Laying Down the Law – Protecting Commercial Information The Arizona Uniform Trade Secrets Act

“It is wise not to seek a secret, and honest not to reveal one.” 

– William Penn

Protecting Commercial Information The Arizona Uniform Trade Secrets Act 

Employment agreements and the duties of employees during and after employment with regard to trade secret information can be a troublesome issue facing business owners. In the absence of written trade secret protection or a written employment agreement with a non-compete or non-disclosure clause, the conduct of employees can still be covered by Arizona’s Uniform Trade Secrets Act (the “Act”). The Act is found in A.R.S. § 44-401 et. seq. 

DEFINITIONS

There are several important definitions in section 44-401.

1. “Misappropriation” means either:
   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.
   2. Disclosure or use of a trade secret of another without express or implied consent by a person who either:
      1. Used improper means to acquire knowledge of the trade secret.
      2. At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it . . .
      3. Before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
2. “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique or process, that both:
   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.
   2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

APPLICATION OF THE ACT

Trade-secret law “provides protection to the owner of a trade secret, but only while the information and knowledge remains a secret. The threshold determination whether to protect information as a trade secret therefore depends upon the nature of the information and the circumstances surrounding its secrecy and the maintenance thereof.” Enterprise Leasing Co. of Phoenix v. Ehmke, 197 Ariz. 144, 148, ¶13 (App. 1999). A trade secret:

“may consist of a compilation of information that is continuously used or has the potential to be used in one’s business and that gives one an opportunity to obtain an advantage over competitors who do not know of or use it.” 

Id., 197 Ariz. 144, 149 [emphasis added].

The protection applies only to things that are secret and not published to the public or competitors in a particular industry. Id. at 149. If “a so-called secret process is known to others in the trade, no one will be enjoined from disclosing or using it.” Motorola, Inc. v. Fairchild Camera & Instrument Corp., 366 F. Supp. 1173, 1184 (D. Ariz. 1973). 

There is typically a serious dispute and substantial litigation in trade secret cases about whether a misappropriation has occurred. A misappropriation requires the acquisition of information or data by improper means such as “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or espionage. . .” A.R.S. § 44-401. 

Once a misappropriation is shown, a party can recover damages under A.RS. § 44-403(A) which states that damages “may include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. . .” This provision refers to both actual damages and other types of damages resulting from a misappropriation. The Act also allows for punitive or exemplary damages in the case of a “willful and malicious misappropriation.” A.R.S. § 44-403(B).

CONCLUSION

The Act is an important consideration in any case involving the obligations of former employees related to trade secrets. Highly experienced, capable legal counsel should assist you in navigating these issues. In any consultation with an attorney, you should always ask about their experience in court generally with large commercial cases and specifically with the Act.

Timothy Watson is the co-chair of the commercial litigation and trial practice group at Provident Law®. He is a trial advocate with more than 24 years of experience in high profile, high value litigation. He has successfully tried numerous cases in state and federal courts including multi-million dollar claims in the areas of business litigation, real estate, high net worth probate, injury and insurance matters. He holds a Martindale Hubbell peer review rating of AV-Preeminent with high ethical standing. In addition to representing clients in large, complex litigation, Mr. Watson provides mediation and arbitration services. He can be reached at: Tim@ProvidentLawyers.com or at 480-388-3343.

Disclaimer: The information in this article is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this article should be construed as legal advice from the individual author or the Firm, nor is it intended to be a substitute for legal counsel on any subject matter.