New Jersey employers should be aware that yesterday Governor Chris Christie signed into law the New Jersey Trade Secrets Act (“the Act”), which for the first time codifies the law in New Jersey concerning the misappropriation of trade secrets. The new law is derived largely from, although is not identical to, the Uniform Trade Secrets Act, variations of which have been adopted in the great majority of states. New Jersey companies who are concerned about potential trade secret misappropriation by current or former employees should study the new law carefully.

Key Definitions:
The Act makes unlawful the “misappropriation” of “trade secrets” by “improper means.” The Act broadly defines “trade secrets” as:
information, held by one or more people, 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.

“Misappropriation” is defined as:

  1. Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
  2. Disclosure or use of a trade secret of another without express or implied consent of the trade secret owner by a person who:

(a) used improper means to acquire knowledge of the trade secret; or

(b) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was derived or acquired through improper means; or

(c) before a material change of position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired through improper means.

The Act also expressly defines both “improper means” and “proper means:”

“Improper means” means the theft, bribery, misrepresentation, breach or inducement of a breach of an express or implied duty to maintain the secrecy of or to limit the use or disclosure of a trade secret, or espionage through electronic or other means, access that is unauthorized or exceeds the scope of authorization, or other means that violate a person’s rights under the laws of this State;

“Proper means” means discovery by independent invention, discovery by reverse engineering, discovery under a license from the owner of the trade secret, observation of the information in public use or on public display, obtaining the trade secret from published literature, or discovery or observation by any other means that is not improper.

Remedies:

Equitable relief. The Act authorizes courts to enjoin an actual or threatened misappropriation of trade secrets and to compel affirmative acts to protect trade secrets. In certain circumstances, the court may order additional equitable relief in the form of royalty payments to the trade secret owner.
Monetary damages. The Act provides that unless it would be inequitable under the circumstances, such as when the party acquiring the trade secret was unaware of the misappropriation, a successful complainant will be entitled to recover damages, which can include damages for actual loss and for unjust enrichment.

Punitive damages. The Act authorizes courts to award punitive damages for “willful and malicious” misappropriation in an amount not exceeding twice any monetary damages awarded.

Other Significant Provisions:

  • The Act will apply only to misappropriations of trade secrets that occur after the effective date of the Act, January 9, 2012. The Act will not apply to continuing misappropriations that began prior to the effective date of the Act and have continued subsequent to that date.
  • The Act provides a 3-year statute of limitations based on the date of the discovery of the misappropriation or the date on which the misappropriation should have been discovered by reasonable diligence.
  •  In certain circumstances, a prevailing party will be entitled to its attorneys fees and expert witness costs, such as when the court finds the misappropriation was willful and malicious or finds that a claim of misappropriation was made in bad faith.
  • It is no defense to a misappropriation that proper means to acquire the trade secret existed at the time of the misappropriation.
  • The Act supersedes any conflicting tort, restitutionary, and other law providing civil remedies for misappropriation of a trade secrets, but otherwise does not abrogate any other common law or statutory rights or remedies.

Commentary:

The Act’s definition of “trade secrets” is similar, but not identical, to the definition in RESTATEMENT OF TORTS § 757, adopted by the New Jersey Supreme Court in Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 636-37 (1988). For example, whereas the RESTATEMENT defines a trade secret as information that gives the owner an “opportunity to obtain an advantage over competitors,” the Act refers to information that “derives independent economic value … from not being generally known.” Moreover, the New Jersey Supreme Court has, in the past, recognized that the common law may provide redress for the improper use of information that did not rise to the level of a “trade secret.” See Lamorte Burns & Co. v. Walters, 167 N.J. 285, 299 (2001). In any event, it will remain for the courts to decide the extent, if any, to which the Act changes the common law applicable to trade secrets an other information maintained in confidence.

What is important for employers to remember is that, under the Act, information is not a “trade secret” unless it is “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” What is “reasonable under the circumstances” will vary on a case-by-case basis, but, at a minimum, employers should: (1) disclose trade secret information only on a need-to-know basis, (2) establish written policies and procedures governing the maintenance, use and disclosure of confidential information, and (3) obtain a written acknowledgement from each employee that he or she will abide by those policies and will be subject to termination for violations of same.

Please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department with any questions that you may have.

Richard S. Zackin is a Director in the Gibbons Employment & Labor Law Department.