2006 UCLA J.L. & Tech. 1

Nonpublic Information and California Tort Law:
A Proposal for Harmonizing California's
Employee Mobility and Intellectual Property Regimes
Under the Uniform Trade Secrets Act
by Tait Graves*

I. Introduction

[¶1] This Article asks whether California tort law permits a claim that a defendant has misused commercial information that is not a trade secret -- whether alleged as unfair competition, conversion, or some similar label. This question has moved to the forefront in trade secret litigation as debates grow over the Uniform Trade Secrets Act's preemption of alternative tort claims. The first published opinion on UTSA preemption under California law appeared in 2003. Since then, courts have increasingly had to wrestle with what tort claims regarding nonpublic information California law permitted before the UTSA was enacted in 1985, and what tort claims the UTSA now preempts.

[¶2] This seemingly abstract question raises serious questions of public policy -- specifically, the protections California courts have long granted to employees who change jobs and join competitors, and the degree to which individuals and businesses in California are free to use information that does not qualify as a trade secret. If a litigant can sue over information that is admittedly nonsecret, or if a litigant can press an alternative tort claim where allegedly confidential information fails to qualify as a trade secret, these interests in employee mobility and free use of nonsecret information are endangered.

[¶3] Answering the question requires a review of California's ninety-year history of tort cases where allegedly nonpublic information was at issue. That jurisprudence forms a tangled web of claims brought under a variety of labels, in more than one hundred published decisions. To date, no article or treatise has analyzed the full history of California's treatment of claims regarding nonpublic information. The problem has received little attention despite the frequency with which trade secret-type cases are litigated, and its importance to employees planning to change jobs.1 The trade secret treatises have noted the question and the UTSA preemption debate without detailed analysis.2 In turn, litigants often brief these issues at the early pleading stage on crowded motion calendars, presenting only surface citations to courts which have little time to study these complex issues in detail. As a result, the published rulings indicate that courts and attorneys are missing key arguments and considerations, even when they reach the right conclusions.

[¶4] This Article aims to remedy the absence of a detailed analysis by providing a guide for courts and litigants, with specific proposals for UTSA preemption tied to California public policy. This Article is in part a map of the law -- an attempt to answer the question, "what was the common law in California regarding what information could be used or not used before the UTSA was enacted?" To that end, this Article will cite scores of historical cases whose common root is a claim that a defendant misused information protected by state law, and analyze whether or not those cases applied different tests to determine if the information could be used or not. This Article will also analyze the effect of Business and Professions Code section 16600, a statute that courts have repeatedly used to prohibit claims against former employees where the information at issue does not constitute trade secrets.

[¶5] Based on that historical review, this Article proposes that California tort law has not and would not recognize a tort claim for information "that does not rise to the level of a trade secret" as an alternative to a trade secrets claim under the Uniform Trade Secrets Act. In turn, a test for UTSA preemption that takes California's tort law regarding nonpublic information into full account might consist of the following two steps:

[¶6] (1) Was the proposed tort claim available for a trade secret-type claim before the UTSA was enacted in 1985? If not, the claim should fail.

[¶7] (2) If so, does the claim allege the misuse of nonpublic commercial information, regardless of how the plaintiff has subjectively labeled the claim? If so, the UTSA should preempt the claim.

[¶8] This simple test, if applied, would enable courts to address UTSA preemption questions in a manner consistent with California's common law and its public policies favoring competition and the freedom to use nonsecret information.

II. The Uniform Trade Secrets Act and Preemption of Common Law Tort Claims

The Basics: California's Public Policy in Favor of Employee Mobility

[¶9] Trade secret cases, particularly in Silicon Valley, can be as complex as patent cases. In trade secret litigation, the threshold question is whether the information the plaintiff accuses the defendant of misusing is truly secret, or is instead in the public domain such that it is free for anyone to use. Through Business and Professions Code section 16600, California has long provided unique protection for employees who change jobs -- the most frequent targets of trade secret lawsuits -- by announcing a policy in favor of employee mobility and barring attempts by former employers to penalize former employees for using nonsecret information.

[¶10] The policy underlying section 16600 matters for UTSA preemption and the question whether California permits tort claims for misuse of information that is labeled "confidential but not a trade secret." Through such a theory, parties seek to hold former employees liable for using information that is not a trade secret -- essentially using tort law to create an implied noncompetition contract with the departing employee. This would encroach on the policies protected by section 16600. Over the decades, courts have used section 16600 to protect the right to join a competitor and use nonsecret information. If there had historically been a tort claim for information "less than a trade secret," the former employees in all such cases could have been liable, because they all used information learned from a former employer.

[¶11] Thus, before addressing the scope of preemption under the Uniform Trade Secrets Act, it is important to understand California's public policy as applied through section 16600.3 What is now section 16600 was enacted in 1872, and the earliest cases construing the statute addressed anticompetitive arrangements between businesses.4 By the 1930s, however, courts began using the statute to void employment agreements and similar contracts that sought to penalize former employees for using nonsecret information, engaging in competitive business, or both. Many such decisions described a strong public policy favoring employee mobility.5 Federal courts applying California law have also used section 16600 to void restrictive post-employment covenants.6 Although the outer bounds of the statute have been subject to a host of inconsistent decisions,7 courts have repeatedly used the statute to announce a public policy favoring employee mobility.

