2 minute read | November.20.2018
As we reported in August, Massachusetts became the penultimate state to enact the Uniform Trade Secrets Act (UTSA), leaving New York as the sole remaining holdout. Massachusetts’ new law, which took effect October 1, 2018, significantly expanded the state’s existing trade secrets law by broadening protections for trade secret owners and narrowing the scope of noncompete agreements. As we reported earlier this month, the new law does not apply retroactively even if the violation is ongoing in nature.
One big change in Massachusetts’ new law is that it protects trade secrets that offer actual or potential economic advantage to their owners. The prior state law protected trade secrets that were in “continuous use” within a business, and “potential economic value” of a trade secret was unlikely to warrant protection. This formulation was too narrow: It failed to cover institutional knowledge of what not to do, and only protected the affirmative knowledge that led to the innovation. The new law signals a departure from Massachusetts’ age-old “continuous use” doctrine and offers broader protections to owners of trade secrets. It even goes farther than the UTSA, which (at least in most states), requires actual economic advantage.
Another significant change is that the new Massachusetts law, like the UTSA, now allows courts to enjoin “[a]ctual or threatened misappropriation” of trade secrets. This provision suggests that in some cases, disclosure of trade secrets, whether intentional or inadvertent, is unavoidable when certain employees leave to work for a competitor. Although Massachusetts courts have long held that the inevitable disclosure doctrine hurts employer mobility and competition, the new law allows employers to seek injunctions in state court against threatened misappropriation.
Whether “threatened misappropriation” and “inevitable disclosure” are one and the same is still unclear. At least one court has held that the two are distinct: In Whyte v. Schlage Lock Co., a California appellate court distinguished the inevitable disclosure from threatened misappropriation, concluding that the former is based on an inference while the latter demands actual proof.
Finally, the new law eases the burden on defendants in recovering fees for defending bad-faith trade secrets claims. This provision likely preempts the Consumer Protection Act, which almost always intersected with trade secret claims under the old law, and only permitted recovery of fees by successful plaintiffs, not successful defendants.
Moving forward, Massachusetts businesses will definitely feel the impact of the new law: Trade secret owners and employers now carry a lighter burden, enjoy broader protections, and have more avenues to enforce their rights. Massachusetts’ adoption of this law rounds out the growing trend of states’ efforts to modernize trade secrets laws around the country and around the world. Stay tuned as we continue to track updates.