S*860 Session 109 (1991-1992)
S*0860(Rat #0520, Act #0437 of 1992) General Bill, By J.C. Hayes
A Bill to amend the Code of Laws of South Carolina, 1976, by adding Chapter 8
to Title 39 so as to enact the Uniform Trade Secrets Act.
04/09/91 Senate Introduced and read first time SJ-17
04/09/91 Senate Referred to Committee on Judiciary SJ-17
03/18/92 Senate Committee report: Favorable Judiciary SJ-22
03/19/92 Senate Read second time SJ-27
03/24/92 Senate Read third time and sent to House SJ-20
03/25/92 House Introduced and read first time HJ-18
03/25/92 House Referred to Committee on Labor, Commerce and
Industry HJ-18
05/14/92 House Committee report: Favorable with amendment Labor,
Commerce and Industry HJ-287
05/27/92 House Amended HJ-38
05/27/92 House Read second time HJ-39
05/28/92 House Read third time and returned to Senate with
amendments HJ-26
06/02/92 Senate Concurred in House amendment and enrolled SJ-14
06/04/92 Ratified R 520
06/15/92 Signed By Governor
06/15/92 Effective date 06/15/92
06/15/92 Act No. 437
07/10/92 Copies available
(A437, R520, S860)
AN ACT TO AMEND THE CODE OF LAWS OF SOUTH
CAROLINA, 1976, BY ADDING CHAPTER 8 TO TITLE 39 SO
AS TO ENACT THE UNIFORM TRADE SECRETS ACT.
Whereas, the General Assembly has determined to enact the
Uniform Trade Secrets Act; and
Whereas, the members of the General Assembly in order to
facilitate an understanding of the provisions of the act and the
reasons for its provisions have included the prefatory notes and
comments of the National Conference of Commissioners on
Uniform State Laws. Now, therefore,
Be it enacted by the General Assembly of the State of South
Carolina:
Commissioners' notes
SECTION 1.
Commissioners' Prefatory Note
A valid patent provides a legal monopoly for seventeen years
in exchange for public disclosure of an invention. If, however, the
courts ultimately decide that the Patent Office improperly issued a
patent, an invention will have been disclosed to competitors with
no corresponding benefit. In view of the substantial number of
patents that are invalidated by the courts, many businesses now
elect to protect commercially valuable information through
reliance upon the state law of trade secret protection, Kewanee Oil
Co. V. Bicron Corp., 416 U.S. 470 (1974), which establishes that
neither the Patent Clause of the United States Constitution nor the
federal patent laws preempt state trade secret protection for
patentable or unpatentable information, may well have increased
the extent of this reliance.
The recent decision in Aronson v. Quick Point Pencil Co., 99
S.Ct. 1096, 201 USPQ 1 (1979) reaffirmed Kewanee and held that
federal patent law is not a barrier to a contract in which someone
agrees to pay a continuing royalty in exchange for the disclosure
of trade secrets concerning a product.
Notwithstanding the commercial importance of state trade
secret law to interstate business, this law has not developed
satisfactorily. In the first place, its development is uneven.
Although there typically are a substantial number of reported
decisions in states that are commercial centers, this is not the case
in less populous and more agricultural jurisdictions. Secondly,
even in states in which there has been significant litigation, there
is undue uncertainty concerning the parameters of trade secret
protection, and the appropriate remedies for misappropriation of a
trade secret. One commentator observed:
"Under technological and economic pressures, industry
continues to rely on trade secret protection despite the doubtful
and confused status of both common law and statutory remedies.
Clear, uniform trade secret protection is urgently
needed."
Comment
"Theft of Trade Secrets: The Need for a Statutory
Solution", 120 U.Pa.L.Rev. 378, 380-81 (1971).
In spite of this need, the most widely accepted rules of trade
secret law, Section 757 of the Restatement of Torts, were among
the sections omitted from the Restatement of Torts, 2d (1978).
The Uniform Act codifies the basic principles of common law
trade secret protection, preserving its essential distinctions from
patent law.
