The Sixth Circuit Court of Appeals recently took a broad view of preemption under the Uniform Trade Secrets Act (UTSA) and held that Ohio’s version of the UTSA preempted state-law claims for tortious interference with prospective business relationships and conspiracy to misappropriate trade secrets because those claims arose from the same set of facts as a trade secret misappropriation claim. Stolle Machinery Co., LLC v. RAM Precision Industries, No. 13-4103 (6th Cir. Mar. 16, 2015). In reaching its holding, the Sixth Circuit noted that federal and state courts across the nation are divided about the scope of trade secret preemption under the UTSA, and the Supreme Court of Ohio has not yet addressed this issue.
The UTSA provides for damages and injunctive relief to a plaintiff whose trade secrets have been misappropriated. The UTSA contains a preemption clause that preempts “conflicting tort, restitutionary and other laws” of a state which provide civil remedies for misappropriation of a trade secret.
In Stolle Machinery, the Sixth Circuit explained that the scope of the UTSA’s preemption clause runs along at least two axes. First, “courts are divided about whether the UTSA preemption clause should be read literally, to displace, ‘only civil non-contract remedies for misappropriation of a trade secret,’ or whether it should be interpreted more broadly so as ‘to abolish all other causes of action for theft, misuse, misappropriation of any confidential or secret information.’” According to the Sixth Circuit, the majority of courts have taken the broader approach.
Second, courts are split on how to analyze whether a cause of action is based on the misappropriation of trade secrets. Generally, courts have either
- compared the elements of the state law claim to the elements of a UTSA claim, or
- determined whether the state law claim arises out of the same core of facts that would underlie a potential UTSA claim.
The Sixth Circuit adopted the broader approach and concluded that the UTSA “should be understood to preempt not only causes of action for misappropriation of trade secrets but also causes of action that are based in some way on misappropriation of trade secrets.” The Sixth Circuit also concluded that the test to determine whether a cause of action is based in some way on misappropriation of trade secrets “is to determine whether the claims are no more than a restatement of the same operative facts that formed the basis of the plaintiff’s statutory claim for trade secret misappropriation.” Only where the state-law claim has a factual basis independent from the facts underlying the UTSA claim should the portion of the claim supported by an independent factual basis survive preemption.
Applying this broad view of preemption under the UTSA, the Sixth Circuit held that the UTSA preempted the plaintiff’s claims for tortious interference with business relationships and conspiracy to misappropriate trade secrets. The Sixth Circuit reasoned that the conspiracy claim was dependent on proof of the misappropriation of trade secrets. Moreover, the core of the tortious interference claim hinged on whether the defendants were using “wrongful means” to solicit customers, and this issue, in turn, was dependent on whether the defendants had used certain alleged trade secret information (i.e., confidential customer lists and customer information) without the plaintiff’s consent.
In addition to ruling on the scope of the UTSA preemption clause, the Sixth Circuit also affirmed summary judgment in favor of the defendants on a false advertising claim brought under Section 43(a) of the Lanham Act. The plaintiff brought a false advertising claim because a competitor’s website contained a photograph of a piece of the plaintiff’s machinery that had been refurbished by the competitor. The plaintiff alleged that the display of the photograph constituted a false statement because the competitor was depicting the plaintiff’s equipment bearing the plaintiff’s trademark as the competitor’s own equipment.
The Sixth Circuit rejected the claim because the plaintiff failed to introduce any additional evidence demonstrating that the competitor had done anything other than what it said it had done — that is, posting the picture to illustrate that it was in the business of refurbishing machines made by the plaintiff. Accordingly, the Sixth Circuit saw “no evidence that defendants made a literally false statement.”