The use of paper files has become increasingly obsolete, as a growing number of companies opt to use electronic methods to store information. Although electronic file management has a variety of benefits, there are risks associated with its use as well. Due to its compilation and compression of large amounts of data, much of which may be confidential or proprietary, the potential for theft of such data has become a concern. This dilemma is further intensified, as technological advancements have made the theft of electronically stored information easier than ever before. Such technology has provided employees with the capability of quickly transferring data to an external storage device, or using internet storage methods to upload data. When theft of a company’s data does occur, recovery for damages is often sought in a civil action brought forth by the company against the former employee.

Causes of action concerning a company’s data commonly involve trade secrets. The Uniform Trade Secrets Act (UTSA) defines a trade secret as “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.”

Trade secret actions may include claims for misappropriation or other improper means utilized to obtain or distribute a company’s private, confidential, or proprietary information. The UTSA defines “improper means” and “misappropriation” as follows:

“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;

“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 [or her] 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.

Although not all states have adopted the UTSA, many states have similar provisions which permit trade secret claims. In addition, federal statutes pertaining to the protection of trade secrets, extending from the enactment of the Economic Espionage Act of 1996, as codified in 18 U.S.C. Chapter 90, provide for a substantially similar interpretation as the language utilized by the UTSA.

In order to properly support a trade secret claim, it is first necessary to establish the presence of all elements of the claim. The specific pleading requirements for a particular action will depend on whether the matter involves a federal or state claim. As a general rule, however, trade secret claims typically require the claimant to show that: (1) the subject matter falls within the type of information defined as trade secret under the applicable law; (2) reasonable precautions were taken to protect the information; and (3) the information was wrongfully acquired through improper means, or misappropriated.

In meeting pleading requirements, it may be necessary to obtain assistance from a computer security expert witness. Such experts are useful for consulting purposes in the proper assertion of a claim, and for testimonial purposes as an expert witness. Upon demonstrating the presence of all elements and establishing liability, an economics or business valuation expert is often necessary to opine on the value of the information, or in other words, assess damages.

Trade secret actions can be highly complex, and as such, having an expert witness early on in the case is critical. Of course, it is also important to note that litigation may have been avoided had the claimant company utilized an IT security professional to aide in the prevention of data theft beforehand. Nonetheless, in realizing that which has already occurred cannot be undone, a wise consideration may be to take appropriate measures to prevent similar incidents in the future. This is particularly true for small to mid-sized companies who may be more vulnerable to theft.

By: Alicia McKnight, J.D.