Utah businesses rely on many types of intellectual property. Your company might have a patent over the design of a piece of equipment, a copyright over its website, or a trademark over its name and logo. Trade secrets are another critical type of intellectual property. What are trade secrets, and how does Utah law help your business or company to protect them?
What's considered a trade secret? They ordinarily include customer lists, sensitive marketing information, non-patented inventions, software, formulas and recipes, techniques, processes, and other business information that provides a company with a competitive edge.
Information is more likely to be considered a trade secret if it is:
Many business protect their trade secrets using nondisclosure agreements (NDAs). NDAs are written contracts between employers and employees that prevent the employee from disclosing confidential information after they leave.
For example, if you own a high-end construction firm in Salt Lake City, an NDA with an employee could prevent that person from disclosing your supplier list to a future employer for a certain period of time. The employee knows that if he or she discloses the list, or misappropriates it in some fashion, your business will be able to sue for breach of the NDA.
Utah is one of the many states that have adopted the Uniform Trade Secrets Act (UTSA). Utah’s trade secret law can be found at Utah Code Ann. Secs. 13-24-1 et seq.
The statute 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."
Utah’s version of the UTSA refers to the theft of trade secrets as misappropriation. Under Utah 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.
Utah 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 Utah company was unaware it possessed purloined trade secrets, it can still be prosecuted under Utah law if it should have known.
Under Utah law, a trade secret thief can be prevented from disclosure by court order, known as an injunction: "Actual or threatened misappropriation may be enjoined." This is true for both actual or threatened misappropriation.
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 include a theft that is so bad that the court order would be meaningless.
A victim of trade secret theft can also seek financial compensation, based on measuring the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief.
Utah Code Ann. Sec. 13-24-4 provides that the victim of trade secret theft is entitled to recover damages for misappropriation. "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."
Moreover, "if willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made" in the first instance. In other words, a victim could sue for double damages as a punitive measure.
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 Utah’s rules regarding trade secrets, certain federal rules also apply in Utah. 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.