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September 30, 2019 Practice Points

How to Choose the Best Way to Choose

Tips regarding choice of law provisions in trade secret litigation

By John A. Stone

The District of Columbia and 48 states have enacted trade secret statutes based on the Uniform Trade Secret Act. New York and Massachusetts have their own trade secret common law. Those state law claims and federal claims under the Defend Trade Secret Act may be affected by aspects of state law, such as regarding whether any related claims are preempted and how damages are determined and awarded. Therefore, businesses seeking trade secret protection must be aware of the remedies available pursuant to, and analysis required by the law of, a potentially applicable state law. That information, in turn, is needed to decide whether to stipulate what state law applies by inserting such provisions in employment contracts and joint venture agreements, and other agreements.  

In drafting such provisions, attorneys should determine

  • whether a state’s law preempts other related claims, such as claims alleging unfair competition or tortious interference.
  • whether a state’s law limits damages, such as for unjust enrichment (e.g., is unjust enrichment based on the costs the offending party saved such as for R&D) that a victim of trade secret misappropriation may be awarded. 
  • whether a state in which a choice of law provision might be litigated uses an “interest analysis” to determine if the forum state should apply the stipulated state law, and, if so, whether the law of the chosen state has a greater interest than the forum state.
  • a state that uses an “interest analysis” for torts (i.e., trade secret misappropriation, unfair competition, and tortious interference) or just for contract-issues (i.e., interpreting whether to enforce a choice-of-law provision).

Navigating these issues, based on the location of the parties, the underlying facts, and the pros and cons of a particular state’s law governing the claims and damages, may be the key to assuring maximum protection for the holder of a trade secret, as well as limiting the exposure, defenses and leverage of a defendant.

John A. Stone is a partner in the New York and New Jersey offices of DeCotiis, FitzPatrick, Cole & Giblin, LP.

Copyright © 2019, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).