Tennessee’s Trade Secrets Act

In a recent blog postTrade Secret Pic, I outlined the general principles governing the enforceability of non-compete agreements in Tennessee. Many well-drafted non-compete agreements contain provisions protecting the employer’s confidential or proprietary information by restricting the employee from disclosing such information to others during employment and after the employment relationship ends. Non-compete and non-disclosure agreements, especially for salespeople, often define such confidential information to include customer lists, account information, sales strategy and tactics, and pricing data. Outside the sales context, many agreements protect other important proprietary information of the employer, such as formulas, data, programs, designs and similar intellectual property.

Businesses will often seek to enforce non-compete and confidentiality agreements to protect their valuable trade secrets, confidential and proprietary information. Claims for misappropriation of confidential information, interference with contract, and violations of the Tennessee Trade Secrets Act are often made in conjunction with claims for breach of a non-compete, non-disclosure or other employment agreement. Even without such an agreement, the laws in Tennessee protect a business’ trade secrets.

Tennessee is one of 48 states that have adopted some version of the Uniform Trade Secrets Act (“UTSA”) – Massachusetts and New York are the only states that have not adopted the uniform act. The Tennessee Uniform Trade Secret Act (“TUTSA”), Tenn. Code Ann. § 47–25–1701, et. seq., provides a framework to obtain relief for the misappropriation of trade secrets.

What is a “trade secret”?

Tennessee’s version of the UTSA contains a broader definition of “trade secret” than the definition under the uniform act. Tennessee’s definition of “trade secret” includes any “information without regard to form, including, but not limited to, technical, nontechnical or financial data, a formula, pattern, compilation, program, device, method, technique, process, or plan that (1) 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 (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Tenn. Code Ann. § 47–25–1702(4). In other words,

for information to be considered a ‘trade secret:’ (1) the information must derive independent economic value from not being generally known, (2) others could obtain economic value from its disclosure or use, and (3) efforts have been made to maintain its secrecy.

It is important to note that Tennessee courts have found that an employee’s “remembered information” and relationships with customers are not considered “trade secrets.”

What is misappropriation?

The relevant portion of TUTSA’s definition of misappropriation requires disclosure or use of a trade secret while knowing or having reason to know that the trade secret was acquired under a duty to maintain its secrecy or limit its use. Tenn.Code Ann. § 47–25–1702(2). Often trade secrets are misappropriated when a business learns that one of its former employees is using confidential information, such as stolen customer account information, to solicit the business’ customers on behalf of a new employer. Again, misappropriation of this type also likely violates non-competition and/or confidentiality agreements.

What damages are available?

Under TUTSA, a plaintiff who successfully establishes that a defendant misappropriated a trade secret is entitled injunctive relief (for example, a restraining order directing that a person cease and desist use of the trade secret). Injunctive releif is important in that it can put an end to the wrongful conduct, often on a expedited bases. In addition, money damages are available under the Act for misappropriation of the trade secret. If the misappropriation was willful and malicious, a court may award exemplary damages up to twice the amount of compensatory damages in addition to attorney’s fees. Tenn. Code Ann. §§ 47-25-1704, 1705. An important case in Tennessee illustrates the fact that damages under the Trade Secrets Act can be substantial – an employer was awarded $477,178 against a former employee for violations of the TUTSA, which was doubled to $954,356 as the trial court found that the former employee acted willfully and maliciously. This award of damages was upheld by the Tennessee Court of Appeals. Hamilton-Ryker Grp., LLC v. Keymon, 2010 WL 323057 (Tenn. Ct. App. 2010).

Lastly, it is important to remember that any action under the Act is subject to a 3-year statute of limitations, which runs from the date the misappropriation is discovered or reasonably should have been discovered. Tenn. Code Ann. § 47-25-1707.

The business litigation lawyers at Thompson Burton, PLLC are prepared to protect your business’ confidential and proprietary information and to enforce your legal rights. If you have questions or would like additional information concerning non-compete and trade secret law, please contact us.