Thanks to a recent decision of the Georgia Supreme Court, the assignee of confidential and proprietary information has found itself in a Catch 22 dilemma, precluded from suing under the state’s trade secrets statute because the information did not qualify as trade secrets but prohibited by that statute from bringing related common law claims. Robbins v. Supermarket Equipment Sales, LLC, 290 Ga. 462, 722 S.E.2d 55 (Feb. 6, 2012). A similar ruling was issued by the Utah Court of Appeals a few days later. CDC Restoration & Construc., LC v. Tradesmen Contractors, LLC, 2012 Ut. App. 60 (Feb. 24, 2012). Other courts interpreting the preemption provision of the Uniform Trade Secrets Act are divided.
In the Georgia case, the final act of an insolvent company was to assign its confidential and proprietary library of drawings to an entity newly created for the purpose of conducting the same business, with the same employees, as the assignor. Former employees of the assignor made copies of the drawings and went to work for a competitor. The assignee sued them for misappropriation. The trial court held, and the Georgia Supreme Court agreed, that the assignee was basically engaged in a continuation of the assignor’s business and, therefore, had standing to sue even though the misdeed took place before the assignment (indeed, before the assignee even was formed). But in light of the provision in the Georgia Trade Secrets Act stating that the statute supersedes all common law actions for trade secret misappropriation, and notwithstanding the conclusion that the confidential information did not qualify as a trade secret because it was not adequately protected, the supreme court held that the trial court abused its discretion by enjoining the miscreants from using the misappropriated property.
Section 10-1-767(a) of Georgia’s trade secrets statute states that the law “shall supersede conflicting tort, restitutionary, and other laws of this state providing civil remedies for misappropriation of a trade secret.” Even though the state Supreme Court held that assignee SES’ proprietary information did not constitute a trade secret, the court interpreted the statute as precluding common law claims based on the same allegations that underlie the trade secret misappropriation cause of action. The court said: “For the [statute] to maintain its exclusiveness, a plaintiff cannot be allowed to plead a lesser and alternate theory of restitution simply because the information does not qualify as a trade secret under the act.”
The Utah opinion, which was the subject of a Seyfarth Shaw blog shortly after it was issued, emphasized that a uniform act is to “be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of the [trade secrets] chapter among states enacting it.” The court cited decisions to a similar effect in state and federal courts of Hawaii, Kentucky, Michigan, New Hampshire (Mortgage Specialists, Inc. v. Davey, 904 A.2d 652, 663 (N.H. 2006) (collecting cases holding to the contrary but rejecting them), Ohio (Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., Inc., 649 F.Supp.2d 702, 720-22 (N.D. Ohio 2009) (collecting majority cases), Tennessee (Hauck Mfg. Co. v. Astec Indus., Inc., 375 F.Supp.2d 649, 655 (E.D. Tenn. 2004) (same), and Virginia.
Thus, for plaintiffs in several states, such as Utah and Georgia, pleading misappropriation of proprietary information failing to qualify as a trade secret, the only way around those holdings may be by pleading some form of misconduct that is not based on theft of confidential data.