New Massachusetts Trade Secret Laws Effective October 1, 2018
The retail industry closely guards customer and distribution lists, the software and code for the operation of its websites and downloadable mobile apps, and, in many cases, algorithms used to evaluate and monitor sales trends. In many cases, these valuable assets are not protected by patent, trademark or copyright law. As a result, the retail industry relies heavily on trade secret laws, non-disclosure agreements, and non-compete clauses in employment agreements. With the exception of the recently enacted federal Defend Trade Secrets Act, these assets are generally governed by state law. Effective October 1, 2018, the new Massachusetts Trade Secrets Act (MTSA), H.4868, Section 19, will go into effect. Retailers should take this opportunity to revisit their trade secret protocols as well as their employee handbooks, and future employment agreements.
(Note: Also effective October 1, 2018 are significant revisions to the Massachusetts Non-Compete laws. Please see our helpful guidance for preparing for these new laws.)
After decades of debate, Massachusetts is now the 49th state to adopt a modified version of the Uniform Trade Secrets Act, with New York being the last hold-out. There are several important differences between the old and new MTSA that retailers should keep in mind.
Trade Secrets Must be “Specified or Specifiable”
The new MTSA aims to dissuade vague claims of misappropriation. The definition of “trade secret” requires that the misappropriation comprise “specified or specifiable information.” In addition, a plaintiff in litigation must allege “with reasonable particularity the circumstances” of the misappropriation. This suggests a heightened standard than previously required. The new MTSA also requires that a plaintiff in litigation “identify the trade secret with sufficient particularity” prior to taking discovery of the defendant. The definition of “trade secret” also requires that, “at the time of the alleged misappropriation,” there were reasonable efforts under the circumstances to keep the information protected, including “reasonable notice.” Companies often accomplish this by requiring employees to sign non-disclosure agreements or employee handbooks signed by employees acknowledging that the information is confidential and cannot be disclosed. Taken together, these added requirements highlight the importance of keeping track of all trade secret information and the methods by which such information is kept confidential (e.g. use of passwords and non-disclosure agreements to employees).
“Customer Data” is Included in Definition of “Trade Secret”
The new MTSA includes “customer data” in the definition of “trade secret.” While the case law previously recognized certain customer data as a trade secret, such as customer lists, purchase preferences and history, and other commercially competitive customer information, this is now recognized by statute and may provide additional protection for this type of information.
The “Inevitable Disclosure” Doctrine
The “inevitable disclosure” doctrine enabled courts to enter preliminary injunctions preventing former employees from working for a competitor because of the nature of their employment, without direct proof or evidence of misappropriation. Massachusetts courts were considered to have effectively rejected (or at least discredited) the “inevitable disclosure” doctrine. The new MTSA adopts a form of the inevitable disclosure doctrine, stating that “threatened misappropriation may be enjoined upon principles of equity, including but not limited to consideration of prior party conduct and circumstances of potential use.” This provision is broader than the federal Defend Trade Secrets Act, which may restrict, rather than prevent. This is a new and powerful tool retailers may use to prevent preventing competition from former employees, such as sales persons or top executives.
Award of Attorneys’ Fees
The new MTSA provides for an award of attorneys’ fees if the claim was brought or defended in bad faith or the misappropriation was willful or malicious. Previously, attorneys’ fees were not available and usually brought under the Massachusetts unfair competition statute, M.G.L. c. 93A, but there are often impediments to bringing a claim under c. 93A against former employees. The availability of attorneys’ fees in the new MTSA will provide retailers seeking to protect their trade secrets additional tools by which to enforce and protect their assets.
Evaluate Trade Secrets and Confidentiality Protocols
Now is an ideal time for retailers to audit their confidential information, including customer information, software, source code, and other information that provides a competitive advantage in the marketplace, as well as internal security protocols to ensure the information is current and remains confidential. Non-disclosure agreements and employee handbooks should also be reviewed to ensure they adequately identify trade secret information. The methods of keeping the information protected, including updating passwords, employee handbooks acknowledging the confidentiality of certain information, form non-disclosure agreements, and future non-compete agreements governed by the new Massachusetts non-compete laws, should be evaluated in order to ensure maximum trade secret protection in the future.