Orca Communications Unlimited, LLC v. Noder
The Uniform Trade Secrets Act's (UTSA) displacement provision creates an exclusive cause of action for claims based on misappropriation of trade secrets and preempts conflicting tort and other causes of action that provide civil remedies for trade-secret misappropriation. Currently, there is a split of authority on whether the Uniform Act displaces all common-law tort claims based on misappropriation of confidential information, whether or not the information at issue constitutes a statutorily defined "trade secret." The Arizona Supreme Court, interpreting Arizona's Uniform Trade Secret Act (AUTSA), narrowly interpreted the relevant preemption terms and held that the AUTSA does not displace common law claims for misappropriation of confidential information if that information falls outside the Act's definition of "trade secret." Orca Communications Unlimited, LLC v. Noder, Case No. CV-13-0351 (Ariz., Nov. 19, 2014) (Pelander, J.).
Public relations firm Orca Communications brought a claim for unfair competition against Ann Noder, its former president, when Noder started her own public relations company and allegedly urged Orca's customers to do business with her new firm. Unfair competition was the only cause of action at issue, and Orca claimed that Noder had learned "confidential and trade secret information" such as Orca's "business model, operating procedures, techniques, and strengths and weaknesses" and intended to steal and exploit that information to gain a competitive advantage for her business.
The state superior court dismissed Orca's complaint concluding that the AUTSA entirely preempted Orca's common law tort claims with respect to the misappropriation of all confidential information, even if that information did not rise to the level of a trade secret. The state court of appeals reversed in part. Because the scope of the AUTSA's displacement provision was found to be a "legal issue of statewide importance," the Arizona Supreme Court granted review.
The Court then reviewed the plain language of the AUTSA and determined that, on its face, AUTSA's displacement provision preempts only conflicting tort claims for "misappropriation" of a "trade secret"—two terms that are specifically defined by the Act—and leaves undisturbed claims "that are not based on misappropriation of a trade secret." Because Orca's unfair competition claim was not limited to trade secrets, the Court determined that the lower court erred in dismissing that claim on preemption grounds.
The Court did not decide what aspects, if any, of the confidential information alleged in Orca's unfair competition claim might fall within the AUTSA's definition of "trade secret," and the Court refrained from deciding whether Arizona even recognizes a common-law claim for unfair competition. The Court also reversed the superior court's dismissal of Orca's unfair-competition claim and remanded the case for further proceedings on those undecided issues.
Practice Note: It is unlikely the Arizona Supreme Court's decision will resolve the national split of authority on the displacement issue, as the Court was clear to explain that its holding did not take into consideration decisions from other jurisdictions. Furthermore, the Court noted that the AUTSA does not contain the directive language included in the UTSA, which states that the Act shall be applied and construed to make uniform the law among the states enacting it.
Supreme Court Of Arizona Weighs In On The Preemption Provision Of The State's Trade Secrets Act
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
