Preemption of State Common Law Claims Under the Colorado Uniform Trade Secrets Act
In general, trade secrets are a type of intellectual property that are protectable and, where stolen, are actionable under both state and federal law. More specifically, trade secrets are commonly defined as information or tangible objects that are kept secret and that derive independent value from not being generally known to the public. Where an individual or company has stolen or otherwise improperly obtained trade secrets, the trade secret owner can seek recourse against those parties through a trade secret misappropriation claim.
In such circumstances, because trade secrets frequently involve important competitive advantages for businesses, often other, business-related tort claims will be asserted alongside a trade secret misappropriation claim. Common examples of these types of claims include breach of fiduciary duty claims, breach of contract claims, and conversion of property or civil theft claims.
Importantly, for trade secret misappropriation claims asserted under the Colorado Uniform Trade Secrets Act (“CUTSA”), Colorado Revised Statutes (“C.R.S.”) § 7-74-101 et seq., the CUTSA places limitations on what types of claims may be brought alongside a misappropriation claim.
In particular, the CUTSA specifically preempts other claims that are derivative of a trade secrets misappropriation claim, meaning they cannot be brought in the same action. This article specifically discusses trade secret preemption under the CUTSA as interpreted by Colorado courts.
Trade Secret Preemption Analysis Under Colorado Law
The specific CUTSA provision that preempts claims derivative of a trade secret misappropriation claim is found at C.R.S. § 7-74-108. That statute provides:
(1) Except as provided [below], this article displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.
(2) This article does not affect:
(a) Contractual remedies, whether or not based upon misappropriation of a trade secret;
(b) Other civil remedies that are not based upon misappropriation of a trade secret; or
(c) Criminal remedies, whether or not based upon misappropriation of a trade secret.
Accordingly, as provided in the statute, where a trade secret misappropriation claim is asserted it will displace other derivative tort claims and restitutionary claims. Importantly, contractual claims are not preempted as the statute explicitly excludes claims seeking contractual remedies from its provisions.
Importantly, preemption is an affirmative defense and, accordingly, should be asserted in a responsive pleading, such as answer, in order to be preserved. Where the defense is not preserved, it will be deemed waived which can have significant repercussions later on in the lawsuit. See Hawg Tools, LLC v. Newsco International Energy Services, Inc., 2016COA176M (Colo. App. 2016).
Further, while the preemption language of the statute is relatively broad, Colorado courts have narrowly construed it such that only a handful of tort-related claims have actually been found to be preempted.
Colorado Case Law Interpreting the CUTSA’s Preemption Provision
As noted above, the CUTSA does not preempt claims based on contract. Accordingly, Colorado’s trade secret law only preempts common law claims that are in conflict with its provisions. Broadly speaking, the types of common law claims preempted by the CUTSA are tort and personal injury claims, such as theft or conversion. See Powell Products, Inc. v. Marks, 948 F.Supp. 1469 (D. Colo. Dec. 17, 1996).
More specifically, in determining the scope of the CUTSA’s preemption provision, Colorado courts have looked to the specific nature of the claim asserted to decide whether the claim is preempted. Along these same lines, Colorado courts have determined that only common law claims which are dependent on the existence of a trade secret are preempted.
Put in other words, where the asserted common law claim necessarily depends on the existence of a trade secret, then a trade secret misappropriation claim is the only proper and appropriate remedy. Conversely, common law claims that do not depend on the existence of a trade secret are not preempted. See L-3 Communications Corp. v. Jaxon Engineering & Maintenance, Inc., 863 F.Supp.2d 1066 (D. Colo. Mar. 27, 2012).
Notably, Colorado’s interpretation is in contrast to a broader, factual approach adopted by a few other states. Under the factual approach, preemption applies to any claims stemming from the same facts giving rise to the trade secret misappropriation claim. That is, under the factual approach, preemption does not depend on the nature of the claim but, instead, depends on whether the claim is dependent on the same facts the misappropriation claim is based on. See Hutchison v. KFC Corp., 809. F.Supp. 68 (D. Nev. 1992).
Examples of cases discussing preemption under Colorado law include:
– Powell Products, Inc. v. Marks, 948 F. Supp. 1469 (D. Colo. Dec. 17, 1996), where it was determined interference with contract claims do not depend on the existence of trade secret and, thus, are not preempted. However, the presiding court found a conversion claim was preempted to the extent the claim was based on conversion of trade secrets. Notably, the portion of the conversion claim that was based on theft of actual, physical property was not preempted and was allowed to proceed.
– Animal Care Systems, Inc. v. Hydropac/Lab Products, Inc., No. 13-cv-00143-MSK-BNB (D. Colo. Jan. 10, 2014), where it was determined that an unjust enrichment claim using language synonymous with a trade secrets misappropriation claim was preempted. Importantly, the court also noted that an unjust enrichment claim will survive where the defendant was unjustly enriched by misappropriation of information that, although valuable, fails to meet the statutory definition of trade secret.
– See Hawg Tools, LLC v. Newsco International Energy Services, Inc., No. 14-cv-03011-REB-MJW (D. Colo. Feb. 23, 2015), where the presiding court dismissed claims of unjust enrichment and civil theft as preempted because the plaintiff had alleged no facts that any physical objects had been misappropriated, and had only alleged that trade secret information had been misappropriated.
Overall, while preemption may be clearly applicable for some claims, such as civil theft or conversion that only seek recovery for stolen information, preemption for other common claims may not be as clear. Accordingly, in doing a preemption analysis, it is important to focus on whether the information needs to qualify for a trade secret in order for relief to be granted.
Where the claim does not depend on the information qualifying as a trade secret, then the claim will not be preempted and should be allowed to survive. Notably, preemption under the CUTSA has been construed narrowly and, accordingly, there are many business-related claims that are not preempted by the CUTSA.
Indeed, only a handful of business-related tort claims have explicitly been found to be preempted. Those include unjust enrichment, conversion, civil theft, and unfair competition claims. Moreover, even those claims are not preempted where the relief sought is independent of the existence of a trade secret.
© 2018 J.D. Porter, LLC. Author: Jordan Porter. Denver, Colorado.