Under both the act and common law principles, for example,
more than one person can be entitled to trade secret protection
with respect to the same information, and analysis involving the
"reverse engineering" of a lawfully obtained product
in order to discover a trade secret is permissible. Compare
Uniform Act, Section 1(2) (misappropriation means acquisition of
a trade secret by means that should be known to be improper and
unauthorized disclosure or use of information that one should
know is the trade secret of another) with Miller v. Owens-Illinois,
Inc., 187 USOQ 47, 48 (D.MD.1975) (alternative holding) (prior,
independent discovery a complete defense to liability for
misappropriation) and Wesley-Jessen, Inc., v. Reynolds, 182
USPQ 135, 44-45, (N.D. Ill.1974) (alternative holding)
(unrestricted sale and lease of camera that could be reverse
engineered in several days to reveal alleged trade secrets preclude
relief for misappropriation).
For liability to exist under this act, a Section 1(4) trade secret
must exist and either a person's acquisition of the trade secret,
disclosure of the trade secret to others, or use of the trade secret
must be improper under Section 1(2). The mere copying of an
unpatented item is not actionable.
Like traditional trade secret law, the Uniform Act contains
general concepts. The contribution of the Uniform Act is
substitution of 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 liability utilized at common law. The
Uniform Act also codifies the results of the better reasoned cases
concerning the remedies for trade secret misappropriation.
The History of the Special Committee
on the Uniform Trade Secrets Act
On February 17, 1968, the Conference's subcommittee on
Scope and Program reported to the Conference's Executive
Committee as follows:
"14. Uniform Trade Secrets Protection Act.
This matter came to the subcommittee from the Patent Law
Section of the American Bar Association from President Pierce,
Commissioner Joiner, and Allison Dunham. It appears that in
1966 the Patent Section of the American Bar Association
extensively discussed a resolution to the effect that `the ABA
favors the enactment of a uniform state law to protect against the
wrongful disclosure or wrongful appropriation of trade secrets,
know-how or other information maintained in confidence by
another.' It was decided, however, not to put such a resolution to
a vote at that time but that the appropriate Patent Section
Committee would further consider the problem. In determining
what would be appropriate for the Conference to do at this
juncture, the following points should be considered:
(1) At the present much is going on by way of statutory
development, both federally and in the states.
(2) There is a fundamental policy conflict still unresolved
in that the current state statutes that protect trade secrets tend to
keep innovations secret, while our federal patent policy is
generally designed to encourage public disclosure of innovations.
It may be possible to devise a sensible compromise between these
two basic policies that will work, but to do so demands
coordination of the statutory reform efforts of both the federal
government and the states.
(3) The Section on Patents, the ABA group that is closest
to this problem, is not yet ready to take a definite position.
It is recommended that a special committee be appointed to
investigate the question of the drafting of a uniform act relating to
trade secret protection and to establish liaison with the Patent Law
Section, the Corporation, Banking and Business Law Section, and
the Antitrust Law Section of the American Bar
Association."
The Executive Committee, at its midyear meeting held
February 17 and 18, 1968, in Chicago, Illinois, "voted to
authorize the appointment of a special committee on Uniform
Trade Secrets Protection Act to investigate the question of
drafting an act on the subject with instructions to establish liaison
with the Patent Law Section, the Corporation, Banking and
Business Law Section, and the Antitrust Law Section of the
American Bar Association." Pursuant to that action, a
special committee was appointed, which included Professor
Richard Cosway of Seattle, Washington, who is the only original
committee member to serve to the present day. The following year
saw substantial changes in the membership of the committee.
Professor Richard F. Dole, Jr., of Iowa City, Iowa, became a
member then and has served as a member ever since.
The work of the committee went before the conference first on
Thursday afternoon, August 10, 1972, when it was one of three
acts considered on first reading. Thereafter, for a variety of
reasons, the committee became inactive, and regrettably, its
original chairman died on December 7, 1974. In 1976, the
committee became active again and presented a fifth tentative
draft of its proposed bill at the 1978 annual meeting of the
National Conference of Commissioners on Uniform State
Laws.
Despite the fact that there had previously been a first reading,
the committee was of the opinion that, because of the lapse of
time, the 1978 presentation should also be considered a first
reading. The conference concurred, and the bill was proposed for
final reading and adoption at the 1979 annual meeting.
On August 9, 1979, the act was approved and recommended
for enactment in all the states. Following discussions with
members of the bar and bench, the Special Committee proposed
amendments to Sections 2(b), 3(a), 7, and 11 that clarified the
intent of the 1979 Official Text. On August 8, 1985, these four
clarifying amendments were approved and recommended for
enactment in all the states.