Why UTSA Preemption is Important for this Public Policy

[¶12] Whether a plaintiff who alleges the misuse of nonpublic information can do so only through the Uniform Trade Secrets Act or under common law tort claims may appear at first blush to be an abstract question of little importance. To the contrary, a plaintiff's ability to sue over information that is nonsecret, or deemed somehow confidential but less than secret, could endanger California's longstanding policies in favor of employee mobility, and render the use of nonsecret information unlawful. Under trade secret law, trade secrets must, of course, be secret, and the defense can defeat a trade secret claim by finding the information (or information much like it) in the public domain.8 Likewise, under section 16600 employees can make fairly accurate assumptions about what information they can use from job to job; if it is nonsecret, they can use it. But if California courts recognized tort claims for "confidential information not rising to the level of a trade secret," all of this would be jeopardized. Employees could be found liable for using information generally known to the trade, because the former employer convinced a court that the information was still somehow "confidential."

[¶13] In addition, tort claims designed to evade the Uniform Trade Secrets Act could, if successful, affect the procedural posture of a lawsuit in several ways. For example, the UTSA's statute of limitations is three years.9 Imagine a plaintiff who sues after four years, calls the information "confidential" instead of "trade secrets," and denies that UTSA preemption applies. Similarly, the UTSA provides that exemplary damages are limited to no more than double the award of compensatory damages, and allows the court rather than the jury to make that determination. Imagine a plaintiff who calls the information "confidential" instead of "trade secrets" and claims a right to argue for five-fold punitive damages to a jury. The same might be true for the reasonable royalty remedy, another damages provision which the UTSA directs courts to decide, rather than juries.

[¶14] As a further example, trade secret plaintiffs must identify the alleged secrets with particularity before discovery begins.10 Imagine a plaintiff who calls the information "confidential" instead of "trade secrets," and refuses to identify the information at issue. Burdens of proof might also be altered. Under the UTSA, a trade secret plaintiff bears the ultimate burden of proving that the defendant did not independently derive the information at issue.11 One can imagine a plaintiff who pleads an alternative tort claim and argues that this rule is inapplicable, and that independent derivation is instead an affirmative defense.

[¶15] We can predict that as a result of permitting tort claims for information "not rising to the level of a trade secret," parties could be liable for using nonsecret information they previously had full right to use. Even if a defendant showed that the information in question was generally known to the trade, the plaintiff might still have a claim.

[¶16] From a broader public policy perspective, the results would be disastrous for Silicon Valley companies, all of which benefit from the use of nonsecret information to develop innovative technologies. Former employees would have difficulty deciding with certainty what information they could or could not use at the next job. The UTSA itself would be rendered meaningless, because plaintiffs would have no reason to follow its strict guidelines. Likewise, section 16600 would be rendered meaningless, because plaintiffs could use tort claims to create implicit noncompetition covenants to penalize former employees for using nonsecret information.

The Statute

[¶17] With these important policy questions in mind, we will now turn to the enactment of California's UTSA, and the case law shaping its preemptive effect on tort claims for the misuse of nonpublic information.

[¶18] California enacted the Uniform Trade Secret Act, with some modifications, with an effective date of January 1, 1985.12 The UTSA is now the law in some forty jurisdictions,13 and provides a complete tort claim and remedial scheme for the misuse of commercial information not generally known to a particular trade or industry.14 Since 1985, California courts have interpreted the statute to clarify issues such as which party bears the burden of proof regarding the defense of independent derivation, whether a nonsuit is appropriate when a plaintiff fails to prove damages, and what acts trigger the statute of limitations.15 Given the breadth of the statute and the additional rules for trade secret claims that have developed through its case law, the first question in exploring the UTSA's preemptive effect is whether the passing of the statute alone superseded California's common law on misuse of nonpublic information.

California's Rules for Preemptive Statutes and the UTSA's Preemption Clause

[¶19] Even absent an express preemptive clause, California law provides that complete statutory schemes preempt the common law on the same subject matter. The California Supreme Court has held that "general and comprehensive legislation" which carefully describes the course of the affected conduct and spells out limitations and exceptions, "indicates a legislative intent that the statute should totally supersede and replace the common law dealing with the subject matter."16 Thus, for example, where a party sought to use historical tort claims to plead around the comprehensive Uniform Commercial Code, the reviewing court rejected that effort.17

[¶20] In addition, however, the UTSA contains an express preemption clause, which spells out two exceptions and provides that civil remedies based on trade secret claims are preempted:

[¶21]

This title does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.18

[¶22] On its face, this preemption clause has three exceptions. One is for criminal remedies -- presumably a reference to California Penal Code section 499c, the statute for criminal trade secret misappropriation.19 One is for contract actions -- such as a suit for breach of a confidentiality contract. The third is for "other civil remedies that are not based upon misappropriation of a trade secret." This exception is the focus of all UTSA preemption disputes because trade secret plaintiffs typically assert that their alternative tort claims -- unfair competition, tortuous interference, and the like -- are not based upon trade secret misappropriation, even if they share the same predicate factual allegations.

The UTSA's California Legislative History

[¶23] In turn, the statute's legislative history sheds light on the preemptive scope of the UTSA. A 1983 Assembly Committee Digest quoted the National Conference of Commissioners on Uniform States Laws: "The contribution of the Uniform Act is substitution of unitary definitions of trade secret and trade secret misappropriation . . . for the various property, quasi-contractual, and violation of fiduciary relationship theories of noncontractual liability utilized at common law."20 The UTSA's legislative sponsor, Assemblyman Elihu Harris, then extracted and quoted this phrase in his September 1984 letter to California's governor requesting his approval of the bill.21 At the same time, the committee which drafted the original UTSA model provisions included a comment to the model preemption clause noting that "This Act . . . applies to duties imposed by law in order to protect competitively significant information. It does not apply to duties voluntarily assumed through an express or an implied-in-fact contract."22 Beyond this recognition and approval of the UTSA's preemptive purpose, the legislative history discloses no specific debate for or against preemption of common law claims. It also contains no explanation why California's preemption clause came to be worded in the negative, rather than the positive as in other UTSA jurisdictions.23

