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New Jersey Governor Signs Legislation Adopting the Uniform Trade Secrets Act

Publisher: Day Pitney Alert
January 12, 2012
Day Pitney Author(s) Maureen C. Pavely

On January 9, New Jersey Gov. Chris Christie signed into law the New Jersey Uniform Trade Secrets Act (NJTSA), which is intended to afford greater protection for trade secrets in New Jersey. New Jersey, recognizing the significant damage that misappropriation of trade secrets poses to businesses in the state, now follows 46 of its fellow states and the District of Columbia, all of which have adopted, in whole or in part, the general uniform law. Employers need to take several steps to benefit from the protection provided by the NJTSA and to protect themselves from claims of misappropriation by competitors.

Prior to the adoption of this statute, employers were left to rely on common law when seeking to protect their trade secrets through the courts. In the event of a threatened or actual loss of trade secrets through misappropriation, businesses often faced uncertainty concerning their legal rights and potential remedies. The NJTSA is intended to provide greater clarity and consistency. Further, the NJTSA has some important differences from the general uniform law as adopted by other jurisdictions, as well as from the pre-existing common law of New Jersey.

Scope. In adopting the NJTSA, the New Jersey Legislature has broadly defined the concept of what a trade secret is, which should provide greater protection to companies and balance competing interests.

The legal standard for a trade secret protected by the statute applies to "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 Legislature has also broadly defined the term "improper means" so that it specifically includes "access that is unauthorized or exceeds the scope of authorization, or other means that violate a person's rights under the laws of this State." The Legislature also included a statutory definition for reverse engineering.

Remedies. The NJTSA includes a three-year statute of limitations, which departs from the six years previously provided under New Jersey law. The statute of limitations is triggered when "the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." A continuing misappropriation is now a single claim rather than multiple claims.

The NJTSA also provides greater remedies than were available under the common-law protections previously afforded by New Jersey, including the following:

  • The recovery of monetary damages for both the "actual loss caused by the misappropriation and the unjust enrichment caused by the misappropriation that is not taken into account in computing actual loss."
  • The potential award of punitive damages of up to two times the monetary damages under certain circumstances.
  • The award to the prevailing party of attorney fees and costs, including a reasonable sum relative to expert witnesses under certain circumstances.
  • In exceptional circumstances, the court can condition future use of the trade secret on payment of a royalty.

What This Means to You. At the outset it should be noted that New Jersey has departed in several ways from the general uniform law, and therefore, a close review of New Jersey's statute is necessary for a full understanding of its scope. Given the changes in the statute of limitations, employers must be vigilant in their efforts to protect and preserve their valuable corporate assets. In order to fully obtain the benefits of this new statute, employers should have in place reasonable precautions directed at keeping their trade secrets confidential and also be able to establish that these steps were consistently applied and enforced. To meet this objective, employers need a comprehensive "trade secret protection policy," and any existing policies should be re-examined at this time. For example, now that the definition of "improper means" has been statutorily broadened to include access that "exceeds the scope of authorization," it is important for employers to specifically define their employees' scope of authority when accessing company computers. Employers should consider conducting a trade-secret audit to assess the protections in place and monitor for potential misappropriation. It is now even more important for employers to be proactive in their efforts, mandate compliance with all preservation policies, and consult with counsel as to important issues with respect to confidentiality affecting their business and/or industry.

In addition, employers should also consider potential liability. As a result of the potential for augmented remedies, including attorney fees and costs, we anticipate increased litigation. Accordingly, employers should evaluate their hiring practices and other internal practices so as to guard against misappropriation claims asserted against them by competitors. This includes learning of any potential obligations of new hires and requiring that they be specifically precluded from disclosing or using trade secrets belonging to others in the performance of their duties.

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