Just over one year ago, we noted the continued and vibrant debate among state and federal courts over whether the Uniform Trade Secrets Act (“UTSA”) preempts other claims based on the misappropriation of information when that information does not qualify as a trade secret. In that post, we noted that Arizona was one of the states in which the “majority interpretation” had been applied, which is the view that UTSA preempts all common law tort claims based on trade secret misappropriation, whether or not it meets the statutory definition of a trade secret.
As if to demonstrate that the answer to this question is a moving target even within states, the Arizona Supreme Court recently ruled to the contrary in Orca Communications Unlimited, LLC v. Noder, No. CV-13-0351 (Ariz. 2014). There, the court held that the Arizona Uniform Trade Secrets Act (“AUTSA”) does not preempt common law claims based on the misappropriation of confidential information that is not a trade secret. The court reasoned that the “preemption” provision “displaces only conflicting tort claims for ‘misappropriation’ of a ‘trade secret,’” and that what constitutes a protectable “trade secret” is specifically defined in AUTSA. Consequently, “absent a clear manifestation of legislative intent to displace a common law cause of action,” the Arizona Supreme Court declined to find that AUTSA preempted claims for misappropriation of information that are not covered by the definition of a “trade secret” in AUTSA. The court acknowledged the national split of authority on the issue, but rejected the argument that the UTSA was intended to promote uniformity concerning the treatment of confidential information generally.
Interestingly, when refuting an argument made by the defendant (who was arguing for preemption), the court touched upon the separate question of whether the showing required to obtain punitive damages in a trade secret misappropriation claim under AUTSA might be less stringent than what is required to obtain punitive damages under the common law (for non-AUTSA claims). The defendant contended that the court’s decision would lead to absurd results, given that a plaintiff could recover greater damages for a claim for misappropriation of confidential information than she could for misappropriation of trade secrets, given the cap on such damages in AUTSA. Rejecting that argument, the court found that “punitive damages might be easier to obtain under AUTSA than under our common law, which requires clear and convincing evidence of a defendant’s ‘evil mind’ for a punitive damages award,” given that “unlike other statutes, [AUTSA] does not adopt the common law or impose a heightened standard of proof for a punitive damages award.”
While this decision certainly clarifies the law in Arizona with regard to trade secret preemption, it opens the door to new questions over the standards to be applied when seeking punitive damages for trade secret misappropriation claims.