State Court Rulings Relating to UTSA Preemption

[¶24] As of this writing, no California appellate court has yet considered the scope of the UTSA's preemption clause. Three state court rulings, however, at least imply that common law claims based on trade secret-type theories did not survive the UTSA's enactment. First, and most important, the California Supreme Court has suggested that common law claims for trade secret misappropriation did not survive the UTSA's enactment. In Cadence Design Systems Incorporated v. Avant! Corporation, the court stated that if a plaintiff had alleged wrongdoing that began before the enactment of the UTSA and continued afterwards, the plaintiff would have two separate claims -- one common law claim for the pre-UTSA period, and one UTSA claim for post-1984 acts.24 In so doing, the Court strongly suggested that the common law claim did not survive the UTSA.25

[¶25] Two other cases involved fact patterns where the alleged wrongdoing began or took place before January 1, 1985 -- the UTSA's effective date. In Balboa Insurance Company vs. Trans Global Equities, the plaintiff alleged the misuse of nonpublic information under a common law unfair competition theory.26 Although the case dates from 1990, the court noted that it was proceeding under a common law theory because the facts arose before January 1, 1985.27 Like Cadence, this decision suggests that such common law claims would not be proper vehicles for such a claim after the UTSA was enacted. Similarly, in Ralph Andrews Production, Incorporated v. Paramount Pictures Corporation, the court addressed a type of breach of confidence claim based on facts that arose in 1983.28 The court noted the UTSA's 1985 enactment and instructed the trial court that should it reach the remedial phase, the common law would apply to the pre-UTSA facts.29

[¶26] More recently, several trial courts have considered UTSA preemption arguments raised with varying degrees of detail, with different results. None of these cases resulted in citable authority, of course, and the litigants' briefs varied widely in arguments raised and degree of historical detail provided.30

Rulings in Federal Court on Preemption Under California's UTSA

[¶27] Unlike the state courts, federal district courts applying California trade secret law have ruled on UTSA preemption several times since 1997. The Ninth Circuit has not yet ruled directly on the question of UTSA preemption, but did so implicitly in a case where a plaintiff sought to evade the UTSA's remedial scheme through an alternative claim for common law unfair competition.31

[¶28] Three federal district court rulings have addressed UTSA preemption in some detail. In Accuimage Diagnostics Corp. v. Terarecon, Inc.,32 the Northern District of California agreed with the defendant's argument that the UTSA preempted a common law misappropriation claim. The Accuimage court found three reasons to preempt the claim: (1) the text of Civil Code section 3426.7; (2) the California Supreme Court's indication in Cadence Design Systems that a common law trade secret claim would not have survived the UTSA;33 and (3) out-of-state UTSA preemption rulings.

[¶29] In Digital Envoy, Inc. v. Google, Inc., the Northern District court ruled that the UTSA preempted claims for unfair competition under Business and Professions Code section 17200 and unjust enrichment on the ground that they arose from the same common nucleus of facts as the trade secret allegation.34 Likewise, the court in Callaway Golf Co. v. Dunlop Slazenger Group Am., Inc., applied the California UTSA to preempt conversion and other, similar claims.35

[¶30] There are also at least four unpublished federal slip opinions that address California UTSA preemption. In Easton Sports, Inc. v. Warrior Lacrosse, Inc., the Eastern District of Michigan applied the California and Michigan UTSAs to find claims for tortious interference that centered on alleged misuse of confidential information and breach of fiduciary duty preempted, while permitting the plaintiff a chance to prove tortious interference claims independent of trade secret misappropriation.36 In Memry Corporation v. Kentucky Oil Technology, N.V., the Northern District of California ruled in an unpublished slip opinion that the California UTSA preempted common law misappropriation, conversion, unfair competition, and unjust enrichment claims "to the extent that they allege that [cross-defendant] misused confidential information."37

[¶31] Another unpublished case, the first to address the issue under California law, engaged in a fairly comprehensive statutory analysis to find an unfair competition claim under Business & Professions Code section 17200 preempted. In Ernest Paper Products, Inc. v. Mobil Chemical Co., Inc., the court considered California's case law on the effect of comprehensive statutes and the text of section 3426.7 in reaching its decision.38

[¶32] Finally, in a badly reasoned slip opinion, the Northern District of California in PostX Corporation v. Secure Data in Motion permitted a plaintiff to proceed with an alternative, trade secret-like tort claim despite a UTSA preemption argument.39 This Article will discuss the flaws in this slip opinion in Section III.C below.40 The subsequent Google case noted some of these faults in distinguishing the ruling.41

UTSA Preemption Outside California

[¶33] Rulings on UTSA preemption outside California are numerous, with a discernable majority and minority position on the validity of claims for "confidential information not rising to the level of a trade secret." These rulings sometimes explain that the UTSA was intended to codify the various common law claims for the same conduct,42 or that allowing alternative tort claims would undermine the statute.43 As might be expected, the out-of-state cases have had little difficulty finding no preemption where the tort claim at issue clearly related to conduct not involving trade secret misappropriation -- such as alleged fraud or trademark violations.44 At the same time, most of the decisions find alternative claims such as unfair competition, tortuous interference, and conversion preempted in matter-of-fact rulings without detailed analysis.45

