Fundamental Steps to Pleading and Proving a Trade Secret Claim in Florida
Florida and forty-five other states have trade secret laws based on the Uniform Trade Secrets Act (UTSA), a model act created to deal with misappropriation issues. The Florida Uniform Trade Secrets Act (FUTSA) is codified at Florida Statutes §§ 688.001, et seq. In order to obtain relief under FUTSA, one must plead and prove: (1) the existence of a “trade secret" and (2) that the former employee or business partner actually misappropriated the trade secret or is threatening to misappropriate it. Under the act, damages, exemplary damages, injunctive relief, and, in limited circumstances, attorney’s fees are available to remedy a misappropriation of a trade secret
The most critical task in asserting a claim under FUTSA is identifying the purported trade secret and determining whether it falls within FUTSA’s broad definition. Most courts will require that a plaintiff identify the trade secret very early in a case. A trade secret under FUTSA consists of: information, including a formula, pattern, compilation, program, device, method, technique, or process that: 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 is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Only trade secrets that fall within this definition will be afforded protection.
An inherent paradox exists in every trade secret action: to keep a trade secret a “secret," the claimant must disclose it. In fact, a party asserting trade secret protection under FUTSA must describe the trade secret allegedly misappropriated with reasonable particularity; a party may not simply make a conclusory assertion that the information is protected under FUTSA. There are statutory safeguards in Florida to preserve the secrecy of the information. A court has an obligation under FUTSA to “preserve the secrecy of an alleged trade secret by reasonable means. The court can accomplish this by granting protective orders, holding in camera hearings, sealing records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.
FUTSA’s definition of “trade secret" contains four elements that must be established in order to qualify for protection. The information must: (1) possesses independent economic value, (2) derive it from not being generally known to others who can obtain economic value from its disclosure, (3) not be readily ascertainable by proper means by those who can obtain value from it, and (4) be the subject of efforts that are reasonable under the circumstances to maintain its secrecy. It is the claimant’s burden to establish all elements of this statutory definition. Care must be taken to plead the substantive facts necessary to satisfy each of these elements; the failure to satisfy even one of these elements will be dispositive.
The first element, “value," is typically established through substantive evidence proffered by the owner of the trade secret, which will vary depending upon the information and the facts of the particular case. Although direct evidence is preferred, value may be proven through indirect or circumstantial evidence. Value evidence can consist of the time, money, and effort spent in producing the trade secret.
Once value has been established, a claimant must prove the trade secret is not generally known to others who can obtain economic value from its disclosure. This is no easy task. The plain language of FUTSA provides that the information not be “generally known." As a result, the claimant must essentially prove a negative fact (i.e., that “other persons" do not know the information). Although difficult, it is possible to prove this issue through the claimant’s own testimony and through circumstantial evidence.
Failing to show the information is not “generally known" is fatal to a trade secret case and is, perhaps, the easiest way for a defendant to defeat a trade secret claim. , as a recent federal case illustrates. Publication or distribution of the information will undermine this element of the statutory definition.
The third element of FUTSA’s trade secret definition requires that the information not be readily ascertainable by “proper means" to persons who can obtain value from the information. Although FUTSA does not define “proper means," it does provide that a person can acquire a trade secret by “improper means" through theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Thus, if the information could have been acquired without having to resort to one of the enumerated “improper means," the information cannot be characterized as a trade secret.
The final element of FUTSA’s definition requires that the information be the subject of efforts to maintain its secrecy that are reasonable under the circumstances. To fall within this definition, a claimant must submit substantive evidence establishing the steps it took to maintain the secrecy of the information. One recent study found that, of all the measures trade secret owners took to protect their trade secrets, only two measures – confidentiality agreements with employees and confidentiality agreements with third parties – statistically predicted that a court would find that this element was satisfied. Preservation of secrecy can be accomplished without a confidentiality agreement, however.
Once information falling within FUTSA’s trade secret definition has been identified and pleaded, the substantive elements of one or both forms of misappropriation must be pleaded and established. Under FUTSA, misappropriation is first defined as the “acquisition" of a trade secret by a person who knows or has reason to know that the trade secret was acquired by improper means. Thus, a claimant must be prepared to plead and prove: (a) the defendant acquired the trade secret information and (b) knew, or had reason to know, that the information was acquired through theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means, and (c) the owner of the trade secret suffered damages or requires injunctive relief.
Misappropriation is further defined under FUTSA in three parts. Misappropriation is the “disclosure" or “use" of a trade secret without express or implied consent by someone who: (1) acquired knowledge of it through the use of improper means, (2) at the time of disclosure or use, knew or had reason to know his or her knowledge was derived from or through a person who had utilized improper means to acquire it, acquired under circumstances giving rise to a duty to maintain the secrecy of the information or limit its use, or derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use, or (3) before a material change of his or her position, knew or had reason to know that the information was a trade secret and that knowledge of it had been acquired by accident or mistake.
This last element of the three part definition may create a safe harbor for defendants who mistakenly come into possession of trade secret information – but neither know nor have reason to know of its protected status of the circumstances of its unlawful procurement. Additionally, for the “disclosure" or “use" form of misappropriation, the plain language of FUTSA and the cases interpreting it do not appear to require a certain level of the activity triggering liability – there simply must be some form of disclosure of use of the information.
If damages are awarded, they can include the actual loss and unjust enrichment caused by the wrongdoer’s misappropriation. In addition, if willful and malicious misappropriation exits, the court may award exemplary damages in an amount not exceeding twice the sum of actual and unjust enrichment damages awarded. If an injunction is sought, FUTSA authorizes the court to issue an injunction to enjoin “actual" or “threatened" misappropriation. In “exceptional circumstances" (i.e., a material and prejudicial changes of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable), the court may issue an injunction that conditions future use upon payment of a reasonable royalty for no longer than the period of time for which the use could have been prohibited.
Since its effective date in 1988, FUTSA has governed all trade secret and misappropriations litigation. By its own provisions, FUTSA forecloses other tort actions and remedies.
Additionally, under Florida law, the economic loss rule does not bar a claim for misappropriation of trade secrets under FUTSA, even if the FUTSA claim was indistinguishable for breach of contract. This rule dovetails with controlling precedent providing that the economic loss rule finds no application in statutory causes of action.
Successful outcomes in litigation are never guaranteed, and this is especially true in trade secret ligation. In practice, many trade secrets cases are dismissed for failure to plead FUTSA’s substantive elements. Others fail for lack of evidentiary support. The most prudent course is for practitioners to consult with their client for the specific purpose of clearly identifying the trade secret and testing against each prong of FUTSA’s four part statutory definition. Retaining or consulting with an expert early on to establish the “independent economic value" prong of the definition is also prudent. Familiarity with the topics touched upon in this article will not guarantee success, but it will go a long way toward avoiding an unanticipated collapse.