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

Recent California Supreme Court Decision Stokes Debate Over Scope of Trade Secret Preemption

Posted in Practice & Procedure, Trade Secrets, Unfair Competition

Cases defining the scope of the California Uniform Trade Secrets Act’s (“CUTSA”) preemptive effect have grown in recent years.  Preemption (or “supersession” as the California Supreme Court prefers), increasingly is used by litigants to seek dismissal of non-trade secret causes of action pleaded alongside trade secret claims and which allegedly fall within the scope of CUTSA.  This has been particularly so since the decision in Silvaco Data Systems v. Intel Corporation, 184 Cal. App. 4th 210 (2010), which interpreted broadly—albeit at times in dicta— the CUTSA’s supersessive scope, finding among other things that “CUTSA bars [Bus. & Prof. § 17200] claims sounding in misappropriation of trade secrets.”

The California Supreme Court has yet to determinatively address the supersessive scope of the CUTSA, but on January 24, 2013, issued an opinion that will likely be used in the ongoing debate over CUTSA supersession. In Aryeh v. Canon Bus. Solutions, Inc., Case No. S184929, analyzing whether the “continuous accrual” rule properly may apply to bar under a statute of limitations theory an unfair competition claim, the court made the following observation:

The UCL affords relief from unlawful, unfair, or fraudulent acts; moreover, under the unlawful prong, the UCL “borrows violations of other laws and treats them as unlawful practices’ that the unfair competition law makes independently actionable.” [emphasis added.] Depending upon which prong is invoked, a UCL claim may most closely resemble, in terms of the right asserted, an action for…misappropriation [of trade secrets]… (citing Glue-Fold, Inc. v. Slautterback Corp., 82 Cal. App. 4th 1018 (2000) (emphasis added)).

The court’s citation to Glue-Fold is interesting.  In Glue-Fold, the issue on appeal was “whether three different statutes of limitation have run on what are essentially three causes of action for the same wrong—misappropriation of a trade secret.”  The Glue-Fold plaintiff had asserted causes of action for breach of contract (a non-disclosure agreement), misappropriation of trade secrets under CUTSA, and violation of section 17200 of the California Business and Professions Code.  Id. at 1023.

After expressly noting the non-trade secret claims before it, the Glue-Fold court expressly stated that “The Uniform [Trade Secrets] Act as adopted in California provides that its protection does not displace other contractual or civil remedies.” (citing § 3426.7, subd. (b).).  The court proceeded to analyze the statute of limitations issues before it.

While not too much should be read into Aryeh, neither should too little.  Other California Supreme Court precedent supports that other civil remedies related to the taking of confidential business information properly may be pleaded alongside claims for misappropriation of trade secrets.  See, e.g., Reeves v. Hanlon, 3 Cal. 4th 1140, 1155 (2004) (claim of tortious interference to gain unfair business advantage actionable alongside claim for misappropriation under CUTSA).

In time (hopefully sooner rather than later) the California Supreme Court may provide clarification as to the supersessive scope of CUTSA.  In the meantime, California businesses will continue to navigate the murky waters of California law related to the unlawful taking of confidential information.