[¶34] As in California courts, trade secret plaintiffs elsewhere have argued that alternative claims should survive UTSA preemption because they are supposedly based on "confidential information not rising to the level of a trade secret," or some similar formulation. A minority of out-of-state courts have fallen for this tactic, in each case without analyzing whether such a claim existed historically or explaining how such a claim could be litigated or tested for confidentiality in a manner different from a trade secret claim. Nor have these courts considered that their rulings effectively entitle a plaintiff to simply label the information at issue "confidential" rather than "trade secrets" to plead around the UTSA.46

[¶35] By contrast, the majority of nationwide courts which have faced this question have ruled against the concept of alternative tort claims based on purported "information not rising to the level of a trade secret."47 As one recent court responded to an argument that there is no preemption "if the information does not constitute a trade secret": "[A]llowing otherwise displaced tort claims to proceed on the basis that the information may not rise to the level of a trade secret would defeat the purpose of the UTSA."48 Another court held that such a theory would render the UTSA "meaningless."49 South Dakota's Supreme Court noted that the plaintiff's subjective labeling of the claim should not be the issue: "In analyzing claims for the purpose of applying the displacement provision, the issue is not what label the plaintiff puts on their claims. Rather, the court is to look beyond the label to the facts being asserted in support of the claims."50

[¶36] It is not entirely clear what weight these out-of-state decisions would have under California law. The state's UTSA contains a provision suggesting that courts construe the statute "to make uniform the law with respect to the subject of this title among states enacting it."51 But California's employee mobility scheme is much more protective than other states, which suggests that California courts should defer to California's public policy first before looking to out-of-state rulings.

III. California Tort Law and Nonpublic Information: What Claims are "Based Upon Trade Secret Misappropriation"?

[¶37] Given the text of Civil Code 3426.7 and the UTSA's legislative history, few if any litigants would argue that there is never preemption of alternative tort claims under California's UTSA. But what common law causes of action does the theory preempt? Stated more precisely, can a plaintiff label a claim for misuse of nonpublic information under a title other than "trade secret" and survive a preemption challenge?

[¶38] To answer this question, we must ask whether California pre-UTSA law ever permitted causes of action for misuse of allegedly nonpublic information where that information did not satisfy the test for trade secrecy. This is a question not merely of how the plaintiff labeled its cause of action, but whether there was any difference in substantive legal tests applied to define the degree of secrecy necessary to support the claim. We must also ask if California law has ever permitted causes of action for misuse of admittedly nonsecret information, and if so whether such a theory might apply to commercial information of the type used by employees who change jobs and join a competitor. This also raises the question of interplay between section 16600 and the UTSA.

[¶39] Part of the confusion over UTSA preemption arises simply because parties and courts used so many different labels under the common law to refer to the same tort -- what we today call misappropriation of trade secrets. Upon a surface review of historical cases, one might assume that claims with different labels -- unfair competition, "confidential information," and the like -- were in fact different torts with different legal tests and elements. To the contrary, the vast majority of California tort cases alleging the misuse of allegedly nonpublic information applied the same test for secrecy, regardless of label.

[¶40] Additional confusion arises because litigants sometimes assume that certain causes of action -- such as conversion and statutory unfair competition under Business & Professions Code section 17200 -- were used before the UTSA as vehicles for trade secret-type claims. A review of the historical case law shows, however, that certain tort claims were not used for such allegations in the pre-UTSA common law period.

A. California Common Law Before 1985: Claims for Misuse of Nonpublic Information

[¶41] Over time, California courts during the pre-UTSA period up to 1985 used a variety of different labels for the same types of claims. Decisions might speak of a "breach of trust" or "unfair competition" to refer to the same conduct, and they quite often used the phrases "trade secret" and "confidential information" in the same sentence, without indicating that there was any legal distinction between them. And then as now, plaintiffs sometimes sought to proceed under a list of repetitive causes of action based on the same predicate factual allegations.52

[¶42] What is most important about these cases to the question of UTSA preemption is that these courts applied the same legal standards to analyze virtually every such case, regardless of label. If, as it seems from a comprehensive historical analysis, California courts applied the same trade secrecy analysis no matter whether the claim was called "unfair competition" or "misappropriation," or whether the subject matter was "trade secrets" or "confidential information," then there was no separate tort theory for nonpublic, commercial information apart from trade secret law in the first place. In turn, if there never was such an alternative theory under California law, there is no such theory a litigant can use to plead around the UTSA.

[¶43] What follows, then, is a historical review of California trade secret cases, under whatever label the parties or courts attached to them. This review will show that regardless of label, the overwhelming majority of such cases applied the same legal standard, and used labels interchangeable to refer to the same cause of action and same categories of nonpublic information. Moreover, this legal standard was the same regardless whether the intellectual property at issue was simple and relatively weak -- as in the case of customer lists -- or whether it was complex and highly proprietary -- as in the case of technical information.

[¶44] This is not to suggest that California law has been uniform. There are a handful of decisions with unclear holdings, questionable dicta, and, in a few cases, rulings that are inconsistent with the majority. We will analyze these cases below to find out whether they offer any alternative theories that could survive UTSA preemption.

Trade Secret Cases

[¶45] The first published California trade secret case dates from 1915,53 about a century after the concept developed in England and in the Eastern industrial states.54 In the early decades, virtually every California case was a request for an injunction based on an alleged misuse of a secret customer list, without a specified cause of action. It is often unclear from such decisions whether the claim was based on tort or contract principles -- because the former employee defendants often had confidentiality contracts with the plaintiff former employer -- or both. The consistent theme among the cases which reached the merits of whether the information was truly secret is that the dispositive question is whether the information was known to the trade, or otherwise public.55 All of this was also true for pre-UTSA federal trade secret cases applying California law.56 Many of the early cases used the phrases "trade secret" and "confidential" interchangeably, or together as one phrase, with no apparent distinction between them.

