Arizona Supreme Court Limits Preemptive Sweep of Arizona’s Trade Secrets Act

The Arizona Supreme Court decided yesterday in Orca Communications Unlimited v. Noder that Arizona’s version of the Uniform Trade Secrets Act, A.R.S. § 44-401 et seq., does not preempt common law tort claims for misappropriation of confidential information that does not rise to the level of a statutory “trade secret.”

The majority of jurisdictions deciding the preemption issue have held that the uniform act preempts such claims.  See, e.g., Mortgage Specialists, Inc. v. Davey, 904 A.2d 652, 664 (N.H. 2006) (interpreting New Hampshire Uniform Trade Secrets Act).

But the Arizona Supreme Court observed that the Legislature had not adopted the uniform act’s uniformity clause, and that “[e]ven when the legislature has adopted a uniformity clause, we have not felt compelled to follow other courts’ decisions.”  Arizona thus joins the minority of jurisdictions that have held there is no preemption.  See, e.g., Burbank Grease Servs., LLC v. Sokolowski, 717 N.W.2d 781, 789 (Wis. 2006) (interpreting Wisconsin Uniform Trade Secrets Act).

After Orca, one can expect Arizonans allegedly victimized by theft of confidential business information to argue that they have an unfair competition claim even if the stolen information does not satisfy the Act’s rather rigorous requirements to qualify the information as a “trade secret.”  Broadly speaking, these requirements include that the information derive economic value from not being generally known or ascertainable, and that the information have been subjected to reasonable efforts to maintain its secrecy.

Yet, to hold that the Act does not preempt such a common law unfair competition claim is not exactly the same as holding that theft of non-secret or unprotected, let alone valueless, business information gives rise to such a claim.  Indeed, the court took care to note that it had not even decided “whether Arizona common law recognizes a claim for unfair competition.”

At a minimum, Orca likely opens the doors to more claims based on theft of business information.  How those claims will fare is another matter.

 

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