Protecting Trade Secrets in Pennsylvania: PUTSA
Protecting Trade Secrets In Pennsylvania: PUTSA
A business has multiple ways of protecting its intellectual property, from copyrights, trademarks, patents or trade secrets. Each of these various legal devices comes with its own limitations and requirements. One of the easiest ways to protect intellectual property is through the use of trade secrets.
What are trade secrets?
In Pennsylvania, trade secrets are protected through a statute known as the Pennsylvania Uniform Trade Secrets Act (“PUTSA”).1 The PUTSA preempts all other law providing civil remedies for misappropriation of trade secrets.2
(1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.3
An owner of a trade secret may show that the information derives independent economic value from not being generally known by others by demonstrating how alleged appropriators attempt to use the information. For example, in a case filed in the federal court in the Western District of Pennsylvania, a former employee of a company utilized a design element that the former employee had developed while working for the company to later create a competing product. The company was able to demonstrate the economic value of the design element through the former employee’s subsequent attempts to patent a system containing that design element and through the former employee’s sales of products utilizing the system to other organizations.4
The steps necessary to maintain the confidentiality of trade secrets depend on what would be “reasonable under the circumstances.”5 Electronic data has met this standard when the owner placed password protection on it.6 Documents containing trade secrets were deemed sufficiently protected when they were labeled as “proprietary” or “confidential” on their face and when the company owning the documents actively pursued legal measures to prevent disclosure.7 Recipes or formulas have been adequately protected by limiting the access to the full details of the procedure.8
Examples of trade secrets
The following are examples of the types of information that were found by the Pennsylvania courts to constitute trade secrets:
- chemical formula for plastic9
- equipment configuration, modification and running parameters10
- settings and parameters for manufacturing, including substrate temperatures, surface roughness parameters, line speeds, thermal cycles, atmosphere control practices, and jet wiper settings11
- precise configuration, juxtaposition and assemblage of components in machine used to produce product12
- compensation plans and procedures for staff, detailed salary histories, financial statistics and breakdowns used for evaluative and planning purposes13
- recipes for manufactured food items14
- projected capital spending program, proposed international projects, plans regarding distribution of a company’s product and bidding procedures15
- manner and method that a company uses to price its services16
- customer lists (so long as they are both valuable and strictly maintained)17
Limitations on trade secret protection
Certain types of information do not qualify for trade secret protection under the PUTSA. For example, a person’s aptitude, skill, dexterity, manual and mental ability, and other subjective knowledge that is gained in the course of employment are not protectable as trade secrets.18 Also, general secrets of the trade are not protectable as trade secrets.19 In general, the courts have refused to protect alleged trade secrets that were generally known or readily accessible through proper means.20 The courts have also refused to protect information that was independently developed by person alleged to have misappropriated or known to that person prior to the acquisition of any purported trade secrets.21 In addition, trade secrets that are easily discerned from publicly-available sources have not been protected.22
Protecting trade secrets through the courts
If a person or entity has misappropriated a trade secret, the owner of the trade secret may file suit in court for damages. “Misappropriation” includes:
(1) 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; or
(2) disclosure or use of a trade secret of another without express or implied consent by a person who:
(i) used improper means to acquire knowledge of the trade secret;
(ii) at the time of disclosure or use, knew or had reason to know that his 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; or
(iii) before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been by accident or mistake.23
Any lawsuit for misappropriation of a trade secret must be brought within three (3) years after the misappropriation was discovered or by the exercise of reasonable diligence should have been discovered.24 The PUTSA does not consider a continuing misappropriation as a single claim for purposes of the limitation period.25
Recovery for misappropriation
