New Jersey Becomes the 47th State to Adopt the Uniform Trade Secrets Act

By Sean Mack, Esq.
smack@pashmanstein.com

On January 9, 2012, Governor Christie signed into law the New Jersey Trade Secrets Act.  N.J.S.A. 56:15-1 to -9.  New York, Massachusetts and Texas are now the only three states that have not adopted a version of the Uniform Trade Secrets Act.

The Act (i) brings better clarity to the definition of a trade secret and the remedies available, (ii) provides a guide to litigants and judges regarding protecting trade secrets during court proceeding, and (iii) specifically sets a statute of limitations for misappropriation of trade secrets claims.

The Act builds off of prior judicial decisions and should not significantly change the meaning of what is a trade secret.  Under the Act, a trade secret is specifically defined as:

information, held by one or more people, without regard to form, including a formula, pattern, business data compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype 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.

The Act also makes clear that injunctive relief, and damages or royalties may be available for prevailing parties.  The Act clarifies that damages may be calculated based on the actual losses caused by the misappropriation and based on the unjust enrichment obtained by the wrongdoer as a result of the misappropriation.  Royalties may be awarded instead of, but not in addition to, the award of damages.  The Act also provides for the awarding of punitive damages if the misconduct is willful and malicious.  Punitive damages are capped at twice the damage award.  In a departure from the common law precedent in New Jersey, the Act expressly authorizes the award of attorney’s fees to the prevailing party (plaintiff or defendant) in appropriate cases.

The Act should be a warning to companies hiring new employees that they can be held liable for misappropriation of trade secrets if they induce the employee to wrongly disclose trade secrets or if the company has reason to know of the employee’s breach.

In an effort to balance New Jersey’s long standing public policy in favor of public access to legal proceedings against a company’s legitimate need to maintain the secrecy of its trade secrets, the Act mandates that courts take reasonable means to protect the secrecy of the information.

Finally, under the common law parties usually relied on New Jersey’s six-year statute of limitations in connection with misappropriation claims.  The Act now specifies that misappropriation of trade secret claims must be brought within three years of the discovery of the misappropriation or three years of when the party should have had reason to know of the breach.

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