Definitions, violations, damages, badfaith claims, protective
orders, procedures, exceptions
SECTION 2. The 1976 Code is amended by adding:
"CHAPTER 8
Uniform Trade Secrets
Section 39-8-1. As used in this chapter, unless the context
requires otherwise:
(1) `Improper means' includes theft, bribery,
misrepresentation, breach or inducement of a breach of a duty to
maintain secrecy, or espionage through electronic or other
means.
(2) `Misappropriation' means:
(i) acquisition of a trade secret of another by a person
who knows or has reason to know that the trade secret was
acquired by improper means; or
(ii) disclosure or use of a trade secret of another without
express or implied consent by a person who
(A) used improper means to acquire knowledge of the
trade secret; or
(B) at the time of disclosure or use, knew or had reason to
know that his knowledge of the trade secret was
(I) derived from or through a person who had utilized
improper means to acquire it;
(II) acquired under circumstances giving rise to a duty to
maintain its secrecy or limit its use; or
(III) derived from or through a person who owed a duty to
the person seeking relief to maintain its secrecy or limit its use;
or
(C) before a material change of his position, knew or had
reason to know that it was a trade secret and that knowledge of it
had been acquired by accident or mistake.
(3) `Person' means an individual, corporation, business trust,
estate, trust, partnership, association, joint venture, government,
governmental subdivision or agency, or any other legal or
commercial entity.
(4) `Trade secret' means information, including a formula,
pattern, compilation, program, device, method, technique, or
process that:
(i) 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
(ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
Commissioners' Comment
One of the broadly stated policies behind trade secret law is the
"maintenance of standards of commercial ethics."
Kewanee Oil Co. V. Bicron Corp., 416 U.S. 470 (1974). The
Restatement of Torts, Section 757, Comment (f), notes: "A
complete catalogue of improper means is not possible," but
Section 1(1) includes a partial listing.
Proper means include:
1. discovery by independent invention;
2. discovery by "reverse engineering", that is, by
starting with the known product and working backward to find the
method by which it was developed. The acquisition of the known
product must, of course, also be by a fair and honest means, such
as purchase of the item on the open market for reverse
engineering to be lawful;
3. discovery under a license from the owner of the trade
secret;
4. observation of the item in public use or on public
display;
5. obtaining the trade secret from published literature.
Improper means could include otherwise lawful conduct which
is improper under the circumstances; e.g., an airplane overflight
used as aerial reconnaissance to determine the competitor's plant
layout during construction of the plant. E. I. duPont de Nemours
& Co., Inc. v. Christopher, 431 F.2d 1012 (CA 5, 1970), cert.
den. 400 U.S. 1024 (1970). Because the trade secret can be
destroyed through public knowledge, the unauthorized disclosure
of a trade secret is also a misappropriation.
The type of accident or mistake that can result in a
misappropriation under Section 1(2)(ii)(C) involves conduct by a
person seeking relief that does not constitute a failure of efforts
that are reasonable under the circumstances to maintain its secrecy
under Section 1(4)(ii).
The definition of "trade secret" contains a
reasonable departure from the Restatement of Torts (First)
definition which required that a trade secret be
"continuously used in one's business." The broader
definition in the proposed act extends protection to a plaintiff who
has not yet had an opportunity or acquired the means to put a
trade secret to use. The definition includes information that has
commercial value from a negative viewpoint, for example the
results of lengthy and expensive research which proves that a
certain process will not work could be of great value to a
competitor.
Cf. Telex Corp. v. IBM Corp., 510 F.2d 894 (CA 10, 1975) per
curiam, cert. dismissed 423 U.S. 802 (1975) (liability imposed for
developmental cost savings with respect to product not marketed).
Because a trade secret need not be exclusive to confer a
competitive advantage, different independent developers can
acquire rights in the same trade secret.
The words "method, technique" are intended to
include the concept of "know-how".
The language "not being generally known to and not
being readily ascertainable by proper means by other
persons" does not require that information be generally
known to the public for trade secret rights to be lost. If the
principal persons who can obtain economic benefit from
information are aware of it, there is no trade secret. A method of
casting metal, for example, may be unknown to the general public
but readily known within the foundry industry.
