An Introduction to Trade Secret Law in Pennsylvania

Posted in Business & Corporate

Like many states before it, Pennsylvania has adopted the Uniform Trade Secrets Act (“UTSA”). Prior to its enactment, Pennsylvania relied on common law, as well as its criminal statutes to provide remedies for those who brought trade secret violation claims. What follows is a brief examination of Pennsylvania’s UTSA (“PUTSA”).

Definition of Trade Secret
The PUTSA defines a trade secret as follows:

Information, including a formula, drawing, pattern, compilation including a customer list, 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.

(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Injunctive Relief
The PUTSA provides that an “[a]ctual or threatened misappropriation may be enjoined.”  The insertion of the word “may” seems to indicate that just because a trade secret is misappropriated, an injunction will not automatically be granted. “Misappropriation” is a defined term in the PUTSA and generally speaking, means “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.” 

If a person acquires the trade secret information by accident or mistake and then later learns that the information is a trade secret, the person misappropriates the information if the person discloses the information to another before materially changing his or her position based upon the information.

The PUTSA specifies that the injunction, if any, will terminate when the trade secret ceases to exist, but may be extended for a period of time to ensure the elimination of the commercial advantage the “misappropriator” may have received from his or her use of the trade secret.

Under exceptional circumstances, as set forth in the PUTSA, courts may allow the recipient of the trade secret to continue to use same, conditioned upon the recipient of the trade secret paying a royalty fee for no longer than the period of time for which use could have been prohibited. As set forth in the PUTSA, an exceptional circumstance may include a material or prejudicial change of position prior to acquiring knowledge or reason to know of the misappropriation that renders the prohibitive injunction inequitable.

Damages
Damages pursuant to the PUTSA can be broken down into two categories: monetary and exemplary (punitive damages).
 

Monetary:
The PUTSA provides that a victim of the trade secret misappropriation may receive an award of monetary damages. Pursuant to the PUTSA, courts have a wide array of ways to fashion the monetary remedy. Monetary damages can include both the actual lose caused by the misappropriation, the unjust enrichment caused by the misappropriation that is not taken into account in computing the actual loss, and, in some cases, a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret.

Exemplary:
If willful and malicious misappropriation exists, the court may award exemplary (punitive) damages in an amount not exceeding two times the award of monetary damages awarded by the court.

Willful and malicious is defined in the PUTSA as including “[s]uch intentional acts or gross neglect of duty as to evince a reckless indifference” and an entire want of care so as to raise the presumption that the person at fault is conscious of the consequences of his carelessness.” 
 

Attorney’s Fees
Under the PTUSA, a court may award reasonable attorney’s fees, expenses and costs to the prevailing party if: (1) if the claim of misappropriation is made in “bad faith”; (2) a motion to terminate an injunction is made or resisted in bad faith; (3) the court finds “willful and malicious” misappropriation.     

Statute of Limitations
A person who has a potential claim for the misappropriation of a trade secret by another has three (3) years from the date that the misappropriation was or should have been discovered to bring his or her claim against the “misappropriator”.