Cases Without Specified Causes of Action

[¶46] Some early cases did not label the cause of action or subject matter at all, or used only the term "confidential information" to denominate the information at issue, but nonetheless applied the same standards as that applied in the trade secret cases.57

Common Law Unfair Competition

[¶47] For many decades, common law "unfair competition" was the rubric under which trade secret claims were frequently asserted and discussed. Starting by 1929 and with increasing frequency in the 1940s and into the 1950s, California courts frequently used the phrase as a synonym for trade secret actions.58 In the federal courts, most trade secret claims applying California law were called "unfair competition" causes of action.59 At the same time, California courts appear not to have applied any different legal standard to a trade secret-type claim if the claim was called "unfair competition." Rather, common law trade secret claims were understood to fall within the broader conceptual category of unfair business practices, a category which also included conceptually distinct claims relating to palming off and similarly deceitful conduct, discussed below.

Breach of Fiduciary Duty

[¶48] Another common theory of trade secret misappropriation was breach of fiduciary duty -- particularly when a fiduciary misused the principal's nonpublic information before resignation to start or join a competing business.60 One of the pre-UTSA period's most famous decisions, Bancroft-Whitney Company v. Glen, was a fiduciary duty case.61 Using inconsistent terminology but apparently a single legal standard, the court found in one section of the ruling that the fiduciary misused certain "confidential" information, and found in another section that several defendants had not misappropriated "trade secrets."

Breach of Confidence

[¶49] One pre-UTSA theory for the misuse of nonpublic information had a life of its own, and developed for the most part separately from trade secret law. That theory has usually been called "breach of confidence," but has sometimes also been labeled "implied in fact contract" or "unjust enrichment." In the typical fact pattern -- which almost always involves the entertainment industry -- an individual disclosed a confidential script or idea for a movie or television show to a more powerful studio or agent, and then alleges that the defendant used the idea.62 Some federal cases applying California law have also addressed this cause of action.63 A major distinction is that breach of confidence appears not to have been used to target former employees, in contrast with pre-UTSA trade secret-type cases.

[¶50] Some breach of confidence cases have stated that the claim is distinct from trade secrecy requirements, suggesting that there is a different standard for measuring the claimed confidentiality of "confidential" information.64 With one additional case discussed below, these are the only California cases suggesting that there is a standard for "confidential" information that differs from the trade secrecy standard. At the same time, however, the breach of confidence cases have required a showing of confidentiality for the information at issue, without explaining how that standard would be measured any differently than it would under a trade secret claim.65 We will discuss the logical problems with this attempted distinction below, in reaching the conclusion that breach of confidence cases are conceptually identical to trade secret cases and should be litigated exclusively through the UTSA.66

Tortious Interference

[¶51] In the pre-UTSA period, litigants rarely used a tortuous interference theory to press trade secret accusations, but there are some cases applying the claim to trade secret fact patterns.67 The UTSA includes inducing a breach of a confidentiality contract as a basis for a cause of action, and thus it would appear that a tortious interference claim based on that accusation should be preempted.68

Conspiracy

[¶52] Likewise, trade secret plaintiffs do not appear to have frequently used conspiracy claims as alternative trade secret claims.69

B. Other Tort Claims Not Used for Trade Secret Theories in the Pre-UTSA Period

[¶53] Given the frequency with which trade secret plaintiffs allege alternative trade secret claims under labels such as conversion, common law misappropriation, and statutory unfair competition under Business & Professions Code section 17200, it may surprise some to learn that historically California trade secret plaintiffs did not proceed under these theories.

Conversion

[¶54] A conversion claim is based upon the wrongful appropriation of tangible property.70 Because trade secrets are intangible property, California courts historically never allowed trade secret-type claims under a conversion theory.71 Thus, while courts have rejected conversion claims under an UTSA preemption theory,72 a more fundamental objection would be that California litigants were never allowed to use the conversion claim to allege misuse of nonpublic information in the first place. For that reason, there is no such claim for which an UTSA preemption analysis would be necessary.

Statutory Unfair Competition Under Section 17200

[¶55] California's unfair competition statute -- Business & Professions Code section 17200 --is often pleaded in complaints as a sort of catch-all tort. As with conversion, trade secret plaintiffs often allege a section 17200 claim to repeat the underlying trade secret accusation. It appears that no published case before the UTSA validates the use of section 17200 for trade secret claims. In the short period between the enactment of the current version of the unfair competition statue in 1976 and the enactment of the UTSA in 1985, section 17200 was -- at least in the published cases -- not a vehicle for trade secret accusations, and certainly not a theory for alternative claims about information deemed "less than a trade secret."73 Because the limited remedies available under a section 17200 action -- an injunction and restitution of property -- are also available under the UTSA,74 and because section 17200 appears not to have been a recognized means to raise alternative trade secret-type theories, we will conclude below that the UTSA precludes such claims.75

Common Law Misappropriation

[¶56] The Accuimage case discussed above found a claim for common law misappropriation preempted where the plaintiff attempted to duplicate its trade secret accusation. Because the plaintiff's claim clearly sought to duplicate its UTSA claim, the court's preemption reasoning was sound. At the same time, there is a more fundamental objection to the use of a common law misappropriation clam for a trade secret-type theory that the Accuimage court could have applied, similar to the problem with conversion claims. Specifically, the tort of common law misappropriation was not a vehicle for a trade secret claim in the pre-UTSA period, with one exception where a court appears to have applied the wrong theory to the claim presented.76

