In a decision recently issued by the Utah Court of Appeals, CDC Restoration & Construction, LC v. Tradesmen Contractors, LLC et al., the court broadly interpreted the preemption clause in the Uniform Trade Secrets Act (“UTSA”) to hold that it “preempts claims based on the unauthorized use of information, irrespective of whether that information meets the statutory definition of a trade secret.”
With various modifications, the UTSA has been adopted by all but a handful of states. One of its provisions expressly preempts conflicting tort and other common law or statutory civil causes of action “for misappropriation of a trade secret.” (The preemption provision does not, however, preempt contractual or criminal remedies, regardless of whether they are based upon misappropriation of a trade secret, or other civil remedies not based upon misappropriation of a trade secret.)
Some courts have interpreted the UTSA’s preemption clause narrowly, holding that it only preempts claims based on information that meets the statutory definition of a trade secret. Their rationale is that if the UTSA was held to preempt claims based on theft of information that is not a statutory trade secret, a wronged plaintiff might be left without any remedy.
Other courts (a majority that have addressed the issue, according to the opinion in CDC Restoration & Construction) take a broader view of the UTSA’s preemption clause, and hold that it preempts any claim based on the unauthorized use of information – regardless of whether that information meets the statutory definition of a trade secret, and regardless of whether such a broad reading might deprive a plaintiff of a remedy for the misappropriation of information which does not constitute a statutory trade secret. As explained in CDC Restoration & Construction, “[a] contrary approach would render the statutory preemption provision effectively meaningless, leaving prior law untouched and converting an exclusive remedy into just another basis for recovery” (internal quotations omitted).
Employers should draw two lessons from this case. First, when prosecuting or defending misappropriation of trade secrets claims, employers need to be aware of the different interpretations of the UTSA’s preemption provision in different states; a valid claim in one state may be preempted in another. Second, employers should protect themselves against broad UTSA preemption by having employees sign contractual provisions protecting their confidential information – regardless of whether such information constitutes a “trade secret” for purposes of the UTSA. After all, the UTSA does not preempt contractual remedies.
- Member of the Firm