Source: https://www.bakerdonelson.com/Tennessee-Uniform-Trade-Secrets-ActA-Primer-for-Trade-Secret-Holders-08-14-2008
Timestamp: 2019-04-20 10:18:58+00:00

Document:
The Tennessee Uniform Trade Secrets Act (TUTSA) was enacted by the Tennessee General Assembly to provide protection to individuals and businesses who possess trade secrets. Thus, Tennesseans who have trade secrets should be guided by the Act and the case law interpreting the Act.
What is a “trade secret”?
The Act defines a “trade secret” to be information which is “technical, nontechnical, or financial data, a formula, pattern, compilation, program, device, method, technique, process, or plan” that: (1) derives independent economic value from not being generally known; and (2) would provide economic value to others from its disclosure. In addition, the information must be (3) subject to “reasonable” efforts to maintain its secrecy. Tenn. Code Ann. §47 25 1702(4). While “absolute secrecy is not required, there must be a substantial element of secrecy.” (Hickory Specialties v. B & L Labs, Inc., 592 S.W.2d 583 (Tenn. Ct. App. 1979)). To “constitute a trade secret, it must be difficult for anyone outside the confidential relationship to acquire the information by proper means.” Wright Med. Tech., Inc. v. Grisoni, 135 S.W.3d 561 (Tenn. Ct. App. 2001).
Trade secret protection is not limited to just “technical” information such as secret formulas or computer programs. Business information can also be a trade secret. Note that TUTSA provides coverage for things such as “nontechnical, or financial data.” See, e.g., Int’l Security Mgmt. Group, Inc. v. Sawyer, et al, 2006 WL 1638537 (M.D. Tenn. Jun. 6, 2006) (pricing information). See also Cam Int’l L.P. v. Turner, 1992 WL 74567 (Tenn. Ct. App. Apr. 15, 1992) (“information concerning customers’ specialized requirements, need and product preferences” may be entitled to protection) (decision prior to enactment of TUTSA).
In basic terms, misappropriation can include not only the acquisition of the trade secret by improper means, but also the disclosure or use of the trade secret. Of critical importance, a third party – not the initial “misappropriator” – can be liable for misappropriation if the third party uses the trade secret and knows or should have known that the trade secret has been improperly acquired. For example, in PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368 (2000), a California court held that once the defendants knew or had reason to know of the use of misappropriated trade secrets, they were liable for the misappropriation even though they did not take part in the initial misappropriation: “[M]isappropriation is not limited to the initial act of improperly acquiring trade secrets; the use and continuing use of the trade secrets is also misappropriation.” Id. (citing California statute identical to Tenn. Code Ann. §47 25 1702). Courts in Wisconsin and Pennsylvania have held likewise. Therefore, a trade secret holder need only show that a defendant either acquired trade secrets through improper means or disclosed or used the trade secrets of another under one of the listed conditions in the statute.
As a general principle, a party may not use another’s trade secret, even with independent improvements or modifications, so long as the product or process is substantially derived from the trade secret. American Can Co. v. Mansukhani, 742 F.2d 314 (7th Cir. 1984); Atochem North America v. Gibbon, 1991 WL 160939 (D.N.J. Aug. 15, 1991) (“[S]light modifications or improvements of a trade secret will not defeat the misappropriation claim.”); Olson v. Nieman’s LTD, 579 N.W.2d 299 (Iowa 1998) (minor modification is not a defense to trade secret misappropriation).
Under Tennessee’s adoption of the Uniform Trade Secrets Act, a plaintiff may recover both monetary and injunctive relief. Tenn. Code Ann. §§ 47 25 1703 and 1704.
An injunction can issue for both “actual” and “threatened” misappropriation. At the outset of a lawsuit, a trade secret owner can seek a preliminary injunction to prevent the alleged misappropriator from using or disclosing the trade secret while the lawsuit is pending. At the conclusion of trade secret cases, courts have granted two types of permanent injunctions: (1) a permanent “use” injunction (to protect the trade secret) and (2) a “head start” injunction (to eliminate any commercial advantage improperly gained by defendant’s misappropriation). See Chemetall GMBH v. ZR Energy, Inc., 138 F. Supp.2d 1079 (N.D. Ill. 2001); and Gen. Elec. v. Sung, 843 F.Supp. 776 (D. Mass. 1994).
TUTSA provides that “[d]amages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss.” Tenn. Code Ann. §47-25-1704. Moreover, damages may be measured by “a reasonable royalty” where appropriate. Id.
TUTSA also provides for discretionary exemplary damages “in an amount not exceeding twice” the amount awarded for, in essence, compensatory (or “actual loss”) damages. Tenn. Code Ann. §47 25 1704(b). Courts have awarded exemplary damages in double the amount of actual damages, resulting in a total award of three times the amount of actual damages. These damages can be sought when the misappropriator is found to have acted willfully and maliciously.

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