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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

New Jersey Adopts Variation of Uniform Trade Secrets Act

Posted in Trade Secrets

By Robert Milligan, David Monachino, and Jeffrey Oh

With Governor Chris Christie’s signature on January 9, 2012, New Jersey became the 47th state to adopt a form of the Uniform Trade Secrets Act (UTSA). Previously governed by common law, trade secrets of persons or entities in New Jersey will now have statutory protection under the New Jersey Trade Secrets Act (S-2456/A921). The new statute went into effect immediately after its signing, and applies to all new claims which arise on or after January 9, 2012.

To read the full text of the law, please visit this website.

Effects of the Act on Trade Secret Protection in New Jersey

The New Jersey Trade Secrets Act (NJTSA) sets forth clear statuatory language for trade secret protection for the first time in the state, including defining what a trade secret is as well as what acts constitute misappropriation of a trade secret. Prior to the Act, trade secret analysis relied on the Restatement of Torts, pursuant to New Jersey cases such as Sun Dial Corp. v. Rideout (1954), making protection somewhat inconsistent as varying interpretations of the common law were applied.

Protections afforded to persons and entities with valid trade secret claims under the NJTSA include injunctive relief for “actual or threatened misappropriation,…a reasonable royalty” for misappropriation, and monetary damages (compensating for both actual losses as well as “unjust enrichment caused by the misappropriation”). In addition, for cases of “willful and malicious misappropriation,” attorney fees may be recovered and punitive damages may be awarded for up to two times the damages otherwise awarded. There is also no statutory requirement to identify trade secrets prior to commencing discovery unlike some jurisdictions.

Variations between the UTSA and NJTSA

Despite being based on the UTSA, the New Jersey legislature did make certain adjustments in drafting its state’s trade secret statute. One such adjustment was the exclusion of a clause present in the UTSA which directs courts to take trade secret rulings in other states into account when handing down decisions. Another key difference between the UTSA and NJTSA is the NJTSA’s explicit mention that the provisions of the act are “in addition to and cumulative of any other right, remedy or prohibition provided under the common law or statutory law of this State.” In practice, this allows confidential and proprietary information that does not satisfy the trade secret requirements set forth by the act, but was previously protected under the state’s common law, to remain protected.  This in contrast to some states who have adopted adapted versions of the UTSA, many of which take the stance of preemption of common law claims. Finally, the NJTSA contains more robust protections for the preservation of trade secrets in the court system than in the standard UTSA. Courts are directed to use “reasonable means” to ensure the protection of trade secrets during litigation, including sealing court records when necessary, limiting disclosure of trade secrets to attorneys’ eyes only, and granting protective orders during discovery. This is particularly significant because some jurisdictions are reluctant to seal court records even in trade secrets cases.

Advice for Employers

The NJTSA offers companies statutory protections for trade secrets, though it is their responsibility to ensure this protection by making “efforts that are reasonable under the circumstances to maintain its secrecy.” To accomplish this, companies should have explicit policies preventing disclosure of their trade secrets while also being vigilant in educating employees of their responsibilities. Any suspicion of trade secret misappropriation by an employee or competitor should be investigated immediately in order to prevent the loss of rights in trade secret protection. Under the NJTSA, the statute of limitations for bringing a misappropriation claim has been reduced from six years, to three years from discovery of the misappropriation. An attorney with knowledge and experience in litigating trade secret claims is best suited to guide companies through this process.

Questions for the Future

With New Jersey joining the other 46 states who have passed some form of trade secret protection legislation, just three states, Texas, New York and Massachusetts, have yet to adopt a variation of the UTSA. It will be interesting to se how the New Jersey courts construe the new law, including "threatened misappropriation" and preemption of common law claims. How long these hold-outs will remain reliant on common law protections is an important discussion moving forward. Part of the UTSA’s goal when drafted in 1979 was to address the disparity in trade secret protection across state lines, and to that end there has been some interest in Congress in instituting federal civil trade secret protections, but the scope and preemptive effect of such legislation is entirely uncertain