Earlier this week, we posted an update on House Bill H4434, which had passed unanimously in the House and was being reviewed by the Senate Rules Committee. The bill, now S.2418, which would adopt the Uniform Trade Secrets Act (UTSA) and enact the Massachusetts Noncompetition Agreement Act, has been placed on the Senate’s calendar for Thursday, July 14, 2016. The Rules Committee recommended that the bill ought to pass in the Senate after adding an emergency preamble as required by the state constitution.
We are covering the bill as part of a two-part series, starting with Noncompetition Act. Now, an overview of the Uniform Trade Secrets Act, the other half of the bill.
Why have a uniform act?
For context, some history: the Uniform Trade Secrets Act is a model act first developed in the 1970s by the National Conference of Commissioners on Uniform State Laws. Uniform laws are designed to create consistency and predictability at the state level around areas of law that are constitutionally within the control of the states but have wider-reaching effects. The UTSA seeks to create consistent state law, so that businesses operating in multiple states may take full advantage of state trade secret protections with some confidence that their innovations will be protected to the same extent in one state in which they do business as in another. The Conference recognized that businesses may protect their innovations in two ways: through the patent system, which is national, or through trade secret protections, which are mainly controlled by the states — though a limited federal trade secret law was ratified in May 2016, creating a federal cause of action for misappropriation of trade secrets. Regardless, these two types of protections are very different, and as such, certain innovations may be better protected by one system than another. The patent process, for example, makes information public, then applies certain protections to it, while the trade secret protections, as the name implies, allow innovations to be kept secret instead.
The Uniform Law Commission advocates adoption of the UTSA to support business growth and innovation in a variety of ways:
– Better protections and modernization of the law to protect businesses making fast-paced technological advances
– Precise definition of a “trade secret” will make clear what innovations are eligible for protection
– Obtaining legal representation will be easier and less expensive, because the law will be easier for general practitioners to interpret accurately and efficiently
– Reduction or elimination of the problem of “forum shopping” between litigants from various states who are seeking state law most favorable to their litigation interests
The UTSA has been adopted in some form by a vast majority of states: as of this publishing, the UTSA has been enacted in 47 states, as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. However, that does not mean that trade secret protections are exactly uniform between all of these states. Although a main goal of the UTSA is consistency, because states are free to modify the model act before ratifying it, there is still some variation in the statutory trade secret protections adopted in each state.
The UTSA in Massachusetts
Currently, Massachusetts state law on trade secrets is governed by two brief statutory sections, one which creates a cause of action in tort for misappropriation, and the other which allows for injunctive relief. The rest of trade secret law in Massachusetts is contained in the state common law, decided by the courts and not governed by a statutory scheme. The new bill would repeal both statutory sections — Chapter 93, Section 42 and 42a — and replace them with the UTSA’s comprehensive statutory scheme.
Massachusetts’ last attempt to adopt the UTSA failed, but ratification is looking more likely this time around. If this bill does pass, the new law will take effect on October 1, 2016. Once in place, the new law would only apply to misappropriation beginning after October 1, not to conduct that occurred (or continuing conduct that began) prior to the effective date of the statute.