Information is readily ascertainable if it is available in trade
journals, reference books, or published materials. Often, the
nature of a product lends itself to being readily copied as soon as
it is available on the market. On the other hand, if reverse
engineering is lengthy and expensive, a person who discovers the
trade secret through reverse engineering can have a trade secret in
the information obtained from reverse engineering.
Finally, reasonable efforts to maintain secrecy have been held
to include advising employees of the existence of a trade secret,
limiting access to a trade secret on "need to know
basis", and controlling plant access. On the other hand,
public disclosure of information through display, trade journal
publications, advertising, or other carelessness can preclude
protection.
The efforts required to maintain secrecy are those
"reasonable under the circumstances". The courts do
not require that extreme and unduly expensive procedures be
taken to protect trade secrets against flagrant industrial espionage.
See E. I. duPont de Nemours & Co., Inc. v. Christopher,
supra. It follows that reasonable use of a trade secret including
controlled disclosure to employees and licensees is consistent
with the requirement of relative secrecy.
Section 39-8-2. (a) Actual or threatened misappropriation
may be enjoined. Upon application to the court, an injunction
shall be terminated when the trade secret has ceased to exist, but
the injunction may be continued for an additional reasonable
period of time in order to eliminate commercial advantage that
otherwise would be derived from the misappropriation.
(b) In exceptional circumstances, an injunction may condition
future use upon payment of a reasonable royalty for no longer
than the period of time for which use could have been prohibited.
Exceptional circumstances include, but are not limited to, a
material and prejudicial change of position before acquiring
knowledge or reason to know of misappropriation that renders a
prohibitive injunction inequitable.
(c) In appropriate circumstances, affirmative acts to protect a
trade secret may be compelled by court order.
Commissioners' Comment
Injunctions restraining future use and disclosure of
misappropriated trade secrets frequently are sought. Although
punitive perpetual injunction has been granted, e.g., Elcor
Chemical Corp. v. Agri-Sul, Inc., 494 S.W. 2d 204 (Tex.Civ.App.
1973), Section 2(a) of this act adopts the position of the trend of
authority limiting the duration of injunctive relief to the extent of
the temporal advantage over good faith competitors gained by a
misappropriator. See, e.g., K-2 Ski Co. v. Head Ski Co., Inc., 506
F.2d 471 (CA9, 1974) (maximum appropriate duration of both
temporary and permanent injunctive relief is the period of time it
would have taken defendant to discover trade secrets lawfully
through either independent development or reverse engineering of
plaintiff's products).
The general principle of Section 2(a) and (b) is that an
injunction should last for as long as is necessary, but no longer
than is necessary to eliminate the commercial advantage of
"lead time" with respect to good faith competitors that
a person has obtained through misappropriation. Subject to any
additional period of restraint necessary to negate lead time, an
injunction accordingly should terminate when a former trade
secret becomes either generally known to good faith competitors
or generally knowable to them because of the lawful availability
of products that can be reverse engineered to reveal a trade
secret.
For example, assume that A has a valuable trade secret of
which B and C, the other industry members, are originally
unaware. If B subsequently misappropriates the trade secret and
is enjoined from use, but C later lawfully reverse engineers the
trade secret, the injunction restraining B is subject to termination
as soon as B's lead time has been dissipated. All of the persons
who could derive economic value from use of the information are
now aware of it, and there is no longer a trade secret under
Section 1(4). It would be anticompetitive to continue to restrain B
after any lead time that B had derived from misappropriation had
been removed.
If a misappropriator either has not taken advantage of lead time
or good faith competitors already have caught up with a
misappropriator at the time that a case is decided, future
disclosure and use of a former trade secret by a misappropriator
will not damage a trade secret owner and no injunctive restraint of
future disclosure and use is appropriate. See e.g., Northern
Petrochemical Co. v. Tomlinson, 484 F.2d 1057 (CA7, 1973)
(affirming trial court's denial or preliminary injunction in part
because an explosion at its plant prevented an alleged
misappropriator from taking advantage of lead time); Kubik, Inc.
v. Hull, 185 USPQ 391 (Mich.App.1974) (discoverability of trade
secret by lawful reverse engineering made by injunctive relief
punitive rather than compensatory).