[¶57] More importantly, common law misappropriation was once a valid theory recognized by the United States Supreme Court, but later Supreme Court decisions implicitly overruled it, and it thus is no longer good law. The elements of common law misappropriation are the plaintiff's investment in property, the defendant's non-consensual appropriation of that property at little or no cost, and damages.77 The doctrine stems from an early problem now covered by copyright law where a party would copy a newspaper's articles without permission. This gave rise to the so-called "hot news" doctrine, which allowed a tort claim for common law misappropriation in such narrow circumstances.78 The theory rarely appeared in the published case law, and a 1982 California decision thoughtfully distinguished it from trade secret-related accusations and explained how Supreme Court rulings that void state laws seeking to prohibit the use of public domain information implicitly overruled the common law misappropriation theory.79 In summary, common law misappropriation is not so much preempted by the UTSA as invalid as to claims alleging the misuse of nonpublic information, and bad law for claims alleging the misuse of admittedly public domain information.

Common Law Unfair Competition Claims for Deceitful Business Practices

[¶58] As noted above, pre-UTSA trade secret cases sometimes proceeded under a common law "unfair competition" label. That label shared little more than a name with the other variety of common law "unfair competition," which still exists today. A second, distinct form of common law unfair competition is a tort claim that alleges that the defendant passed off the plaintiff's goods or services as its own, or otherwise used deceit to obtain a competitor's business trade.80 Trade secret plaintiffs sometimes use this label in an effort to plead around the UTSA, perhaps confusing the pre-UTSA trade secret version of unfair competition with this second, unrelated tort claim. As with common law misappropriation, this tort appears from the published cases not to have been used for trade secret-type cases before the UTSA.81

Penal Code Claims for Stolen Property

[¶59] The author is aware of two attempts in 2005 to plead around the UTSA through a section 17200 claim with an underlying Penal Code section 496 claim -- the criminal statute for certain categories of stolen property. No pre-UTSA cases reflect such a theory, and in any event the statute does not mention trade secrets. 82 Because there is already a separate criminal statute for trade secret theft, using section 496 for a trade secret claim seems inconsistent with legislative intent.

C. Aberrational Cases Before and After the UTSA

[¶60] Not all California trade secret-type cases applied the same uniform test for secrecy. Even putting the breach of confidence cases with their distinct entertainment industry fact patterns to the side, a small minority have applied tests or made dicta statements that were inconsistent with the vast majority of trade secret-type cases. For example, one 1931 customer list trade secret case allowed a claim despite the defendant's argument that the allegedly secret customers constituted half the population of the district in question.83 While this case did not explicitly seek to apply an alternative legal standard for testing secrecy, its ruling expands the concept of secrecy to extreme lengths, almost amounting to an implied noncompetition agreement with the plaintiff.

[¶61] In similar fashion, a well-known 1985 case that purportedly applied section 16600 and trade secret law to rule that contracts barring former employees from soliciting their former co-workers for a year are valid.84 The case implicitly assumed that the identity and general skills of employees are trade secrets of their employees and thus subject to a valid restrictive covenant -- a questionable proposition that is logically inconsistent with other section 16600 causes that tie the legality of solicitation to the trade secrecy of the party to be solicited.85

[¶62] Another early decision that appears on first glance to have penalized a former employee for using nonsecret information may in fact have found that the defendant used other customer-related information that was secret -- the ruling is simply unclear.86 To the extent it permitted a trade secret violation based on nonsecret information, it would clearly be the extreme outlier among California cases. A 1966 decision suggested in a dicta digression that claims are available for information that is confidential but not a trade secret, but cited non-California authority, did not consider section 16600, and did not suggest how the test for secrecy would differ for "confidential" information versus "secret" information.87

[¶63] Finally, one case between businesses found a breach where a defendant corporation used apparently nonsecret information after a license to use the information expired.88 This case is in some sense are outside the scope of this Article; it does not involve former employees, where section 16600 would void an employment contract barring use of nonsecret information. It was also a contract case where two businesses expressly reached agreement regarding the use of particular information. The UTSA does not preempt contract claims, and if two businesses negotiate at arm's length and agree in writing that one will not use an item of nonsecret information, there is little policy reason to oppose the validity of such a contract.89

[¶64] In turn, several federal cases, particularly after the UTSA's 1985 enactment, have permitted alternative tort claims -- for the most part without ever considering whether such claims were truly valid under California law, or whether they were preempted by the UTSA. One such case contains two clear mistakes of law. In Self-Directed Placement Corporation v. Control Data Corporation, the Ninth Circuit stated that California permits a common law unfair competition claim with a standard different from trade secret law -- without stating what that difference would be.90 The court, however, cited the 1990 state court Balboa decision as authority for that proposition, apparently without noticing that the Balboa court held that the reason it did not apply the UTSA was that its fact pattern arose before 1985. The Ninth Circuit, in other words, looked at the post-UTSA date of the decision to assume that the common law claim survived the UTSA, and missed Balboa's explanatory footnote. As a second mistake, Self-Directed Placement also missed the 1982 California Sammons & Sons v. Ladd-Fab, Incorporated case, which explained why the theory the Ninth Circuit referred to was based on a federal theory of unfair competition overruled by subsequent United States Supreme Court decisions.91

[¶65] An unpublished federal slip opinion from 2004 also applied a clearly mistaken ruling regarding UTSA preemption. In PostX Corporation v. Secure Data in Motion,the court had already granted summary judgment in favor of the defendant on the plaintiff's trade secret claim.92 The plaintiff uncovered new evidence and made a new accusation of misuse of nonpublic information, this time under an "unfair competition" label. The defendant moved to bar the claim under the doctrine of UTSA preemption. The court refused to apply the doctrine, albeit without a detailed analysis of the UTSA or any basis for its ruling. It may have been motivated to save the plaintiff's claim rather than bar it on technical grounds, but one wonders why the court did not simply permit the plaintiff to amend its complaint to allege a new UTSA claim rather than doing violence to the concept of UTSA preemption.

