Massachusetts Becomes 49th State to Adopt Uniform Trade Secrets Act
October 1, 2018
In tandem with the Massachusetts Noncompetition Act, which reformed Massachusetts law governing non-compete agreements (described here in detail), Massachusetts has adopted its version of the Uniform Trade Secrets Act (the MTSA). In so doing, Massachusetts discards its common law trade secret jurisprudence and joins every state except New York in adopting statutory guidelines to govern trade secret litigation. Like the Massachusetts Noncompetition Agreement Act, the MTSA goes into effect on October 1, 2018.
As with all versions of the MTSA around the country, and the similar federal Defend Trade Secrets Act of 2016, the MTSA provides remedies for plaintiffs who prevail on claims for trade secret misappropriation, but also provides for defenses and a remedy for prevailing defendants. In addition, Massachusetts will become the second state—joining California—to enact a statute requiring that a trade secret plaintiff identifies its asserted trade secrets before commencing discovery.
From a plaintiff's perspective, the MTSA permits a plaintiff to seek monetary damages for the misappropriation of trade secrets and injunctive relief for the actual or threatened misappropriation of trade secrets. The monetary damages available under the MTSA are the actual damages arising from the misappropriation, any unjust enrichment not taken into account in the measure of actual damages, and possibly reasonable royalties. Under certain circumstances, a plaintiff may obtain exemplary damages of up to twice the amount of the monetary damages, as well as reasonable attorneys' fees and costs. A trade secret plaintiff also may obtain an injunction for either the actual or threatened misappropriation of a trade secret, and the court may compel certain "affirmative acts to protect a trade secret" as well. If "exceptional circumstances" exist, an injunction may further condition any future use of the trade secret at issue on the payment of a reasonable royalty for the period of time for which use of the trade secret would have been prohibited. Under the MTSA, courts now also have the ability to take "reasonable means" to preserve the secrecy of the trade secrets at issue.
From a defendant's perspective, the MTSA provides valuable means through which to contest claims for misappropriation. Under the MTSA, plaintiffs will now be required to "state with reasonable particularity" the circumstances under which the alleged misappropriation occurred, including the nature of the trade secrets and the basis for their protection. This may result in heavier scrutiny of claims for misappropriation and a more exacting standard used to determine which facts will suffice to support such a claim. Plaintiffs also must identify any alleged trade secrets "with sufficient particularity" before obtaining any discovery from the defendant. This can be an effective tool early in litigation to stymie a third party's efforts to sift through the company's most secret information and can help weed out frivolous claims from plaintiffs who are unwilling or unable to identify the information at issue. In addition, any defendant who prevails on a claim under the MTSA may be awarded its attorneys' fees in the event that the claim was brought in bad faith.
Compared to the existing common law, the MTSA also changes some definitions in important ways, including the key terms "trade secret" and "misappropriation." Specifically, the statutory definition of a "trade secret" departs in two significant ways from Massachusetts' prior reliance on a common law definition based on the Restatement of Torts. First, trade secret plaintiffs no longer need to show that the putative trade secret was "used in one's business." Second, the trade secret information at issue no longer needs to be in "continuous use" to obtain protection under the statute. The MTSA thus eliminates some impediments that may have prevented plaintiffs from asserting that information was entitled to trade secret protection. Plaintiffs still, however, will not have carte blanche to claim that information constitutes a trade secret and will be required to show that the information at issue meets all of the statutory requirements.
The MTSA also expands how plaintiffs may show that a trade secret has been misappropriated. Massachusetts common law has required showing that one party in a "confidential relationship" with another used improper means to use and acquire a trade secret. The MTSA, however, jettisons the explicit requirement that the parties be in a confidential relationship and instead offers multiple avenues by which plaintiffs can prove misappropriation, not all of which require a showing of improper means by the acquiror of the trade secret. The MTSA additionally defines what acts constitute improper means, including theft, bribery, misrepresentation, unreasonable intrusion into private physical or electronic space, or breach, or inducement of a breach, of a confidential relationship or other duty to limit disclosure or use of information.
The expanded scope of what actions can constitute misappropriation does not mean that the MTSA is necessarily a boon for trade secret plaintiffs. When bringing a claim for misappropriation, plaintiffs will now be required to "state with reasonable particularity" the circumstances under which the alleged misappropriation occurred, including the nature of the trade secrets and the basis for their protection.
Wilson Sonsini Goodrich & Rosati's employment and trade secrets litigation practice will be actively monitoring any further developments relating to trade secret claims brought under the MTSA. Among the issues that WSGR will observe closely as plaintiffs begin bringing claims under this statute are the extent to which trade secret claims will displace other, related tort claims (such as unfair competition, breach of fiduciary duty, and tortious interference) and the extent to which Massachusetts courts will adopt decisions or interpretations from other jurisdictions. The MTSA itself provides that the statute supersedes any conflicting laws providing remedies for misappropriation of a trade secret but will not affect any contractual remedies, with the exception for any remedies based "on an interest in the economic advantage of information claimed to be confidential" in which case confidentiality will be determined according to the definition of a "trade secret" in the MTSA. The extent to which courts will read this as a prohibition on all other tort claims arising from the same facts as the alleged misappropriation is an open question but the MTSA does appear to prohibit parties from relying on a contractual definition of confidentiality in any dispute over breach of a contractual nondisclosure provision. Finally, the MTSA instructs courts that it should be applied and interpreted to make trade secret law "uniform" which reads as an invitation for Massachusetts courts to consider precedent from other jurisdictions.
WSGR is available to assist companies, employees, newly formed businesses, and investors with every aspect of trade secret litigation and protection. For more information, clients with offices, employees, or other operations in Boston or elsewhere in Massachusetts should contact Marina Tsatalis or Matt Gorman from the firm's employment and trade secrets litigation and IP litigation practices, or Mark Fitzgerald, Mark Solakian, Lou Lieto, Vern Norviel, or another member of the firm's Boston office.