Trade Secrets are Protected Under New Jersey Law, Offering Security for Small Businesses

761822_61461701.jpgFor businesses with a unique product or service, keeping their ideas, designs, and plans secure is critical to their success. During business formation, a business owner must consult with numerous people, from designers and marketers to accountants and business attorneys. Once a business has begun developing its product, it needs employees and contractors. Non-disclosure agreements are often effective in the protection of trade secrets, but a business needs some form of recourse in the event of misappropriation of proprietary information. Most states, including New Jersey, have enacted the Uniform Trade Secret Act (UTSA), which enables holders of trade secrets to recover damages for breaches, and to restrain others from disclosing confidential information.

The term “trade secret” refers to information in any form that has actual or potential economic value, in part because it is not widely known or easily discoverable by others, and which would have economic value to someone who did discover it. The information must also be subject to reasonable efforts by its holder to keep it secret. N.J. Rev. Stat. § 56-15-2. This may include data, formulas, drawings, designs, business plans, techniques, processes, or prototypes. “Misappropriation” includes any means of obtaining secret information by a person who knows or should know that it is secret, or the unauthorized disclosure of such information to others. Id. It does not infringe on someone’s trade secret rights to discover the same information entirely independently, or to reverse-engineer information from a legitimately-obtained product. Unlike patents and other forms of intellectual property, no official procedure exists to register or declare something a trade secret.

The Restatement of Torts § 757 defined the tort of improper use of disclosure of a trade secret belonging to another. It provides that a person is liable for using or disclosing a trade secret if the person knows that it is a secret, regardless of how the person learned about it. Keeping trade secrets secure is critical to the viability and success of many businesses, and theft or disclosure of trade secrets results in substantial business losses.

The Uniform Law Commission (ULC) first drafted the UTSA in 1979, amending it in 1985. It incorporates the Restatement of Torts’ definition, and provides for injunctive relief against threatened breaches or disclosures, and damages for actual disclosures. According to the ULC, forty-seven U.S. states have enacted versions of the UTSA, with the exceptions of Massachusetts, New York, and North Carolina. New Jersey’s version of the law, the New Jersey Trade Secrets Act (NJTSA), N.J. Rev. Stat. §§ 56:15-1 to 56:15-9, took effect in early 2012.

A holder of a trade secret may obtain an injunction to prevent “actual or threatened misappropriation,” and the injunction may last as long as the holder keeps the information secret. N.J. Rev. Stat. § 56:15-3. The rightful holder of a trade secret may recover actual damages from a person found liable for misappropriation, in addition to compensation for the liable party’s unjust enrichment. Punitive damages are available if a court finds that “willful and malicious misappropriation” took place. N.J. Rev. Stat. § 56:15-4.

At Samuel C. Berger, PC, our small business attorneys offer fixed-fee legal-service packages to New York and New Jersey entrepreneurs and businesses. We handle a variety of legal matters for our clients, with the goal of enabling them to understand their rights and obligations, to keep their operations running smoothly, and to grow their businesses and prosper according to their plans and wishes. Contact us today online or at (212) 380-8117 to schedule a confidential consultation with a member of our legal team.

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