As a business owner in Hawaii, you probably rely on many form of intellectual property to protect your company. These include copyright, trademark, and patent law. Another important form of intellectual property is trade secrets. In Hawaii, what laws protect your business's trade secrets?
Trade secrets often comprise customer lists, sensitive marketing information, non-patented inventions, software, formulas and recipes, techniques, processes, and other business information that provides a company with a business edge.
Information is more likely to be considered a trade secret if it is:
A common way for a Hawaii business to protect its trade secrets is by having its employees sign nondisclosure agreements (NDAs). These are written contracts between employers and employees that prevent the employee from disclosing confidential information after they leave.
For example, if you own a software company, an NDA with an employee could prevent that person from disclosing your proprietary code to a future employer for a certain period of time. The employee knows that if he or she discloses the code, or misappropriates it in some fashion, your business will be able to sue for breach of the NDA.
Hawaii is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). Hawaii’s trade secret law can be found at HRS § § 482B-1 through 482B-9.
The statute defines a trade secret as "information, including a formula, pattern, compilation, program device, method, technique, 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."
Hawaii’s version of the UTSA refers to the theft of trade secrets as "misappropriation." Under Hawaii law, "misappropriation" refers to the acquisition of a trade secret by someone who knows or has reason to know that the trade secret was gotten by improper means, such as theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy. It also includes the disclosure or use of a trade secret without consent by someone who used improper means to acquire knowledge of the trade secret, for example, an ex-employee who spills company secrets to a rival.
Hawaii prohibits use of trade secrets by a company that has “has reason to know” that the material constitutes a trade secret. This is known as constructive knowledge (versus actual knowledge). In other words, even if a Hawaii company was unaware it possessed stolen trade secrets, it can still be prosecuted under Hawaii law if it should have known.
Under Hawaii law, a trade secret thief can be prevented from disclosure by court order, known as an injunction. "Actual or threatened misappropriation may be enjoined" upon an application to the court.
The injunction may be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate any commercial advantage that otherwise would be derived from the misappropriation. In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances can a theft that is so bad that the court order would be meaningless.
A victim of trade secret theft can also seek financial compensation that measures the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief. In egregious situations, a Hawaii court can award punitive damages up to twice the amount of any award. Attorney fees will also be awarded in egregious (willful and malicious) situations or if a claim is brought in bad faith.
An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.
In addition to Hawaii’s rules regarding trade secrets, certain federal rules also apply in Hawaii. The Economic Espionage Act of 1996 makes the theft of trade secrets a federal crime. The Act prohibits the theft of a trade secret by a person intending or knowing that the offense will injure a trade secret owner.
The Act also makes it a federal crime to receive, buy, or possess trade secret information knowing it to have been stolen. The Act’s definition of “trade secret” is similar to that of the Uniform Trade Secrets Act. The penalties for a violation of this statute include a potential prison term of 15 years and fines up to $5 million, depending on whether the defendant is an individual or a corporation. A private party can still sue for trade secret theft even if the federal government files a criminal case under the Economic Espionage Act.