Section 2(b) deals with the special situation in which future use
by a misappropriator will damage a trade secret owner but an
injunction against future use nevertheless is inappropriate due to
exceptional circumstances. Exceptional circumstances include the
existence of an overriding public interest which requires the
denial of a prohibitory injunction against future damaging use and
a person's reasonable reliance upon acquisition of a
misappropriated trade secret in good faith and without reason to
know of its prior misappropriation that would be prejudiced by a
prohibitory injunction against future damaging use. Republic
Aviation Corp. v. Schenk, 152 USPQ 830 (N.Y.Sup. Ct.1967)
illustrates the public interest justification for withholding
prohibitory injunctive relief. The court considered that enjoining
a misappropriator from supplying the U.S. with an aircraft
weapons control system would have endangered military
personnel in Vietnam. The prejudice to a good faith third party
justification for withholding prohibitory injunctive relief can arise
upon a trade secret owner's notification to a good faith third party
that the third party has knowledge of a trade secret as a result of
misappropriation by another. This notice suffices to make the
third party a misappropriator thereafter under Section
1(2)(ii)(B)(I). In weighing an aggrieved person's interests and the
interests of a third party who has relied in good faith upon his or
her ability to utilize information, a court may conclude that
restraining future use of the information by the third party is
unwarranted. With respect to innocent acquirers of
misappropriated trade secrets, Section 2(b) is consistent with the
principle of 4 Restatement Torts (First) Section 758(b) (1939), but
rejects the Restatement's literal conferral of absolute immunity
upon all third parties who have paid value in good faith for a trade
secret misappropriated by another. The position taken by the
Uniform Act is supported by Forest Laboratories, Inc. v. Pillsbury
Co., 452 F.2d 621 (CA7, 1971) in which a defendant's purchase of
assets of a corporation to which a trade secret had been disclosed
in confidence was not considered to confer immunity upon the
defendant.
When Section 2(b) applies, a court has discretion to substitute
an injunction conditioning future use upon payment of a
reasonable royalty for an injunction prohibiting future use. Like
all injunctive relief for misappropriation, a royalty order
injunction is appropriate only if a misappropriator has obtained a
competitive advantage through misappropriation and only for the
duration of that competitive advantage. In some situations,
typically those involving good faith acquirers of trade secrets
misappropriated by others, a court may conclude that the same
considerations that render a prohibitory injunction against future
use inappropriate also render a royalty order injunction
inappropriate. See, generally, Prince Manufacturing, Inc. v.
Automatic Partner, Inc., 198 USPQ 618 (N.J.Super.Ct.1976)
(purchaser of misappropriator's assets from receiver after trade
secret disclosed to public through sale of product not subject to
liability for misappropriation).
A royalty order injunction under Section 2(b) should be
distinguished from a reasonable royalty alternative measure of
damages under Section 3(a). See the Comment to Section 3 for
discussion of the differences in the remedies.
Section 2(c) authorizes mandatory injunctions requiring that a
misappropriator return the fruits of misappropriation to an
aggrieved person, e.g., the return of stolen blueprints or the
surrender of surreptitious photographs or recordings.
Where more than one person is entitled to trade secret
protection with respect to the same information, only that one
from whom misappropriation occurred is entitled to a remedy.
Section 39-8-3. (a) Except to the extent that a material and
prejudicial change of position before acquiring knowledge or
reason to know of misappropriation renders a monetary recovery
inequitable, a complainant is entitled to recover damages for
misappropriation. Damages can include both the actual loss
caused by misappropriation and the unjust enrichment caused by
misappropriation that is not taken into account in computing
actual loss. In lieu of damages measured by any other methods,
the damages caused by misappropriation may be measured by
imposition of liability for a reasonable royalty for a
misappropriator's unauthorized disclosure or use of a trade
secret.
(b) If wilful and malicious misappropriation exists, the court
may award exemplary damages in an amount not exceeding twice
any award made under subsection (a).
