The New Jersey Legislature recently passed its version of the Uniform Trade Secrets Act and has sent the bill to the Governor.  Here are some of the highlights from the New Jersey Trade Secrets Act:

• Injunctive relief may be sought and obtained for actual or threatened misappropriation of a trade secret.

• Damages may be awarded for both actual loss and for unjust enrichment

• Punitive damages, no greater than twice that awarded for actual damages, may be awarded in cases involving willful and malicious misappropriation

• Attorney’s fees may be awarded in cases involving willful and malicious misappropriation

• A "Trade secret" is defined to mean information, without regard to form, including a formula, pattern, business data compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype or process, that: (1)   derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

• “Reverse engineering”  is defined to mean the process of starting with the known product and working backward to find the method by which it was developed so long as the acquisition of the known product was lawful or from sources having the legal right to convey it, such as the purchase of the item on the open market

• The Act contains a statute of limitations: An action for misappropriation shall be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.

• A person who misappropriates a trade secret cannot defend the case by arguing that proper means to acquire the trade secret existed at the time of the misappropriation.

• Courts “shall” preserve the secrecy of an alleged trade secret by reasonable means consistent with the Rules of Court, which essentially means that courts may issue protective orders to protect trade secrets during discovery.

Interestingly, the statute does not include a provision found in many other states that says: "This Act shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this Act among the states enacting it."  Perhaps New Jersey is signaling that it differs with respect to trade secret enforcement.  Exactly how it differs, if at all, remains to be seen.

In passing this statute, New Jersey joins 46 other states and the District of Columbia, which haved passed a version of the Uniform Trade Secrets Act.  The Act shall take effect immediately upon signing by the Governor, but it only applies to misappropriation occuring after the effective date.

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

It is not uncommon for parties in trade secret and non-compete litigation to ask the court for permission to file documents under seal.  In a recent post, this blog discussed one court’s reaction, which was based primarily upon the public’s interest in having access to judicial records.  The court’s reaction was not surprising given that courts historically have recognized that the public has a “general right to inspect and copy public records and documents, including judicial records and documents.” Nixon v. Warner Communs., Inc., 435 U.S. 589, 597 & n.7 (1978). 

While courts will make exceptions to keep trade secrets private,  a “strong presumption in favor of access” is the starting point.  A party seeking to seal a judicial record bears the burden of overcoming this strong presumption by showing ‘compelling reasons’ to deviate.  To meet this standard, a party must articulate compelling reasons supported by specific factual findings that outweigh the general history of access and the public policies favoring disclosure.  In turn, courts are then charged with conscientiously balancing the competing interests of the public and the party who seeks to keep certain judicial records secret.  After considering these interests, if the court decides to seal certain judicial records, it must base its decision on a compelling reason and articulate the factual basis for its ruling, without relying on hypothesis or conjecture.  The mere fact that the production of records may lead to a litigant’s embarrassment, incrimination, or exposure to further litigation will not, without more, compel the court to seal its records.

Trade secret litigants need to keep in mind that an order sealing the record will require a heightened showing, and they should not assume that such orders will be granted freely.  Before asking a court to seal the record, parties should demonstrate to the court that they have considered other alternatives, such as redacting sensitive information.

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

Non-compete and trade secret litigation inherently involves disclosure of confidential information.  Plaintiffs argue that defendants took or used the plaintiff’s confidential information, and they often want the defendants to turn over their files for review.  Defendants often complain that the plaintiffs are engaged in a fishing expedition or that they are entitled to review the plaintiff’s files in order to pressure test the trade secret claims.

Once the parties come to grips with the reality that they will have to exchange confidential information with their opponents in order to prosecute or defend the litigation, the reality sets in that this information could become part of the public record if it is filed with the court.  It is at this time that their attorneys begin exploring the use of protective orders. 

Protective orders are orders by courts that allow parties to produce information in lawsuits subject to certain ground rules on how the information may be used or who is allowed to see it.  These orders commonly contain language authorizing the parties to file alleged confidential information under seal so that it is not accessible by the public.  Some litigants expect this protection as a matter of course, but most courts recognize that the parties’ interest in confidentiality is counterbalanced by the public’s interest in free access to judicial records. 

As one federal court recently put it, “the public at large pays for the courts and therefore has an interest in what goes on at all stages of a judicial proceeding.”  (A copy of this decision is available in pdf format below.)  In making this observation, the court relied on precedent from the United States Seventh Circuit Court of Appeals.  The Seventh Circuit, like many other appellate courts across the country, has “insisted that litigation be conducted in public to the maximum extent consistent with respecting trade secrets….”  These courts observe that when parties choose to resolve their disputes in court, “they must accept the openness that goes with subsidized dispute resolution by public (and publicly accountable) officials.”  According to the Seventh Circuit, “[p]eople who want secrecy should opt for arbitration.”  That is not to say that courts will not protect trade secrets.  Courts have a range of options spanning from permitting documents to be filed under seal to allowing redaction of confidential information.  But if a litigant desires true privacy, the Seventh Circuit has a point.  Arbitration is an option that may fit the bill.

