Los Angeles Business Law Blog

California Uniform Trade Secret Act (UTSA) Preempts common law unfair competition claims as well as claims based on Business and Professions Code § 17200.

In the recent case of K.C. Multimedia, Inc. v. Bank of America Technology & Operations Inc. (2009) 171 Cal.App.4th 939, California Court of Appeal held that UTSA preempts common law claims and statutory unfair competition claims that are based on the same nucleus of facts as the misappropriation of trade secret claim. This holding has brought California state law in line with federal court cases that have applied California law.

In K.C. Multimedia, Inc., plaintiff claimed defendants misappropriated its technology that enabled defendants' end-users to access personal bank account information. The complaint asserted causes of action for trade secret misappropriation, breach of confidence, conversion, breach of contract, tortuous interference with contract and unfair competition. However, prior to trial, the trial court dismissed three causes of action -- breach of confidence, unfair competition, interference with contract -- on the grounds they were preempted by UTSA. Plaintiff appealed the preemption ruling, claiming it was contrary to California law.

The Court of Appeal affirmed the lower court’s ruling and held that the comprehensive nature and breadth of UTSA suggests a legislative intent to preempt other claims based on trade secret misappropriation. The Court of Appeal began its analysis by highlighting the general principles that underpin the statutory preemption doctrine and stated:

“The general rule is that statutes do not supplant the common law unless it appears that the Legislature intended to cover the entire subject or, in other words, to occupy the field. General and comprehensive legislation, where course of conduct, parties, things affected, limitations and exceptions are minutely described, indicates a legislative intent that the statute should totally supersede and replace the common law dealing with the subject matter."

Against this backdrop, the Court of Appeal examined the UTSA codified in §§3426-3426.11 and noted:

“Among other things, CUTSA defines key terms, provides various forms of relief, spells out methods of preserving the secrecy of trade secrets, and sets forth the limitations period. The stated purpose of UTSA is to provide unitary definitions of trade secret and trade secret misappropriation, and a single statute of limitations for the various property, quasi-contractual, and violation of fiduciary relationship theories of noncontractual liabilities utilized at common law. The Uniform Act also codifies the results of the better reasoned cases concerning the remedies for trade secret misappropriation.”

The court then focused on the §3426.7 and observed the following:

"CUTSA includes a specific provision concerning preemption. That provision, section 3426.7, reads in pertinent part as follows: (a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secret. (b) 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 trade secret, or (3) criminal remedies, whether or not based upon misappropriation of trade secret. Section 3426.7 thus expressly allows contractual and criminal remedies, whether or not based on trade secret misappropriation and implicitly preempts alternative civil remedies based on trade secret misappropriation. At the same time, § 3426.7 implicitly preempts alternative civil remedies based on trade secret misappropriation.’”

Based on the foregoing, the Court of Appeal concluded that §3426.7(b) “would appear to be rendered meaningless if, in fact, claims which are based on trade secret misappropriation are not preempted by the state's statutory scheme.” Id. at 958.

In K.C. Multimedia, Inc. v. Bank of America Technology & Operations Inc., California Court of Appeal followed in the footsteps of recent federal courts cases (Cacique, Inc. v. Robet Reiser & Co. Inc. (9^th Cir. 1999) 169 F.3d 619, 626 Accuimage Diagnostic Corp v. Terarecon, Inc. (ND CA 2003) 260 F.Supp.2d 941, 953-954; First Advantage Background Services Crop. v. PrivateEyes (ND CA 2009) 569 F.Supp.2d 929; and Digital Envoy, Inc. v. Google, Inc. (ND CA 2005) 370 F.Supp.2d 1025, 1034-1035) in holding that the Uniform Trade Secret Act preempts common law claims and statutory unfair competition claims that are based on the same nucleus of facts as the misappropriation of trade secret claim.

If you are involved in a dispute concerning trade secrets it is vital to have the experienced business litigation attorneys of Fisher & Talwar on your side. Attorneys at Fisher & Talwar are skilled in litigating misappropriation of trade secret claims. Contact Los Angeles trade secret attorneys at Fisher & Talwar at 213-891-0777 or vt@fishertalwar.com for immediate assistance.