[¶66] Another recent federal slip opinion likewise issued a somewhat confusing ruling on UTSA preemption. In Memry Corporation v. Kentucky Oil Technology, N.V, the court found, following other recent rulings, that the plaintiff's alternative tort claims for the misuse of "confidential" information were all preempted by the UTSA.93 At the same time, it permitted a tort claim for the defendant's use of admittedly nonsecret information -- the plaintiff's published patent application. The court did not consider the Supreme Court cases or Sammons in permitting a state law tort claim for admittedly nonsecret information.

[¶67] Finally, two other Ninth Circuit decisions contained a plaintiff's alternative tort claims for unfair competition, without any discussion of UTSA preemption or section 16600.94 Trade secret plaintiffs often cite these decisions as authority for the proposition that alternative tort claims are not preempted. However, California interpretive law provides that cases that do not address a proposition (here, UTSA preemption) do not provide authority regarding that proposition.95 One recent district court ruling on UTSA preemption noted this issue when a plaintiff cited one of these two circuit decisions.96

[¶68] These cases are clearly a minority among the vast majority of California trade secret-type claims. Each suffers from a failure to fully consider relevant law and public policy; some contain clear mistakes of law. Perhaps most important, none of these cases actually defined any standard for a backup claim for information "not rising to the level of a trade secret" when a trade secret-type claim failed. Even those courts which assert or imply that California law recognizes such a concept have never defined how such an alternative claim would be defined and what secrecy test would be applied to the information at issue.

IV. What Should be Preempted and Why

[¶69] Sections I and II posed the question of what tort claims alleging misuse of nonpublic information are preempted by California's Uniform Trade Secrets Act, and whether the law recognizes a claim for "confidential information not rising to the level of a trade secret." To answer that question, Section III reviewed the complete history of such tort claims in California before the UTSA was enacted to find out if pre-UTSA law ever permitted alternative claims for nonsecret information, or for information deemed "confidential but not rising to the level of a trade secret." Section II also reviewed the public policy favoring employee mobility promoted by Business & Professions Code section 16600, and the manner in which courts have used that statute to bar attempts to penalize departing employees for using nonsecret information.

[¶70] With this body of jurisprudence in mind, we can now propose a theory of what tort claims Civil Code 3426.7 should preempt. In summary, this Article proposes that California's UTSA is rightly read to preempt all tort claims alleging the misuse of nonpublic, commercial information. At the same time, tort claims regarding personal, noncommercial information should not be preempted. Courts should ignore how a party subjectively labels its cause of action, and look to its substance. In turn, arguments that tort claims can proceed under a theory of "confidential information not rising to the level of a trade secret" should be rejected, for several reasons.

[¶71] To begin a preemption analysis, courts should ask whether the plaintiff's proposed alternative tort claim was a claim actually used for trade secret-type claims before the UTSA. As described in detail above, causes of action such as conversion were not available in the first place for trade secret-type claims, and thus should fail even before reaching the UTSA preemption question. Put differently, a litigant should not be able to label a claim with a title never used for trade secret actions in order to plead around the UTSA.

[¶72] In a similar vein, there is one category of California tort claims involving confidential information that the UTSA should not be read to preempt -- torts alleging the misuse of noncommercial, personal private information.97 The UTSA expressly includes only commercial information, and the development of tort law regarding personal information has nothing to do with the policy interests raised by trade secret-type claims.

[¶73] Second, courts should look past the plaintiff's subjective labeling of its causes of action -- unfair competition, breach of fiduciary duty, conversion, and the like -- and analyze whether the predicate factual allegations accuse the defendant of misusing nonpublic information. If so, the Uniform Trade Secrets Act should preempt the claim. Because California trade secret actions historically proceeded under a variety of titles where the underlying legal rules were identical, litigants should not be able to plead around the statute simply by using a title other than "misappropriation of trade secrets."98 This is a pleading tactic easy to rebut because it so transparently relies on the mere semantics of the plaintiff's word choice, rather than the actual substance of what the plaintiff seeks to litigate. Moreover, California courts have, in other contexts, rejected efforts to avoid the rules for a particular tort claim by labeling it something else.99

[¶74] This brings us to the key argument litigants make against UTSA preemption: that California tort law permits claims for information labeled "confidential but not rising to the level of a trade secret." The historical review above indicates that no such claim ever existed -- at most, a few courts facing "breach of confidence" claims indicated in dicta that it did exist, but the courts never actually applied the theory or explained how it would work. No court has ever articulated the elements of such a tort claim, much less provided an analysis of how to prove or disprove those elements. So let us consider how this might work.

[¶75] One might propose that nontechnical, non-complex information might be recognized as a category of information that is "confidential" but not a trade secret. One immediate objection is that California trade secret law has long provided protection for such "thin" intellectual property, such as information about one's customers.100 If the UTSA encompasses the bare names of allegedly secret customers, it surely covers other such nontechnical commercial information. Thus, proposing a separate category for "confidential" information would duplicate what the UTSA and pre-UTSA trade secret law have always covered.

