000)), the district court held that the Virginia Uniform Trade Secrets Act's (VUTSA's) preemption statute was not so broad as to provide "a blanket preemption to all claims that arise from a factual circumstance possibly involving a trade secret." The court reasoned that under a plain reading of the statute, unless and until it could be determined that the information in question constituted a trade secret, then the court could not dismiss alternative theories of relief as preempted by the VUTSA. A frequently cited 2006 decision from the Supreme Court of Wisconsin reached a similar conclusion in Burbank Grease Services, LLC v. Sokolowski, 717 N.W.2d 781 (Wis. 2006).
It is important to note that claims for misappropriation of confidential information based in contract will survive preemption, even in those jurisdictions that favor broad interpretations of UTSA preemption statutes. As observed by the Indiana appellate court in HDNET, had plaintiff NABC signed a non-disclosure agreement (NDA) with HDNET prior to disclosing its information, then a subsequent claim for breach of the parties' NDA would have been immune from preemption.