Massachusetts adopts new Trade Secrets Act

Issue November/December 2018 November 2018 By Andrew O’Connor
Complex Commercial Litigation Section Review
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Andrew O’Connor

After years of debate, effective Oct. 1, 2018, Massachusetts is now the 49th state to adopt a modified version of the Uniform Trade Secrets Act (New York is the final holdout). There are several important changes in the new Massachusetts Trade Secrets Act (MTSA), which replaces the prior iteration of M.G.L. c. 93, § 42, that litigators and corporate counsel should keep in mind.

More particularized claims of misappropriation of trade secrets

The new MTSA aims to dissuade vague claims of misappropriation. The definition of “trade secret” requires that the trade secret comprise “specified or specifiable information.” In addition, a complaint must allege “with reasonable particularity the circumstances” of the misappropriation, and a plaintiff must “identify the trade secret with sufficient particularity” prior to taking discovery of the defendant. The definition of “trade secret” also requires that, “at the time of the alleged misappropriation,” there were reasonable efforts under the circumstances to keep the information protected, including “reasonable notice.” Companies may satisfy the reasonable notice element by requiring employees to sign non-disclosure agreements or employee handbooks acknowledging that certain information is confidential and cannot be disclosed. Taken together, these added requirements highlight the importance of keeping track of all trade secret information and the methods by which such information is kept confidential.

The ‘inevitable disclosure’ doctrine

The “inevitable disclosure” doctrine enables courts to enter preliminary injunctions preventing former employees from working for a competitor because of the nature of their employment, without direct proof or evidence of misappropriation. Prior to the new MTSA, Massachusetts courts had effectively rejected (or at least discredited) the “inevitable disclosure” doctrine. The new MTSA, however, adopts a form of the inevitable disclosure doctrine, stating that, “Threatened misappropriation may be enjoined upon principles of equity, including but not limited to consideration of prior party conduct and circumstances of potential use.” This provision is broader than the federal Defend Trade Secrets Act, which may restrict, rather than prevent, new employment. The MTSA’s inevitable disclosure principles may become a powerful tool for plaintiffs in Massachusetts, but it remains to be seen how Massachusetts courts will apply them.

Award of attorneys’ fees

The new MTSA provides for an award of attorneys’ fees if the claim was brought or defended in bad faith, a motion to enter or terminate an injunction was made in bad faith, or if willful and malicious misappropriation exists. Attorneys’ fees were not available under the previous MTSA, resulting in many plaintiffs filing an additional claim of violation of the Massachusetts unfair competition laws, M.G.L. c. 93A. Because there were often impediments to bringing c. 93A claims against employees or former employees, the availability of attorneys’ fees in the new MTSA may provide companies seeking to protect their trade secrets additional tools by which to protect their assets and enforce their rights.

‘Customer data’ and ‘customer list’ included in definition of ‘trade secret’

The new MTSA includes “customer list” and “customer data” in the definition of “trade secret.” While the case law previously recognized certain customer data as a trade secret, such as customer lists, purchase preferences and other commercially competitive customer information, the new MTSA may provide more predictability when basing a trade secret claim on customer information.

Evaluate trade secrets and confidentiality protocols

Now is an ideal time for companies to audit their confidential information, including customer information, software, source code, and other information that provides a competitive advantage in the marketplace. This is also a good time to review and update internal security protocols to ensure the information is current and remains confidential. Form non-disclosure agreements and employee handbooks should also be reviewed to ensure they adequately identify trade secret information and the obligation not to disclose. Finally, companies should evaluate their methods of keeping their information protected in order to ensure maximum trade secret protection in the future.

Andrew O’Connor is an intellectual property litigator at Goulston & Storrs PC. His practice focuses on securing, protecting and enforcing the intellectual property rights of clients in a broad range of industries.