North Dakota Trade Secret Law

North Dakota is one of many states that have adopted the Uniform Trade Secrets Act.

Many North Dakota companies rely on various forms of proprietary information as a core part of their business. They want to protect trade secrets like their customer lists, sensitive marketing information, non-patented inventions, software, formulas and recipes, techniques, processes, and other knowledge that gives them a business edge. How does North Dakota law help to safeguard such trade secrets?

In legal terms, information is likely to be considered a trade secret if it is:

  • not known outside of the particular business entity
  • known only by employees and others involved in the business
  • subject to reasonable measures to guard the secrecy of the information
  • valuable, and
  • difficult for others to properly acquire or independently duplicate.

Protecting Trade Secrets Using NDAs

Before even considering applicable laws, many North Dakota businesses will attempt to protect their trade secrets by the use of nondisclosure agreements (NDAs). NDAs are essentially private contracts in which the employee promises not to disclose certain information learned while working for the current (or eventually, prior) employer to any future employer.

For example, imagine that you own a data security firm in Fargo. You have developed certain methods of data mining that give you a competitive advantage, allowing your company to collect more data from the Web than other, similar businesses. You require that your employees sign an NDA, so that if they leave for a competitor, they are contractually obligated to not share the information about data mining that they learned while working for you.

If you believe that an employee has violated the obligations described under the NDA, you can sue for breach. This threat of litigation is often enough to prevent employees from stealing trade secrets.

Law on Misappropriation of Trade Secrets in North Dakota

North Dakota is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). North Dakota’s trade secret law can be found at N.D. Cent. Code Secs. 47-25.1-01 et seq.

North Dakota defines a trade secret as "information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (a) 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 (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

North Dakota’s version of the UTSA refers to the theft of trade secrets as misappropriation. Under North Dakota law, "misappropriation" means the acquisition of a trade secret by someone who knows or has reason to know that the trade secret was acquired 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.

North Dakota's "Reason to Know" Standard

North Dakota 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 North Dakota company was unaware it possessed purloined trade secrets, it could still be prosecuted under North Dakota law if it should have known.

Penalties for Misappropriation of Trade Secrets in North Dakota

Under North Dakota law, a trade secret thief can be prevented from disclosure by court order, known as an injunction. This is true for both actual or threatened misappropriation.

Under N.D. Cent. Code 47-25.1-02, 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. This may go on for no longer than the period of time for which the use could have been prohibited. Exceptional circumstances can a theft that is so serious that any 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. The statute notes that "Damages can 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."

In egregious situations, a North Dakota 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.

North Dakota's Statute of Limitations for Claiming Trade Secret Theft

An action for misappropriation in North Dakota must (according to N.D. Cent. Code. 47-25.1-06) "be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." Thus, you must act with reasonable speed if you believe that your trade secret may have been taken. Otherwise, you may find yourself time-barred from bringing a lawsuit.

Federal Law Regarding Trade Secrets

In addition to North Dakota’s rules regarding trade secrets, certain federal rules also apply in North Dakota. 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 UTSA. 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.

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