Technology Contracting for Transit Projects (2017)

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28 by a data breach.382 Unless a state privacy law provides otherwise, in some states a transit agency may be held liable only for an intentional disclosure of a customer’s PII or other personal data. Further- more, in the event of an unintentional release of data, there may be a good faith defense, which also has been codified in some state statutes.383 A technology agreement between a contractor, designer, developer, licensor, or vendor should provide for a transit agency’s indemnification for data breaches and privacy violations. IX. FEDERAL AND STATE LAW APPLICABLE TO THE PROTECTION OF TRADE SECRETS A. Defend Trade Secrets Act of 2016 The Defend Trade Secrets Act of 2016 (DTSA),384 enacted on May 11, 2016, amended the Economic Espionage Act of 1996.385 The purpose of the DTSA “is to make it more practical for trade secret owners... to secure effective judicial relief.”386 The DTSA defines an owner of a trade secret to be “the person or entity in whom or in which legal or equitable title to, or license in, the trade secret is reposed.”387 The DTSA applies to a theft of trade secrets affecting interstate or foreign commerce. A theft is broadly defined to include anyone who knowingly and intentionally steals or otherwise without autho- rization converts a trade secret for a product or service for use in interstate or foreign commerce for the economic benefit of anyone other than the owner of a trade secret or conspires with others to commit an offense.388 A violator is subject to a fine and/or imprisonment.389 An organization violating the DTSA is subject to a fine of not more “than the greater of $5,000,000 or 3 times the value of the stolen trade secret…including expenses for research and design and other costs of reproducing the trade secret” that the violator avoided.390 The DTSA also provides immunity for whistleblowers who disclose misconduct by others in violation of the Act.391 Prior to the enactment of the DTSA, civil damages for a theft of trade secrets could be sought only under state law, but the DTSA created a federal cause of action for misappropriation of a trade secret.392 Under § 1836(b)(1) “[a]n owner of a trade secret that is misappropriated may bring a civil action…if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”393 Furthermore, § 1836(b)(2) authorizes an owner of a trade secret to apply for an order granting an ex parte seizure “of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”394 B. Uniform Trade Secrets Act Technology acquired or developed by transit agencies may be protected as a trade secret under a state’s Uniform Trade Secrets Act (UTSA) that applies to a misappropriation of trade secrets.395 At least forty-seven states, the District of Columbia, and the U.S. Virgin Islands have adopted the UTSA.396 Although a state may have adopted the UTSA with some variations, the UTSA is a model law that defines an owner’s rights and remedies regarding trade secrets. The Restatement (Third) of Unfair Competition states that “[a] trade secret is any information that can be used in the operation of a business or other enterprise…that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.”397 The UTSA defines a trade secret to include 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.398 382 minn. stat. § 13.08, subdiv. 1 (2016) and ore. rev. stat. § 802.191(1) (2016). 383 iowa code § 22.10(3)(b)(2) (2016). 384 Pub. L. No. 114-153, 130 Stat. 376 (codified at 18 U.S.C. §§ 1832(b), 1833, 1835, 1836(b)–(d), 1839(3)-7)). 385 Pub. L. No. 104-294, 110 Stat. 3488. 386 James Pooley, The Myth of the Trade Secret Troll: Why the Defend Trade Secrets Act Improves the Protection of Commercial Information, 23 geo. mason L. rev. 1045, 1058 (2016), hereinafter referred to as “Pooley.” 387 18 U.S.C. § 1839(4) (2016). 388 18 U.S.C. § 1832(a) (2016). 389 18 U.S.C. § 1832(a)(5) (2016). 390 18 U.S.C. § 1832(b) (2016). 391 18 U.S.C. §§ 1833(b)(1)(A)–(B) (2016). See Pooley, supra note 386, at 1066, 1075. 392 Claire Laporte & Emma S. Winer, Congress Passes Sweeping New Legislation to Protect Trade Secrets, 62 Prac. Law. 37, 37–38 (2016). 393 18 U.S.C. § 1836(b)(1) (2016). 394 18 U.S.C. § 1836(b)(A)(2)(i) (2016). 395 Uniform Law Commission, Uniform Trade Secrets Act, hereinafter referred to as “UTSA,” tHe nationaL con- ference of commissioners on uniform state Laws, http:// www.uniformlaws.org/Act.aspx?title=Trade%20 Secrets%20Act (last accessed Feb. 24, 2017). 396 UTSA, supra note 395. 397 Restatement (Third) of Unfair Competition, 39 cmt. d (1995). 398 UTSA, supra note 395, § 1(4).