An owner of a trade secret may recover compensatory damages and punitive damages for misappropriation.26 To recover compensatory damages, a trade secret owner must prove either actual loss or unjust enrichment caused by the misappropriation, or both. In lieu of these calculations, the trade secret owner can establish a reasonable royalty value of the trade secret. The owner must also prove that monetary recovery would not be inequitable due to a “material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation.”27
Punitive damages, also known as exemplary damages, are available upon showing that the misappropriation was willful and malicious.28 The PUTSA defines “willful and malicious” as “[s]uch intentional acts or gross neglect of duty as to evince a reckless indifference of the rights of others on the part of the wrongdoer, and an entire want of care so as to raise the presumption that the person at fault is conscious of the consequences of his carelessness.”29 Punitive damages may equal up to double the amount of the compensatory damages awarded.30
A successful party also has a statutory right to recover attorney’s fees under the PUTSA if the party can establish one of the following circumstances:
(1) if a claim of misappropriation is made in bad faith;
(2) a motion to terminate an injunction is made or resisted in bad faith; or
(3) willful and malicious misappropriation exists.31
Under the PUTSA, in order to receive an injunction, a trade secret owner must prove “actual or threatened misappropriation.”32 If the trade secret owner wishes to obtain a preliminary injunction prior to proving misappropriation, the owner must establish the following factors:
(1) that the injunction is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by damages;
(2) that greater injury would result from refusing an injunction than from granting it, and, concomitantly, that issuance of an injunction will not substantially harm other interested parties in the proceedings;
(3) that a preliminary injunction will properly restore the parties to their status as it existed immediately prior to the alleged wrongful conduct;
(4) that the activity it seeks to restrain is actionable, that its right to relief is clear, and that the wrong is manifest, or, in other words, must show that it is likely to prevail on the merits;
(5) that the injunction it seeks is reasonably suited to abate the offending activity; and
(6) that a preliminary injunction will not adversely affect the public interest.33
Injunctive relief may be granted for as long as the trade secret exists, and may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.34
Protecting trade secrets from subpoenas or other discovery requests
The PUTSA authorizes the courts to issue protective orders in a case involving trade secrets. In order to protect trade secrets from exposure during the course of litigation, the court may hold in camera hearings, seal the records of the action and order any person involved in the litigation not to disclose an alleged trade secret without prior court approval.35 The Pennsylvania Rules of Civil Procedure also provide for the issuance of protective orders in discovery proceedings to protect trade secrets.36 Pennsylvania follows the federal test for issuing protective orders under Fed.R.Civ.P. 26(c). Once a party establishes that the information sought to be protected is a trade secret, the burden shifts to the requesting party to prove a “compelling need” for the information and that the “necessity outweighs the harm of disclosure.”37
1 The Pennsylvania Uniform Trade Secrets Act is codified at 12 Pa.C.S. § 5301-5308.
2 12 Pa. C.S. § 5308; Firstrust Bank v. DiDio, No. 200 March Term 2005, 2005 Phila. Ct. Com. Pl. LEXIS 376, 2005 WL 2001105 (C.P. Phila. July 29, 2005).
3 12 Pa.C.S. § 5302.
4 B&B Microscopes v. Armogida, 532 F. Supp. 2d 744, 756 (W.D. Pa. 2007)
5 12 Pa.C.S. § 5302.
6 See A.M. Skier Agency, Inc. v. Gold, 747 A.2d 936, 941 (Pa. Super. Ct. 2000).
7 Dibble v. Penn State Geisinger Clinic, 806 A.2d 866, 871 (Pa. Super. Ct. 2002).
8 See Christopher M’s Hand Poured Fudge v. Hennon, 699 A.2d 1271, 1275 (Pa. Super. Ct. 1997) (owner kept only one written copy of recipe stored off the premises of the business, compartmentalized the manufacturing process so that most employees would only know portions of the recipe necessary for his or her task, and only revealing the full recipe to a few key employees).
9 Felmlee v. Lockett, 351 A.2d 273 (Pa. 1976)
10 SI Handling Systems, Inc. v. Heisley, 753 F.2d 1244, 1256 (3d Cir. 1985)
11 BIEC Int’l, Inc. v. Global Steel Services, Ltd., 791 F. Supp 489, 542 (E.D. Pa. 1992)
12 Anaconda Co. v. Metric Tool & Die Co., 485 F. Supp. 410, 422 (E.D. Pa. 1980)
13 Dibble v. Penn State Geisinger Clinic, 806 A.2d 866, 870-71 (Pa. Super. Ct. 2001)
14 See Christopher M’s Hand Poured Fudge v. Hennon, 699 A.2d 1272, 1275 (Pa. Super. Ct. 1997) (recipe for fudge)
15 Air Products & Chemicals, Inc. v. Johnson, 442 A.2d 1114, 1121-22 (Pa. Super. Ct. 1982)
16 Fisher Bioservices, Inc. v. Bilcare, Inc., Civil Action No. 06-567, 2006 U.S. Dist. LEXIS 34841, * 50 (E.D. Pa. May 31, 2006).