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

Walgren Company v. Schlage Lock Company.pdf (18.21 kb)

Federal Rule of Civil Procedure 26 provides for broad discovery:  “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense.”  “Relevant information need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.”  These provisions apply with equal force in non-compete and trade secret litigation, but perhaps with greater consequence.  After all, the purpose of such litigation is to protect confidential information, not to share it with competitors.

As a result, parties often fight over the extent to which the confidential information they produce in discovery may be shared by opposing counsel with their clients.  Producing parties often seek to place "attorney eyes' only" limitations on the documents they produce.  Receiving parties are often willing to treat documents confidentially, but they complain that an "attorney eyes' only" limitation will place them at a disadvantage. 

Parties sometimes overlook the possibility that such documents may find sufficient protection somewhere in the middle between marking them as “Confidential” and “Attorney Eyes’ Only.”  Namely, producing parties may find the protection they seek by marking documents “Highly Confidential” and seeking heightened restrictions that fall short of limiting the documents to the eyes of opposing counsel.  For example, a producing party may agree that receiving counsel can treat documents as “Highly Confidential” with the following limitations:

Receiving counsel may show "Highly Confidential" documents to their clients (the "receiving party") on the conditions that the receiving party may not (1) keep a copy of the "Highly Confidential” materials; (2) view the “Highly Confidential” materials outside the direct supervision of counsel; (3) take notes concerning the content of the “Highly Confidential” materials; (4) discuss or disclose the contents of the “Highly Confidential” materials with or to other employees (excluding named parties) or third parties unless these third parties are technical advisors; and/or (5) use the “Highly Confidential” materials for any purpose other than in connection with the prosecution or defense of the lawsuit.

Naturally, these limitations are not exhaustive or exclusive.  Rather, they are simply an example of a possible solution to the seemingly recurrent “Attorney Eyes’ Only” dispute.  Creative counsel may identify different restrictions that meet their needs.  A sample protective order is available in pdf format at the bottom of this post.

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or subscribe to this blog's RSS feed. 

Sample Protective Order.pdf (88.02 kb)

The United States District Court for the District of Minnesota recently upheld a magistrate judge’s decision to issue a protective order precluding a school from enforcing confidentiality obligations against employees who disclose information in connection with “formal and informal discovery” in a lawsuit commenced by the ACLU.

The ACLU filed suit against Tarek ibn Ziyad Academy (“TiZA”) arguing that its use of public funds violates the First Amendment because TiZA advances and prefers Islam over other religions and nonreligious approaches.  To aid its investigation, the ACLU sought to interview current and former TiZA employees to ask questions about how the school operates.  During these interviews, employees expressed reluctance because they feared the school would take steps to enforce a confidentiality clause in its Staff Handbook.  The ACLU contacted the school to seek confirmation that it would not commence legal action against employees who cooperate, but the school refused and reaffirmed its belief that the confidentiality clause applied.  In response, the ACLU sought a protective order from the court specifying that individuals can disclose information in connection with this case without fear of sanctions resulting from the secrecy clauses in the school handbook and related non-disclosure agreements.

The magistrate judge issued a briefly worded order stating that “[p]ursuant to its inherent authority to maintain the integrity of the proceedings, this Court orders TiZA not to commence legal action against its former or current employees for disclosures they may make in connection with this litigation.”  TiZA appealed this order to the district court, but the district court was even less understanding.  Observing that TiZA does not want its employees to provide information relevant to the lawsuit, the district court threatened that it “may be required to weigh the evidentiary implications of TiZA’s conduct should TiZA attempt to prevent current or former employees from providing information in this action.”  The court noted that such “implications” may include drawing adverse inferences about how the school operates, and it further warned TiZA that its conduct “may not sit well with a fact-finder such as a jury.”   

In fairness, the district court’s decision was heavily premised on TiZA’s status as a “public entity.”  In fact, the court observed that TiZA was “behaving more like a private institution by maintaining that a confidentiality clause in its employee handbooks may be grounds for termination or legal action if a current or former employee provides relevant, public information in this action.”  Regardless, the court’s opinion expressly left undecided the issue of whether the confidentiality clause was unenforceable because the school was a public entity.  Instead, it found that TiZA’s threats on the record before it were not “consistent with a good faith search for the truth.”  Whether the court would reach the same result in a case involving a private entity is debatable.

A copy of the district court's opinion, the magistrate judge's order, and the ACLU's memorandum of law are available in pdf format below.

ACLU v. Tarek ibn Ziyad Academy District Court Order.pdf (20.82 kb)

ACLU v. Tarek ibn Ziyad Academy Magistrate Judge Orderl.pdf (10.41 kb)

ACLU's Memorandum re Motion for Protective Order.pdf (42.30 kb)