United States: The Massachusetts Trade Secrets Act, Four Years On: What To Know

This article was originally published in the Boston Bar Association's Fall 2022 Boston Bar Journal.

Just over four years ago, the Massachusetts legislature finally passed a bill long in the works addressing non-compete agreements and replacing the Commonwealth's trade secret misappropriation statute with a version of the Uniform Trade Secrets Act (the "UTSA"), referred to herein as "MUTSA." See M. G. L. c. 93, § 42-42G. While the Commonwealth's "new" non-compete law has received the most attention, the adoption of the UTSA was also notable. Even though Massachusetts is the 49^th state to adopt the UTSA, MUTSA differs from other states' versions of the UTSA. This piece will discuss the differences in pre- and post-MUTSA jurisprudence and what issues may be implicated by the law.

Comparing the text of MUTSA to its predecessor

Prior to MUTSA's enactment, parties alleging trade secret misappropriation relied on both common law and statutory law. Oddly enough, the pre-MUTSA statute never specifically defined "misappropriation." Instead, the statute provided that anyone who "embezzles, steals or unlawfully takes, carries away, conceals, or copies, or by fraud or by deception obtains" a trade secret "with intent to convert to his own use," regardless of the value of the trade secret, is liable for the resulting damages. In contrast, MUTSA provides a specific (albeit lengthy) definition of "misappropriation":

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

(ii) an act of disclosure or of use of a trade secret of another without that person's express or implied consent by a person who

Similarly, the definition of a "trade secret" in the pre-MUTSA statute merely refers to another statute,M. G. L. c. 266, § 30, which defines a trade secret as "anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement." MUTSA, meanwhile, defines "trade secrets" as:

specified or specifiable information, whether or not fixed in tangible form or embodied in any tangible thing, including but not limited to a formula, pattern, compilation, program, device, method, technique, process, business strategy, customer list, invention, or scientific, technical, financial or customer data that

One significant change that the statute makes compared to pre-MUTSA jurisprudence is the ability to obtain an injunction for "actualor threatenedmisappropriation" (emphasis added). MUTSA's predecessor only permitted "an aggrieved person" to seek an injunction, leaving out any mention of prohibiting threatened misappropriation. Additionally, MUTSA provides that even after the trade secret has ceased to exist, the injunction may be continued for an "additional reasonable period of time" to "eliminate any economic advantage that otherwise would be derived from misappropriation." The pre-MUTSA statute contained no such language. Perhaps most notably, the older statute did not require a plaintiff to identify trade secrets with particularity prior to engaging in discovery, whereas MUTSA includes such an affirmative duty, described in more detail below.

Another change that MUTSA precipitated is the specification of recoverable damages for misappropriation. The pre-MUTSA statute provided for recovery of damages resulting from misappropriation without specificity as to how those damages would be calculated and permitted a court to double the amount of damages in its discretion. MUTSA is a bit more specific (and closely tracks the UTSA): the new statute permits recovery of damages in the form of the "actual loss caused by misappropriation" as well as the unjust enrichment caused that is not accounted for in computing the actual loss. As an alternative, MUTSA allows for damages in the form of a "reasonable royalty" for the misappropriator's unlawful use or disclosure of the trade secret, which is not explicitly identified as a measure of damages in the pre-MUTSA statute (although a handful of pre-MUTSA cases in Massachusetts have indicated a willingness to use the reasonable royalty damages framework). MUTSA also allows for exemplary damages in an amount up to twice the award allowed for actual loss plus unjust enrichment or reasonable royalty, whichever applies.

Comparing MUTSA to the UTSA

Ironically, despite the goal of uniformity (not to mention the name itself), the various states including Massachusetts that have implemented a version of the UTSA have not done so uniformly. A few notable differences include:

Unlike the UTSA, MUTSA requires that a trade secret be "specified or specifiable" information and includes in the definition of a trade secret the following categories of information: "business strategy, customer list, invention or scientific, technical, financial or customer data," provided such information satisfies the remainder of the definition of a trade secret. The remaining definition requires that a trade secret provide economic advantage at the time of misappropriation and be subject to reasonable measures to protect its secrecy.

MUTSA also provides that in considering an injunction to prevent actual or threatened misappropriation, the court should consider "prior conduct and the circumstances of potential use," a clause that is absent from the UTSA. In addition to the circumstances in which the UTSA provides for attorneys' fees, MUTSA adds two scenarios in which fees will be granted: where a claim of misappropriation isdefended(not just prosecuted) in bad faith and where a motion toenter(not just terminate) an injunction is made in bad faith.¹MUTSA also adds that in considering whether to award attorneys' fees under these circumstances or where it can be proven that the misappropriation was willful and malicious, a court may "take into account the claimant's specification of trade secrets and the proof that the alleged trade secrets were misappropriated."

The duty to identify trade secrets is highlighted elsewhere in MUTSA. It provides that "a party shall state with reasonable particularity the circumstances [of misappropriation], including the nature of the trade secret and the basis for its protection." The statute goes on to require that before commencing discovery, the party claiming misappropriation "shall identify the trade secret with sufficient particularity" to permit a court to "determine the appropriate parameters of discovery and to reasonably enable other parties to prepare their defense." This requirement is noticeably absent from the UTSA (and as noted above, the pre-MUTSA statute in Massachusetts), and appears to be borrowed from a California statute that similarly requires identification of trade secrets with "reasonable particularity" before discovery can commence in a misappropriation action under its own version of the UTSA.