Commissioners' Comment
Like injunctive relief, a monetary recovery for trade secret
misappropriation is appropriate only for the period in which
information is entitled to protection as a trade secret, plus the
additional period, if any, in which a misappropriator retains an
advantage over good faith competitors because of
misappropriation. Actual damage to a complainant and unjust
benefit to a misappropriator are caused by misappropriation
during this time alone. See Conmar Products Corp. v. Universal
Slide Fastener Col, 172 F.2d 150 (CA2, 1949) (no remedy for
period subsequent to disclosure of trade secret by issued patent);
Carboline Co. v. Jarboe, 454 S.W.2d 540 (Mo.1970) (recoverable
monetary relief limited to period that it would have taken
misappropriator to discover trade secret without
misappropriation). A claim for actual damages and net profits can
be combined with a claim for injunctive relief, but, if both claims
are granted, the injunctive relief ordinarily will preclude a
monetary award for a period in which the injunction is
effective.
As long as there is no double counting, Section 3(a) adopts the
principle of the recent cases allowing recovery of both a
complainant's actual losses and a misappropriator's unjust benefit
that are caused by misappropriation. E.g., Tri-Tron International
v. Velto, 525 F.2d 432 (CA9, 1975) (complainant's loss and
misappropriator's benefit can be combined). Because certain
cases may have sanctioned double counting in a combined award
of losses and unjust benefit, e.g., Telex Corp. v. IBM Corp., 510
F.2d 894 (CA10, 1975) (per curiam), cert. dismissed, 423 U.S.
802 (1975) (IBM recovered rentals lost due to displacement by
misappropriator's products without deduction for expenses saved
by displacement; as a result of rough approximations adopted by
the trial judge, IBM also may have recovered developmental costs
saved by misappropriator through misappropriation with respect
to the same customers), the act adopts an express prohibition upon
the counting of the same item as both a loss to a complainant and
an unjust benefit to a misappropriator.
As an alternative to all other methods of measuring damages
caused by a misappropriator's past conduct, a complainant can
request that damages be based upon a demonstrably reasonable
royalty for a misappropriator's unauthorized disclosure or use of a
trade secret. In order to justify this alternative measure of
damages, there must be competent evidence of the amount of a
reasonable royalty.
The reasonable royalty alternative measure of damages for a
misappropriator's past conduct under Section 3(a) is readily
distinguishable from a Section 2(b) royalty order injunction,
which conditions a misappropriator's future ability to use a trade
secret upon payment of a reasonable royalty. A Section 2(b)
royalty order injunction is appropriate only in exceptional
circumstances; whereas a reasonable royalty measure or damages
is a general option. Because Section 3(a) damages are awarded
for a misappropriator's past conduct and a Section 2(b) royalty
order injunction regulates a misappropriator's future conduct, both
remedies cannot be awarded for the same conduct. If a royalty
order injunction is appropriate because of a person's material and
prejudicial change of position prior to having reason to know that
a trade secret has been acquired from a misappropriator, damages,
moreover, should not be awarded for past conduct that occurred
prior to notice that a misappropriated trade secret has been
acquired.
Monetary relief can be appropriate whether or not injunctive
relief is granted under Section 2. If a person charged with
misappropriation has materially and prejudicially changed
position in reliance upon knowledge of a trade secret acquired in
good faith and without reason to know of its misappropriation by
another, however, the same considerations that can justify denial
of all injunctive relief also can justify denial of all monetary relief.
See Conmar Products Corp. v. Universal Slide Fastener Co., 172
F.2d 1950 (CA2, 1949) (no relief against new employer of
employee subject to contractual obligation not to disclose former
employer's trade secrets where new employer innocently had
committed forty thousand dollars to develop the trade secrets prior
to notice of misappropriation).
If wilful and malicious misappropriation is found to exist,
Section 3(b) authorizes the court to award a complainant
exemplary damages in addition to the actual recovery under
Section 3(a) an amount not exceeding twice that recovery. This
provision follows federal patent law in leaving discretionary
trebling to the judge even though there may be a jury, compare 35
U.S.C. Section 284 (1976).
Whenever more than one person is entitled to trade secret
protection with respect to the same information, only that one
from whom misappropriation occurred is entitled to a remedy.
Section 39-8-4. If (i) a claim of misappropriation is made in
bad faith, (ii) a motion to terminate an injunction is made or
resisted in bad faith, or (iii) wilful and malicious misappropriation
exists, the court may award reasonable attorney's fees to the
prevailing party.
