James F. Mahoney, Attorney

March 2016

Trade Secrets in Transportation

What do you do when an employee leaves ... and steals your business records?

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Josephine, your longtime deputy everything, just up and quit last Friday. The grapevine says she took a job with one of your least favorite competitors. Worse, your IT guy just told you her email account was shut down but before that Josephine forwarded a slew of company emails and attachments to her personal email account.

Where, oh where, does this leave you? – other than hating your competition even more. Can you enforce a non-compete or confidentiality agreement that Josephine signed in 1983? Can you sue your hated competitor for stealing confidential business (“trade”) secrets? Are your customer lists or aging receivables list still secret? Maybe not.

If Josephine had complete access to all your records, or was given  “some authorization,” but then she exceeded the authority given her by intentionally accessing and obtaining sales information from a company computer, it often depends on what state Josephine worked from and whether that computer was used in interstate commerce. The first question is easily answered; the second is answered almost always, “yes,” but it may surprise you to know that only some circuit courts allow you to pursue Josephine for a civil claim under the Computer Fraud and Abuse Act (“CFAA”).

Congress created a private right of action for “any person who suffers damage or loss by reason of a violation” of CFAA. Josephine may have violated §1030(a)(2)(C) by intentionally accessing a computer without authorization – or in excess of her authorization – and obtained information from a protected computer. A “protected computer” is one used in or affecting interstate or foreign commerce.

So, Josephine’s acts fit that description and it appears she violated CFAA. Send in lawyers, guns (figuratively speaking only, of course), and money.

Hmm, but that Josephine. You depended on her for everything. She knew all the inner workings (and where some non-working bodies were interred). She had free range across the entire spectrum of your business. She was tacitly authorized to do pretty much everything, but did she still “exceed her authority” and can you still protect your trade secrets? In other words, is she still liable under CFAA?

Where is your business located again? I forget.  Because if it’s West Coast – Ninth Circuit – then Josephine’s not liable. If you’re East Coast or mid-America, yeah, she’s probably still liable for her stealth raid because Circuit Courts there have interpreted Congress’ intentions to be that her “wrongful acts” terminated her authority.

But all is not lost in fixing the problems that Josephine caused.

Arizona’s Trade Secret Law

Arizona is one of the many states that have adopted the Uniform Trade Secrets Act. Arizona’s trade secret law can be found at A.R.S. §§ 44-401, et seq.

Misappropriation in Arizona. Arizona’s version of the Uniform Trade Secrets Act refers to the theft of trade secrets as misappropriation. Under Arizona law, “misappropriation ” refers to the acquisition of a trade secret by someone who knows or has reason to know that the trade secret was acquired by improper means — theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy. It also includes the disclosure or use of a trade secret without consent by someone who used improper means to acquire knowledge of the trade secret – for example, an ex-employee who spills company secrets to a rival.

Reason to Know. Arizona prohibits use of trade secrets by a company that has “has reason to know” that the material constitutes a trade secret. This is known as constructive knowledge (versus actual knowledge). In other words, even if a Arizona company was unaware it possessed purloined trade secrets, it can still be prosecuted under Arizona law if it should have known.

Penalties for Misappropriation. Under Arizona law, a trade secret thief can be prevented from disclosure by court order – an injunction. This is true for both actual or threatened misappropriation. The injunction may be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate any commercial advantage that otherwise would be derived from the misappropriation. In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited.

A victim of trade secret theft can also seek financial compensation that measures the actual loss attributed to the theft or the profits (or “unjust enrichment”) acquired by the trade secret thief. In egregious situations, a Arizona court can award punitive damages up to twice the amount of any award. Attorney fees will also be awarded in egregious (willful and malicious) situations or if a claim is brought in bad faith.

Statute of Limitations. An action for misappropriation must be brought within 3 years after the misappropriation is discovered or should have been discovered by the exercise of reasonable diligence.