The Basics of the Oregon Uniform Trade Secret Act

by Joel Christiansen

The Oregon legislature enacted the OUTSA in 1987. The OUTSA largely follows the Uniform Law Commission’s Uniform Trade Secrets Act (UTSA), which was published in 1979 and amended in 1985. A prefatory note to the UTSA explains, “[i]n view of the substantial number of patents that the courts invalidate, many businesses now elect to protect commercially valuable information by relying on the state trade secret protection law.” Acknowledging the importance of protecting trade secrets, the vast majority of states have enacted some form of the UTSA.

Trade secret misappropriation claims under the OUTSA “must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.” ORS 646.471. The OUTSA generally supersedes all other Oregon laws that may provide civil remedies for misappropriation of a trade secret. However, the OUTSA does not affect contractual, civil, or criminal remedies. ORS 646.473.

To establish a trade secret misappropriation claim under the OUTSA, a plaintiff must demonstrate: “(1) the subject of the claim qualifies as a statutory trade secret; (2) the plaintiff employed reasonable measures to maintain the secrecy of its trade secrets; and (3) the conduct of the defendants constitutes statutory misappropriation.” Western Med. Consultants v. Johnson, 835 F.Supp. 554, 557 (D. Or. 1993).

Identifying a Trade Secret

Secrecy is the principal attribute of a trade secret. See, e.g., Thermodyne Food Serv. Prods., Inc. v. McDonald’s Corp., 940 F.Supp 1300, 1304 (N.D. Ill. 1997)(“whether the information sought to be protected qualifies as a trade secret focuses fundamentally on the secrecy of such information. [citations omitted]”)

The OUTSA defines a trade secret as:

[I]nformation, including a drawing, cost data, customer list, formula, pattern, compilation, program, device, method, technique or process that: (a) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

ORS 646.461(4).

Determining trade secret status requires analysis of (1) the measures employed to maintain secrecy, and (2) “the ease with which information can be readily duplicated without involving considerable time, effort or expense.” Stampede Tool Warehouse, Inc. v. May, 651 N.E.2d 209, 215 (Ill. App. Ct. 1995). Trade secret protection does not typically apply to “information generally known within an industry even if not to the public at large.” Mangren Research & Dev. Corp. v. National Chem. Co., 87 F.3d 937, 942 (7th Cir. 1996). Maintaining secrecy requires notice and physical measures to prevent dissemination. See, e.g., Whyte v. Schlage Lock Co., 125 Cal.Rptr.2d 277, 285 (2002)(“[R]easonable efforts to maintain secrecy have been held to include advising employees of the existence of a trade secret, limiting access to a trade secret on a ‘need to know basis,’ and controlling plant access.”)

Fully describing the extent of trade secret protections is beyond the scope of this article. As one court noted, trade secrets are “one of the most elusive and difficult concepts in the law to define.” Learning Curve Toys, Inc. v. Plywood Toys, Inc., 342 F.3d 714, 723 (7th Cir. 2003)(quoting Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286, 288 (5th Cir. 1978). However, examples of commonly litigated issues regarding the definition of “trade secrets” include: (1) customer lists; (2) industry contacts; (3) pricing information; (4) contract renewal dates; (5) supplier information; (6) market research; (7) business plans and strategies; and (8) social media accounts and contacts.

Misappropriation of a Trade Secret

Under ORS 646.461(2), misappropriation means:

(a)   Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;

(b)  Disclosure or use of a trade secret of another without express or implied consent by a person who used improper means to acquire knowledge of the trade secret;

(c)   Disclosure or use of a trade secret of another without express or implied consent by a person who, before a material change of position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake; or

(d)  Disclosure or use of a trade secret of another without express or implied consent by a person, who at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was:

(A) Derived from or through a person who had utilized improper means to acquire it;

(B) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

(C) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use.

Misappropriation does not typically include “[r]everse engineering and independent development alone.” ORS 646.461(1). However, memorizing trade secret information for unauthorized use may constitute misappropriation. Ed Nowogroski Ins., Inc. v. Rucker, 971 P.2d 948 (Wash. Sup. Ct. 1999)

Remedies for Trade Secret Misappropriation

The OUTSA provides two remedies for trade secret misappropriation: (1) equitable relief, including but not limited to a court order enjoining misappropriation (ORS 646.463); and (2) damages (ORS 646.465). Courts may enjoin actual or threatened misappropriation on a temporary, preliminary, or permanent basis. ORS 646.463(1). In some cases, courts may order “other affirmative acts to protect a trade secret”, including “future use upon payment of a reasonable royalty”. ORS 646.463(2) and (3).

To obtain a preliminary injunction, plaintiff must demonstrate either (1) a combination of probable success on the merits and the possibility of irreparable harm, or (2) that serious questions are raised and the balance of hardships tips sharply in favor of the moving party. [Citations omitted] These are not two distinct tests, but rather are opposite end[s] of a single “continuum in which the required showing of harm varies inversely with the required showing of meritoriousness.” [Citation omitted]

Nike, Inc. v. McCarthy, 285 F.Supp.2d 1242, 1243-44 (D. Or. 2003)

A victim of trade secret misappropriation is entitled to recover damages adequate to compensate for misappropriation. ORS 646.465(1).  Damages may include actual losses and an amount not less than a reasonable royalty corresponding to the misappropriating party’s unjust enrichment.” ORS 646.465(2). Finally, courts may award punitive damages in cases involving willful or malicious misappropriation. ORS 646.465(3). For a more detailed discussion of damages for trade secret misappropriation, see University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 536 (5th Cir. 1974)

A court may also award reasonable attorney fees to a prevailing party in certain claims involving “bad faith” or “willful or malicious misappropriation.” ORS 646.467. ORS 646.469 requires courts to “preserve the secrecy of an alleged trade secret by reasonable means” in cases brought under the OUTSA.

Defenses to Trade Secret Misappropriation

Defenses to trade secret misappropriation include: (1) statute of limitations; (2) lack of “trade secret,” (3) independent development and reverse engineering; and (4) unclean hands. At least one court has suggested that some publications may be entitled to free speech protections under the First Amendment. DVD Copy Control Ass’n v. Bunner, 75 P.3d 1 (Cal. 2003). As noted, the OUTSA preempts other civil claims for trade secret misappropriation and in that regard may be used as a defense against such claims.

Other Claims Related to the Oregon Trade Secrets Act

Parties involved in trade secret matters should be sure they understand the interplay of related rights and obligations. These rights and obligations may arise under contract (e.g., non-competition, non-disclosure, non-solicitation, confidentiality), common law (e.g., duty of good faith and fair dealing, intentional interference with economic relations, conversion, etc.), or statute (United States Computer Fraud and Abuse Act, 18 U.S.C. § 1030).