Utah Supreme Court Strengthens the Uniform Trade Secret Act for Utah Employers

Utah businesses recently received a boost to their ability to protect their trade secrets from misappropriation by employees. The Utah Supreme Court smacked down a former employee’s efforts to make off with trade secrets in violation of both an employment agreement and Utah’s Uniform Trade Secret Act (UTSA). The case is Innosys, Inc. v. Mercer, 2015 UT 80. The gist is that Utah businesses now have a clearly easier time protecting their trade secrets.

Innosys has some pretty basic facts that a Utah employer will find common in nearly any attempt to enforce rights under the UTSA. Mercer worked for InnoSys, a technology company focusing on the defense industry, as an engineer. In its suit against her, InnoSys alleged that Mercer had violated a non-disclosure agreement and misappropriated company trade secrets. Mercer‘s disclosures and misappropriations were undisputed. During and after her employment with InnoSys, Mercer forwarded confidential emails to her private Gmail account, copied a confidential business plan to a thumb drive, and placed protected information on the record in an administrative (unemployment) proceeding.

InnoSys failed to convince the trial court that it had suffered a demonstrable injury as a result of the misappropriations. Convinced in its righteous position, InnoSys appealed. The Utah Supreme Court reversed and ruled against Mercer.

The Supreme Court teaches Utah employers and employees a number of important (and some more interesting than important) lessons:

• Just because the trial court ruled that way does not mean the court got it right.

This case was batted around between three different trial court judges who all got it wrong. The Utah Supreme Court straightened them out. Cases do not always need to be appealed and will not always have issues that have a likelihood of success on appeal. Sometimes they do. An appeal is expensive and should be considered carefully but with the understanding that trial courts don’t always get it right.

• Keep on enforcing your company privacy rules even if you think it seems pointless at the time.

InnoSys had rules about how its confidential materials could be accessed and precluded its employees from sending its materials through third-party email addresses like Gmail. The employee at first asserted that InnoSys had helped her set up her Gmail account and bypass InnoSys’s safeguards. She later recanted. If it had been true, however, InnoSys would have been deemed to have waived the problem. If your company has safeguards and rules about its confidential information, take them seriously and enforce them as necessary. Otherwise, you may be deemed to have waived them.

• Emailing your companies’ trade secrets through a Google account (or other provider other than through your company email) “is at least arguably” an unauthorized disclosure of those trade secrets.

The trial court in this case received mounds of expert testimony (i.e., it was expensive and the parties took it seriously) on the issue of whether emailing through a third party provider such as Gmail was a disclosure of the trade secrets. The trial court and Supreme Court accepted the possibility and damages may be awarded. Hence, if you permit your confidential information to be transmitted via Gmail, you may have waived any disclosure that occurs as a result of the information being disclosed through Gmail.

• There is no ‘necessary and appropriate’ defense for use of trade secrets by an employee.

Your employees have no right to use your confidential information under a claim that it is “necessary” or “appropriate” under the circumstances. Stick to your guns: this is your confidential information and you need to protect it. Mercer used confidential information in a wage dispute with InnoSys. She was wrong to do so and violated InnoSys’s trade secret rights.

• A trade secret is a property right and any invasion of that right is actionable in court regardless of whether it causes measurable damage.

Mercer claimed (and the trial court agreed) that her violation of InnoSys’s trade secret rights was so small to be of no value. Wrong. The trial court fined InnoSys (among other reasons) because it could not prove actual or threatened harm. Wrong. The Utah Supreme Court made it clear that a violation of a trade secret right is presumed to have caused harm and an injunction to vindicate that right and prevent future harm is warranted. Your new motto should be (if you have valid trade secrets): ‘when in doubt, protect your rights.’

• An injunction barring use of trade secrets does no harm.

An injunction protecting your trade secret rights is appropriate even if the other party (former employee, etc.) asserts they are not violating your rights: “If the defendants sincerely intend not to infringe, the injunction harms them little; if they do, it gives [plaintiff] substantial protection.” If you believe you need a court’s injunction to protect your rights, the Utah Supreme Court made it clear that you are entitled to such an injunction regardless of a defendant’s asserted innocence or lack of bad intent.

• As long as you have a good faith basis to pursue your claims, “it matters not that [you] may have harbored an ulterior motive of retaliation.”

Mercer claimed that InnoSys was only bringing the trade secret action as retaliation against Mercer. Utah Supreme Court: so what. InnoSys was entitled to prectect its trade secret rights and its action to protect its rights in good faith cannot be deemed retaliatory.

• The terms of and language used in your non-disclosure agreement (NDA) is important and a generic agreement will not be as helpful as one tailored to your business.

Mercer signed an NDA with InnoSys that defined “protected information” and limited Mercer’s use of protected information. Mercer also agreed to return to InnoSys and that due to “measure in money damage to InnoSys” from her breach, she agreed that “an injunction” would be appropriate to “minimize or prevent damage to [InnoSys].” The specific language of the NDA made it easier for InnoSys to enforce its agreement. Make sure your agreement has easily enforceable language too.

Make sure your NDA is up to date in terms of specific, protected information that it contains all of the terms that are needed to enforce it. I do not attempt to get into the specific provisions you need (I’ll save this for another time), but if you have questions, get legal help. It’s important to the long-term viability of your business.

• Keep the original or a copy of your non-disclosure agreement or employment agreement if you want to be able to quickly and easily enforce it.

InnoSys initially could not find a signed copy of the agreement and Mercer claimed she did not have one. When InnoSys attempted to enforce an agreement it could not find, the trial court ruled against Innosys including fines and charging InnoSys with Mercer’s attorney fees in the amount of $229,481.58. Although the Utah Supreme Court appeared prepared to enforce the NDA without a signed copy (consistent with Utah Rule of Evidence 1004) you need to keep a copy. It will save you time and money when you need it most.

• Even if you do not have an NDA, the Utah Uniform Trade Secret Act still protects your trade secrets.

Under the UTSA, an employer establishes a claim for misappropriation “on the basis of two essential elements: existence of a protectable ‘trade secret’ of a plaintiff and demonstration of ‘misappropriation’ by a defendant.” Utah Code § 13-24-2. An NDA helps a court rule in your favor but is not necessary. The NDA simply makes it easier to convince the judge that the employee misappropriated a trade secret.

InnoSys could have brought claims against Mercer independent of its NDA but would have face a much bigger challenge. With an NDA, InnoSys (and the Supreme Court) had a simple application of the definitions in the NDA to the information Mercer took. Without the NDA, another often difficult step is added: proof that the information was confidential and was provided to Mercer under circumstances showing it was confidential.

There are issues and nuances that cannot all be addressed here. If you have questions, you should get specific legal advice. If you would like more information about trade secrets, confidentiality agreements, protecting your rights, or rectifying wrongs committed against you, contact Utah attorney Ken Reich directly. Mr. Reich has represented both companies and individuals in business matters and disputes involving trade secrets, confidentiality issues, and enforcement actions. Using his many years of experience and backed by a firm of legal specialists in nearly every legal field, Mr. Reich can help you evaluate your situation and help you make smart decisions about your business and your life that will best fit your circumstances.