By Ryan Malloy and Joshua Salinas
The Court of Appeals of Indiana recently reversed and remanded a 2008 suit brought by the North American Boxing Council (NABC) against HDNet LLC (HDNet), in which the NABC alleged that HDNet stole its idea for a mixed martial arts (MMA) broadcast series after the parties had discussed a broadcast arrangement that never materialized into a formal contract.
The Court of Appeals held that the trial court erred in granting summary judgment because NABC’s idea misappropriation claim fell under the Indiana Uniform Trade Secrets Act’s (IUTSA) preemption provision and NABC’s civil conversion claim did not fall within the “criminal law” exception to the preemption provision.
Plaintiff NABC is an MMA and professional boxing sanctioning body. Defendant HDNet is a high-definition television channel. In 2007, NABC and HDNet allegedly exchanged a series of e-mails to discuss HDNet’s potential broadcast of MMA events. Of significant importance was an alleged email NABC sent to HDNet where NABC allegedly proposed and outlined its ideas for a unique weekly fight series model that was significantly different from other fight series models within the industry. The parties allegedly continued to exchange correspondence and discuss NABC’s new proposed idea. While the parties did not have any confidentiality or non-disclosure agreements, NABC considered its unique fight series model to be a protectable commercial idea.
A dispute arose when HDNet formed a new company–HDNet Fights–to allegedly sanction, promote, and broadcast MMA events based on NABC’s initially proposed model. NABC brought action against HDNet and asserted claims of, inter alia, idea misappropriation, trade secret misappropriation, and conversion of trade secrets.
NABC later moved for partial summary judgment on grounds that its idea misappropriation and conversion claims were not preempted under the ITUSA. The trial court granted NABC’s motion, finding that the idea misappropriation and conversion claims against HDNet were not preempted under the IUTSA.
HDNet appealed. It argued that the IUTSA preempts common law idea misappropriation and civil conversion claims regardless whether the information at issue rises to the level of a statutorily-defined trade secret. The three-judge Appeals Court panel agreed.
As to the claim for idea misappropriation, the panel held that the claim amounted to a statutorily-defined trade secret, and stated that the “UTSA creates a ‘two-tiered’ approach to protection of commercial knowledge, under which information is classified only as either a protected ‘trade secret’ or unprotected ‘general skill and knowledge.’… NABC’s interpretation of the IUTSA would encourage piecemeal litigation and would thus fail to implement the legislature’s intended goal of uniformity.”
The panel rejected NABC’s “plain meaning” argument that the preemption provision applies only to “trade secrets” and not “idea” misappropriation claims. The panel explained that this was a minority view that departs from the essential goal of the UTSA–uniformity among states adopting the statute. Specifically, the panel noted that the majority of jurisdictions hold that the UTSA preemption provision “abolishes all free-standing alternative causes of action for theft of misuse of confidential, proprietary, or otherwise secret information falling short of trade secret statutes (e.g., idea misappropriation….).” (quoting the Hawaii Supreme Court in BlueEarth Biofuels, LLC v. Hawaiian Electric Company, 235 P. 3d 310 (Haw. 2010)). Accordingly, the panel concluded that the trial court’s summary judgment order was erroneous as a matter of law.
The panel also held that the trial court erred in granting summary judgment on the civil conversion claim because the claim does not delineate a criminal act and therefore is not saved by the criminal law exception to the IUTSA’s preemption provision. The panel explained that a civil claim is “derivative” of criminal law and falls under the applicable exception when the civil claim is part of the same statutory scheme designed to combat the same wrongful activity as the criminal law, not simply because the claim provides a civil remedy for a crime.
The facts of this case again remind us of the importance of having written confidentiality agreements when exploring and discussing potential business with others. Moreover, the case illustrates that Indiana has an expansive preemption statute and that information not rising to the level of a trade secret may be difficult to protect in Indiana in the absence of an enforceable non-disclosure agreement.