New Washington Case on Violation of Uniform Trade Secrets Act

On December 31, 2018, the Court of Appeals of Washington, published Ada Motors, v. Butler to clarify what a Plaintiff must prove and what a Defendant must prove in a lawsuit regarding a dispute about a potential violation of Washington's Uniform Trade Secrets Act and attorney fees.  RCW 19.108 et. seq,

In Washington, an employee who has not signed an agreement otherwise (i.e. a non-competition agreement) may go to work where they want—even to a competitor.  However, the former employee may not use or disclose trade secrets learned while at their former employer.  If a Washington employer believes that a former employee seeks to use their trade secrets in order to get a competitive advantage, the employer may have rights under Washington's Uniform Trade Secrets Act (UTSA). RCW 19.108

A "Trade secret" is defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process that: (a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” RCW 19.108.010(4)  In Washington, many companies' most valuable item is their customer list or customer database.  The question often arises as to whether a “customer list” qualifies as a trade secret under Washington's Uniform Trade Secrets Act. 

In order to constitute a trade secret under the Uniform Trade Secrets Act the information must be novel, meaning that it must not be readily ascertainable from another source.  In determining whether the information is a trade secret within the meaning of the Uniform Trade Secrets Act, a key factor in determining whether information has an independent economic value under the statute is the effort and expense that was expended in developing the information.  Under Washington's Uniform Trade Secrets Act (UTSA), trade secret protection will not generally attach to customer lists when the information is readily ascertainable; thus, if the information is readily ascertainable from public sources, such as trade directories or phone books, customer lists will not be considered a “trade secret” and a prior employee, not subject to a non-competition agreement, is free to solicit business after leaving employment.   However, whether a customer list is actually protected as a trade secret depends on three factual inquiries: (1) whether the list is a compilation of information; (2) whether it is valuable because unknown to others; and (3) whether the owner has made reasonable attempts to keep the information secret.  

In this case, involving customers lists, the Court clarified what the Plaintiff suing for misappropriation of a trade secret had to prove and what defenses were available to a Defendant.  The Court stated that “The Plaintiff has the initial burden of proving sales attributable to the trade secret. Then the burden shifts to the Defendant to establish any portion of the sales not attributable to the trade secret and any expenses to be deducted in determining net profits.”

In addition, the Washington Uniform Trade Secrets Act also sets forth that the prevailing party in the lawsuit can recover their attorney fees from the losing party if (i) “willful and malicious appropriation [of a trade secret] exists” or (ii) if “a claim of misappropriation [of a trade secret] is made in bad faith.” RCW 19.108.040  The Court, in this case, ruled that maliciousness should be defined “without just cause or excuse as a result of ill will or improper motive.”

Our firm represents companies protecting their trade secrets under the Uniform Trade Secrets Act.  We also defend individuals and companies defending against claims that they have misappropriated trade secrets under Washington's Uniform Trade Secrets Act.  We review employment agreements and, if necessary, litigate in Washington Courts and Federal Courts.  Please contact our firm with any questions, we will provide a free consultation.