[¶76] Another objection revolves around the elements of such a tort, and its defenses. How would a defendant, for example, go about proving that the "confidential" information was nonconfidential in a manner different from proving that an alleged trade secret is nonsecret? One imagines that such a defendant would seek out the same information sources as those that can defeat at trade secret claim -- the Internet, trade and academic journals, the plaintiff's own marketed product, and so forth. It would be unworkable and conceptually irrational to create a grey area where a former employee could be penalized for use of information publicly available or known to the trade, but somehow still "confidential" in some manner subjective to the former employer.101

[¶77] One might also consider the real world result of permitting an alternative California tort claim for information deemed "confidential" but not secret -- the UTSA would likely be rendered meaningless. No plaintiff would bother alleging an UTSA claim, with its strict standards and court-determined exemplary damages, when it could so easily avoid the statute using the alternative tort. Finally, recognizing such a tort would undercut the public policy in favor of employee mobility recognized for so long under section 16600, by making it much more difficult for employees to change jobs and join competitors.

[¶78] It is fairly easy, then, to dismiss the concept of "confidential information not rising to the level of a trade secret" as an alternative to a trade secret claim -- especially against former employees. A more difficult question centers on the one body of California pre-UTSA cases that developed independently of trade secret law. That body of law, the breach of confidence cases, has some decisions stating that "confidential" information need not be a trade secret. Should breach of confidence be preempted?

[¶79] One argument is that breach of confidence cases, so long as they arise in the typical situation of an individual who discloses an idea to an entertainment business and not in trade secret-type former employee contexts, should not be preempted. After all, the UTSA does not preempt contract claims, and, as noted in Section II, the UTSA Commissioners' Comment states that implied contract actions should also not be preempted.

[¶80] The counterargument centers on the difficulty in articulating an alternative standard to test alleged confidentiality from the UTSA secrecy test. The breach of confidence cases have never fully explained the elements of an alternative tort, but they have clearly required proof of confidentiality. If that is the case, the UTSA already provides all the rules necessary to litigate such claims. In turn, the UTSA's legislative history also refers to the displacement of "quasi-contractual" theories of liability, and that was the portion California's legislative sponsor quoted in his letter forwarding the statute to the governor. On balance, this Article concludes that despite its independent history, the breach of confidence tort should be preempted by the UTSA.

[¶81] There are additional reasons to reject the "confidential but less than a trade secret" theory based on interpretive canons. First, because the UTSA's section 3426.7 already lists express exceptions (for criminal and contract actions), the rules of statutory interpretation indicate that the inclusion of those exceptions means that no additional exceptions should be written into the statute.102 Permitting a new tort claim for information claimed to be confidential but not subject to trade secrecy rules would constitute such an exception. This interpretive rule is especially pertinent given the broad preemptive scope indicated in the statute's legislative history.

[¶82] Second, the UTSA itself provides a rule under which courts can reject out of hand the minority of historical cases that take aberrant positions regarding the degree of secrecy required to press a trade secret-type claim. The UTSA's legislative history indicates that the better reasoned pre-UTSA cases should remain law, suggesting that courts can disregard aberrant pre-UTSA cases.103

[¶83] Finally, and as noted above, a third rule of interpretation provides a means to address those post-UTSA cases that have featured common law trade secret-type claims without reflecting on whether or not they were preempted. This rule, that cases which do not actually address an issue do not provide authority on that issue, provides a legal ground to dismiss such decisions because they do not provide an actual holding on the doctrine of UTSA preemption.

A. The Problem of the Piggyback Tort

[¶84] If the proposal outlined in this Article were accepted by the California courts, parties would still face a separate, confusing issue: what law governs in the special case of California's piggyback torts, those that depend on a separate underlying tort claim to be valid?

[¶85] There are at least four California tort claims whose validity depends on being attached to a distinct, underlying wrong: tortious interference with prospective economic advantage,104 civil conspiracy,105 the unlawful act prong of a Business & Professions Code section 17200 unfair competition claim,106 and tortious interference in hiring.107 The problem is this: if the underlying wrongful act for any of these four torts is trade secret misappropriation under the UTSA, can a trade secret plaintiff use the piggyback tort to apply different legal standards? For example, can a plaintiff raise a piggyback tort claim, claim the UTSA as the underlying wrong, but then deviate from the UTSA by seeking a jury trial on the question of exemplary damages?108

[¶86] The answer should be no. If the sole basis for the existence of the piggyback tort is an underlying UTSA allegation, the rights and remedies should be determined according to the UTSA. Otherwise, the availability of a tack-on piggyback tort such as civil conspiracy would be an easy loophole to plead around the statute.

V. Conclusion

[¶87] There is confusion in California law on the question whether a plaintiff can bring a tort claim that alleges misuse of nonpublic information outside of trade secret law. Much of this confusion stems from the fact that California's historical common law causes of action used different labels for the same underlying theory. Apart from a small number of dicta statements and aberrant rulings, California law has for nearly a century applied one single standard for secrecy and barred tort claims over nonsecret commercial information. The doctrine of Uniform Trade Secrets Act preemption provides a means to apply California's historical protection of employee mobility and the right to use nonsecret commercial information against attempts to get around those policies by pleading alternative tort claims.

[¶88] Applying UTSA preemption against litigants who seek to penalize others for the use of information that is not a trade secret will protect California's longstanding public policy in favor of employee mobility and protect the right to use information in the public domain. And by litigating tort claims for the misuse of nonpublic information through the UTSA, courts and parties can use one uniform set of remedies, burdens of proof, and other procedural rules.

Footnotes

* Tait Graves is an associate at Wilson Sonsini Goodrich & Rosati in San Francisco, California. This article is the third in a series that seeks to clarify frequently-litigated but obscure areas of trade secret law in the interest of protecting employee mobility and the right to use information in the public domain.