17 See O.D. Anderson v. Cricks, 815 A.2d 1063, 1071 (Pa. Super. Ct. 2003); see also Morgan’s Home Equip. Corp. v. Martucci, 136 A.2d 838, 842 (Pa. 1957); A.M. Skier Agency, Inc. v. Gold, 747 A.2d 936, 941 (Pa. Super. Ct. 2000)
18 Pittsburgh Cut Wire Co. v. Sufrin, 38 A.2d 33, 34 (Pa. 1944).
19 Capital Bakers, Inc. v. Townsend, 231 A.2d 292, 294 (Pa. 1967).
20 See Hardy v. Trs. of the Univ. of Pa., No. 2178, April Term 2007, 2008 Phila. Ct. Com. Pl. LEXIS 42 (C.P. Phila. February 21, 2008) (refusing to protect educational program curriculum as trade secret because widely marketed and easily accessible); see also Tyson Metal Products, Inc. v. McCann, 546 A.2d 119, 121-22 (Pa. Super. Ct. 1988) (court refused to protect a list of prices charged by company’s suppliers which was used to calculated bids because competitor could call supplier and readily obtain information contained in the list).
21 See Fidelity Fund, Inc. v. Di Santo, 500 A.2d 431, 438 (Pa. Super. Ct. 1985) (refusing to protect customer list where customers were developed individually by former employee while working for plaintiff company or known to former employee prior to employment with plaintiff company).
22 See SI Handling Systems, Inc. v. Heisley, 753 F.2d 1244, 1255 (3d Cir. 1985) (holding that formulas that are susceptible to reverse engineering are not protected as trade secrets because the information they contain is easily obtainable).
23 12 Pa.C.S. § 5302.
24 12 Pa.C.S. § 5307.
25 See 12 Pa.C.S. § 5307; compare Uniform Trade Secrets Act § 6.
26 12 Pa.C.S. § 5304.
27 12 Pa.C.S. § 5304(a).
28 12 Pa.C.S. § 5304.
29 12 Pa.C.S. § 5302.
30 12 Pa.C.S. § 5304(b).
31 12 Pa.C.S. § 5305.
32 12 Pa.C.S. § 5303.
33 Iron Age Corp. v. Dvorak, 880 A.2d 657, 662 (Pa. Super. 2005).
34 12 Pa.C.S. § 5303.
35 12 Pa.C.S. § 5306.
36 See Pa.R.C.P. 4012(a)(9).
37 Crum v. Bridgestone/Firestone N. Am. Tire, LLC, 907 A.2d 578, 586-87 (Pa. Super. Ct. 2006).
- Representation of battery testing manufacturer in litigation and on appeal.
- Representation of a commercial lighting manufacturer in litigating patent infringement claims.
- Representation of medical and pharmaceutical products manufacturers in patent
, unfair competition and
false advertising matters.
- The representation of a metals manufacturer in a trademark dispute.
- Advising a small business client regarding copyright and trademark rights and defending his business against attempts to invalidate those rights.
- Defending a natural gas exploration company against a patent invalidation lawsuit and prosecuting a counterclaim for patent infringement.
- The representation of minority members of a green technology limited liability company in a shareholders’ derivative action against the majority member for violations of RICO, fraud, and breach of fiduciary duty.
- The representation of a Fortune 500 telecommunications company against a foreign manufacturer for misappropriation of trade secrets and breach of contract.
- Representation of a telecommunications company in federal litigation brought under Federal Trademark Dilution Act and Digital Millennium Copyright Act by a designer and manufacturer of networked communications systems and related software.
- Representation of a Dutch corporation which owned the exclusive rights and license
to the “total image” of one of the world’s foremost tennis superstars in action against defendant corporation for breach of endorsement contracts.
- Advising a franchise business regarding the need for specialty intellectual property insurance coverage and reviewing several competing proposed insurance policies.
- Providing opinions and opinion letters to individuals and companies on patent and trademark rights, risks and
- Representing employers and employees in disputes over intellectual property licensing, royalties and ownership.
- Defending Fortune 500 and mid-sized companies against claims of patent infringement.