29 To preserve a trade secret, the owner must be care- ful “to limit access to the information, and such infor- mation should only be disclosed in confidence.”399 A claim may be available for misappropriation of a trade secret under either the UTSA or at common law.400 Although a misappropriation of trade secrets is unlawful, “trade secret law does not create a right in the information itself.”401 An owner “has no proprietary interest in the information,” and “‘the public at large remains free to discover and exploit the trade secret through reverse engineering…or by independent creation.’”402 In Sherman & Co. v. Salton Maxim Housewares, Inc.,403 the court stated that under the Michigan stat- ute, a claimant would have to establish among other things whether the data in question amounted to trade secrets and whether the party against whom the claim is made had express or implied consent to disclose or use the data.404 In Sherman, because Salton alleged that “Sherman took sales data consti- tuting trade secrets and/or proprietary information under MCL section 445.1902(b)(ii)(A) and gave it to Salton’s competitor…without Salton’s consent,” Salton’s amended counterclaim stated a claim.405 In cases involving copyright infringement, the Copyright Act may preempt a claim for a misappro- priation of a trade secret.406 When “the line between trade secret and copyright protection becomes blurred…the possibility of preemption increases.”407 The issue of preemption depends on whether the essence of the claim for a violation of a state’s trade secrets law is merely a claim for one’s unauthorized copying of data or software. In Huckshold v. HSSL, LLC,408 the plaintiff had an agreement with HSSL, LLC (HSSL) to develop software for the tracking and maintenance of a customer database.409 Another defendant, The Miller Group, Inc., allegedly copied the software from one of HSSL’s computers in violation of an agreement between the plaintiff and HSSL. The court noted that a claim for misappropriation of trade secrets is preempted when the claim is based solely on copy- ing, because the claim would be “qualitatively equiv- alent” to a claim for copyright infringement.410 However, “claims of misappropriation of trade secrets that are based upon breach of an indepen- dent duty of trust or confidence to the plaintiff are qualitatively different than claims for copyright infringement[] and are not preempted.”411 Although the court held that the plaintiff ’s claim for misap- propriation of trade secrets was not preempted, the plaintiff would “have to prove that the Software was a trade secret that was misappropriated by Miller from HSSL and that HSSL was under a duty to maintain the secret and limit its use. These are elements in addition to the copying required for a copyright infringement claim.”412 Likewise, in Therapeutic Research Faculty v. NBTY413 the court held that the alleged misappro- priation by a subscriber of its username and pass- word for the defendants’ benefit was a violation of the UTSA adopted by California.414 Moreover, the court held that the plaintiff could prevail on its claim by proving damages that were caused by the misappropriation or unjust enrichment.415 There also may be an issue of whether a state’s trade secret law preempts other claims at common law. Section 7(a) of the UTSA provides that except as provided in subsection (b), it “displaces conflicting tort, restitutionary, and other law of this State providing civil remedies for misappropriation of a trade secret.” However, the UTSA “does not affect: (1) contractual remedies, whether or not based upon misappropriation of a trade secret; or (2) other civil remedies that are not based upon misappropriation of a trade secret….”416 Of course, when there is confi- dential information that is not a trade secret, a trade secret statute does not preclude other civil remedies for misappropriation of confidential information.417 409 Id. at 1205. 410 Id. at 1209 (citation omitted). 411 Id. (citations omitted). 412 Id. 413 488 F. Supp. 2d 991 (E.D. C.A. 2007). 414 Id. at 999 (citing Fas Techs, Ltd. v. Dainippon Screen MFG., Co., Ltd., 2001 U.S. Dist. LEXIS 7503, at *1 (N.D. Cal. May 31, 2001) and Cal. Civ. Code §§ 3426.2 and 3426.3). 415 Id. at 1000 (citations omitted). 416 UTSA, supra note 395, §§ 7(a) and (b). 417 Burbank Grease Servs., LLC v. Sokolowski, 294 Wis. 2d 274, 308, 717 N.W.2d 781, 798 (2006) (citing Wis. Stat. § 134.90(6)(a)). 399 Lars S. Smith, RFID and Other Embedded Technolo- gies Who Own the Data, 22 santa cLara comPuter & HigH tecH. L. J. 695, 724 (2006), hereinafter cited as “Lars Smith,” and Restatement (Third) of Unfair Competition, 39 cmt. g (1995). 400 See UTSA, supra note 395, § 1(2). 401 Lars Smith, supra note 399, at 729 (citing Restate- ment (Third) of Unfair Competition, 39 cmt. c (1995)). 402 Id. at 730 (footnote omitted). 403 94 F. Supp. 2d 817 (E.D. Mich. 2000). 404 Id. at 821 (citing MCL § 445.1902(b)(ii)(A)). 405 Id. at 822. See discussion of cases in part XI.B.3, infra, holding that certain records were not subject to dis- closure under public disclosure laws because they were exempt as trade secrets. 406 Jobscience, Inc. v. CVPartners, Case No. C13-04519 WHA, 2014 U.S. Dist. LEXIS 2741, at *13 (2014). 407 Carole P. Sadler, Federal Copyright Protection and State Trade Secret Protection: The Case for Partial Preemp- tion, 33 am. u. L. rev. 667, 668 (1984) (footnote omitted). 408 344 F. Supp. 2d 1203 (E.D. Mo. 2004).