Finally, it bears noting that the few courts that have addressed MUTSA preemption have interpreted that issue narrowly. Unlike many other states, Massachusetts courts have determined that while MUTSA preempts other remedies (including via common law) for causes of action addressing misappropriation of trade secrets, it doesnotpreempt causes of action for theft or misuse of confidential information that does not rise to the level of a trade secret.

Have things actually changed?

Despite MUTSA being on the books for four years now, the question remains: has anything really changed? MUTSA only applies to misappropriation thatcommencedon or after October 1, 2018 and does not include misappropriation that commenced earlier, even if it continued after October 1, 2018. There have been relatively few cases decided under MUTSA in the four years since its effective date. A review of those cases reveals that at least some judges continue to rely on case law under the previous framework.

For example, a 2021 case,Sensitech Inc. v. LimeStone FZE², considered a trade secret misappropriation claim under both the Defend Trade Secrets Act (the "DTSA") and MUTSA, given that the alleged misappropriation had commenced after MUTSA's effective date. In so doing, the Court relied on pre-MUTSA (and pre-DTSA) law in the Commonwealth, citing to the 2011 caseOptos, Inc. v. Topcon Medical Sys., Inc.³, for the elements of misappropriation, which itself quoted a case that is over 50 years old -J.T. Healy & Son., Inc. v. James A. Murphy & Son, Inc.⁴Notably, when the United States District Court reconsidered theSensitechdecision earlier this year⁵, the Court again cited toOptosandJ.T. Healy. Many other recent cases addressing misappropriation claims under MUTSA have also relied heavily on pre-MUTSA jurisprudence, including in considering the specificity with which a party must identify its trade secrets, whether a party has alleged that it took appropriate measures to protect the alleged trade secret, and more. This indicates that courts will likely continue to rely at least partially on pre-MUTSA law, even in cases analyzing misappropriation that occurred after 2018.

In our view, the biggest change for misappropriation claims is the requirement that the party asserting the claim identify with "sufficient particularity" the trade secrets at issue before discovery, which was not required under the prior Massachusetts statutory law.⁶This change shifts Massachusetts closer to the California model, as noted above. It also arguably adds a new burden for plaintiffs asserting a misappropriation claim and highlights the tension between protecting one's trade secrets from disclosure and vindicating one's rights following theft of those secrets.

It also implicates the challenge of describing trade secrets when there may be somewhat of a knowledge vacuum at the beginning of a case. For example, a company may discover that a former employee downloaded tens of thousands of files shortly before leaving for a competitor. The company will, obviously, wish to move quickly to enjoin the use or further disclosure of such files. But it may require the company quite some time to review all of the downloaded files to determine which are truly trade secrets and describe them for purposes of MUTSA's particularity requirement. A company may have other circumstantial evidence that the former employee absconded with trade secrets-for example, through suspicious evidence of deletion of metadata on computers or other devices or other destruction of evidence-without knowing specifically what the employee took. Most likely, the company could still seek an injunction based on the mere fact of destruction or downloading and highlight a few key documents in the hopes that it will convince a judge. However, it cannot move forward with discovery without meeting the statutory threshold for identification. Such failure may be significant if a judge is on the fence about granting an injunction. In these circumstances, having conducted a trade secrets audit in advance of litigation, or at least having put some work into cataloguing and organizing a company's trade secrets prior to litigation ensuing, will likely make it far easier for a plaintiff to comply with MUTSA's identification requirement.⁷

Cases interpreting Massachusetts's new rule regarding pre-discovery identification of trade secrets are few and far between. In Mirakl, Inc. v. VTEX Commerce Cloud Solutions LLC,⁸ while the Court required the parties to engage in discovery that did not implicate plaintiff's misappropriation claim, it also required the plaintiff to submit a list of trade secrets that it had alleged the defendants misappropriated (pursuant to a protective order) prior to conducting discovery on that claim. While a few other cases have touched upon MUTSA's requirement to identify trade secrets with particularly, none other than Mirakl have addressed the need to do so prior to discovery commencing. Thus, at present, the Massachusetts bar is in need of guidance regarding what will be deemed "sufficient particularity" justifying the onset of discovery under MUTSA.

Conclusion

Given the relative dearth of case law interpreting MUTSA, plaintiffs asserting misappropriation claims (and parties defending against them) are left to rely largely on pre-MUTSA authorities, which judges continue to rely upon as well. However, practitioners should be mindful of the differences contained in MUTSA, including, most notably, the requirement for plaintiffs to identify with sufficient particularity the trade secrets alleged to have been misappropriated. As for what will be deemed to be sufficient particularity, time will tell.

Footnotes

1 MUTSA also specifically excludes from the definition of "improper means" reverse engineering from properly accessed materials or information, unlike the UTSA.

2 548 F. Supp.3d 244 (D. Mass. 2021).

3 777 F. Supp.2d 217 (D. Mass. 2011).

4 357 Mass. 728 (1970).

5 Sensitech, Inc. v. LimeStone FZE, 2022 WL 227132 (D. Mass. Jan. 26, 2022).

6 Based on our experience, certain judges may have required sufficient particularity of the claim for plaintiffs whose claims were on shaky ground.

7 In addition to the benefit should litigation ensue, such legwork can help an employer in other ways, including determining who has access to sensitive company intellectual property and identifying gaps in protective measures that, when remedied, may prevent misappropriation to begin with.

8 544 F. Supp.3d 146 (D. Mass. June 9, 2021).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.