Commissioners' Comment
Section 4 allows a court to award reasonable attorney fees to a
prevailing party in specified circumstances as a deterrent to
specious claims of misappropriation, to specious efforts by a
misappropriator to terminate injunctive relief, and to wilful and
malicious misappropriation. In the latter situation, the court
should take into consideration the extent to which a complainant
will recover exemplary damages in determining whether
additional attorney's fees should be awarded. Again, patent law is
followed in allowing the judge to determine whether attorney's
fees should be awarded even if there is a jury, compare 35 U.S.C.
Section 285 (1976).
Section 39-8-5. In an action under this chapter, a court shall
preserve the secrecy of an alleged trade secret by reasonable
means, which may include granting protective orders in
connection with discovery proceedings, holding hearings in
camera, sealing the records of the action, and ordering any person
involved in the litigation not to disclose an alleged trade secret
without prior court approval.
Commissioners' Comment
If reasonable assurances of maintenance of secrecy could not
be given, meritorious trade secret litigation would be chilled. In
fashioning safeguards of confidentiality, a court must ensure that a
respondent is provided sufficient information to present a defense
and a trier of fact sufficient information to resolve the merits. In
addition to the illustrative techniques specified in the statute,
courts have protected secrecy in these cases by restricting
disclosures to a party's counsel and his or her assistants and by
appointing a disinterested expert as a special master to hear secret
information and report conclusions to the court.
Section 39-8-6. An action for misappropriation must be
brought within three years after the misappropriation is
discovered or by the exercise of reasonable diligence should have
been discovered. For the purposes of this section, a continuing
misappropriation constitutes a single claim.
Commissioners' Comment
There presently is a conflict of authority as to whether trade
secret misappropriation is a continuing wrong. Compare
Monolith Portland Midwest Co. v. Kaiser Aluminum &
Chemical Corp., 407 F.2d 288 (CA9, 1969) (No continuing wrong
under California law--limitation period upon all recovery begins
upon initial misappropriation) with Underwater Storage, Inc. v. U.
S. Rubber Co., 371 F.2d 950 (CADC, 1966), cert. den., 386 U.S.
911 (1967) (continuing wrong under general principles--limitation
period with respect to a specific act or misappropriation begins at
the time that the act of misappropriation occurs).
This act rejects a continuing wrong approach to the statute of
limitations but delays the commencement of the limitation period
until an aggrieved person discovers or reasonably should have
discovered the existence of misappropriation. If objectively
reasonable notice of misappropriation exists, three years is
sufficient time to vindicate one's legal rights.
Section 39-8-7. (a) Except as provided in subsection (b), this
chapter displaces conflicting tort, restitutionary, and other law of
this State providing civil remedies for misappropriation of a trade
secret.
(B) This chapter 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, including, but not limited to,
any civil action brought in the state or federal courts alleging
product liability;
(3) criminal sanctions, whether or not based upon
misappropriation of a trade secret; or
(4) the provisions of Act 463 of 1986 (South Carolina
Tort Claims Act).
Commissioners' Comment
This act does not deal with criminal remedies for trade secret
misappropriation and is not a comprehensive statement of civil
remedies. It applies to a duty to protect competitively significant
secret information that is imposed by law. It does not apply to a
duty voluntarily assumed through an express or an implied-in-fact
contract. The enforceability of covenants not to disclose trade
secrets and covenants not to compete that are intended to protect
trade secrets, for example, is governed by other law. The act also
does not apply to a duty imposed by law that is not dependent
upon the existence of competitively significant secret information,
like an agent's duty of loyalty to his or her principal.
Section 39-8-8. This chapter shall be applied and construed to
effectuate its general purpose to make uniform the law with
respect to the subject of this chapter among states enacting it.
Section 39-8-9. This chapter may be cited as the Uniform
Trade Secrets Act."
Severability
SECTION 3. If any provision of this chapter or its application to
any person or circumstances is held invalid, the invalidity does
not affect other provisions or applications of the chapter which
can be given effect without the invalid provision or application,
and to this end the provisions of the chapter are severable.
Retroactive application
SECTION 4. This chapter does not apply to a misappropriation
occurring before the effective date. With respect to a continuing
misappropriation that began before the effective date, the chapter
also does not apply to the continuing misappropriation that occurs
after the effective date.
Time effective
SECTION 5. This act takes effect upon approval by the
Governor.
Approved the 15th day of June, 1992. |