My Company’s Former Employee In New Jersey Misappropriated My Company’s Trade Secrets. What Are My Company’s Rights?
In New Jersey, if your company’s present or former employee misappropriates your company’s trade secrets, your company may have viable causes of action against your employee for, among other things, (i) common law misappropriation of trade secrets, (ii) a violation of the New Jersey Trade Secrets Act, and/or a violation of the federal Defend Trade Secrets Act. Let’s examine, in turn, these three causes of action.
Common Law Misappropriation of Trade Secrets In New Jersey
In New Jersey, to state a claim for common law misappropriation of trade secrets, the corporate owner of the allegedly misappropriated information must allege and must set forth facts supporting the corporate owner’s allegations that:
- A trade secret exists;
- The information comprising the trade secret was communicated in confidence by the corporate owner to the employee;
- The secret information was disclosed by that employee and in breach of that confidence;
- The secret information was acquired by a competitor with knowledge of the employee’s breach of confidence;
- The competitor used the secret information to the detriment of the corporate owner; and
- The corporate owner took precautions to maintain the secrecy of the trade secret.
The New Jersey Trade Secrets Act
The New Jersey Trade Secrets Act (the “NJTSA”) prohibits the “misappropriation” of “trade secret[s].” The NJTSA defines a “[t]rade secret” 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:
- 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
- is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Under the NJTSA, actual or threatened misappropriation may be enjoined. That is, in New Jersey, a court may direct a litigant not to misappropriate another litigant’s trade secrets.
When warranted, affirmative acts to protect the trade secret may be compelled by court order.
Further, except when circumstances (such as a material and prejudicial change of position before acquiring knowledge or reason to know of a misappropriation) make a monetary recovery unjust, a complainant under the NJTSA, such as an employer, is entitled to recover money damages for misappropriation.
Money damages can include both (i) the actual loss caused by misappropriation and (ii) the unjust enrichment caused by misappropriation that is not considered in computing actual loss.
If intentional and malicious misappropriation exists, the court may award punitive damages in an amount not more than twice any award of compensatory damages.
In addition, the court may award, to the prevailing litigant (such as an employer who wins an NJTSA lawsuit against its employee), reasonable attorney’s fees and costs, including a reasonable sum to cover the service of expert witnesses, if:
- Willful and malicious misappropriation exists;
- A claim of misappropriation is made “in bad faith”; or
- A motion to terminate an injunction (that is, an application, to the court, to cancel the court’s order directing a litigant not to misappropriate another litigant’s trade secrets) is made or resisted in “bad faith.”
For purposes of awards of attorney’s fees under the NJTSA, “bad faith” means “that which is undertaken or continued solely to harass or maliciously injure another or to delay or prolong the resolution of the litigation, or that which is without any reasonable basis in fact or law and not capable of support by a good faith argument for an extension, modification or reversal of existing law.”
An action for misappropriation under the NJTSA must be filed within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.
The Federal Defend Trade Secrets Act
Like the NJTSA, the federal Defend Trade Secrets Act (the “DTSA”) prohibits the “misappropriat[ion]” of “trade secret[s].”
Much like the NJTSA, the DTSA defines a trade secret as:
all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if —
- the owner thereof has taken reasonable measures to keep such information secret; and
- the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.
The DTSA and the NJTSA are construed substantially identically.
The owner (such as an employer) of a trade secret that is misappropriated may bring a lawsuit under the DTSA if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. This is known as the DTSA’s interstate commerce requirement.
In a lawsuit brought under the DTSA with respect to the misappropriation of a trade secret, a court may grant an injunction:
- to prevent any actual or threatened misappropriation, as long as the order does not prevent a person from entering into an employment relationship, and that conditions placed on such employment will be based on evidence of threatened misappropriation and not merely on the information the person knows;
- requiring affirmative actions to be taken to protect the trade secret; and
- in exceptional circumstances that render an injunction unjust, that conditions future use of the trade secret on payment of a reasonable royalty for no longer than the period of time for which such use could have been prohibited.
So, too, in a DTSA lawsuit, a court may award:
- money damages for actual loss caused by the misappropriation of the trade secret; and
- money damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss.
Further, if the trade secret is intentionally and maliciously misappropriated, the court may award exemplary damages (that is, liquidated damages) in an amount not more than two times the amount of the compensatory damages awarded.
If, among other independent circumstances, the trade secret was purposely and maliciously misappropriated, the court may award reasonable attorney’s fees to the prevailing party, such as an employer which wins its lawsuit.
A DTSA lawsuit for misappropriation must be filed within three years after the date on which the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.
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