Trade secrets cases number in the thousands. One “gem” jumps out: Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983).
The 88th Annual Conference of the National Conference of Commissioners on Uniform State Laws authorized and recommended the Uniform Trade Secrets Act (“UTSA”) in 1979. UTSA was initially passed in Minnesota on August 1, 1980. The Minnesota Supreme Court reviewed the UTSA first. Electronic Craft Corp. (ECC) v. Controlled Motion, Inc. (“CMI”) was the first UTSA appellate ruling.
All states except New York have accepted the UTSA. It’s interesting to see the UTSA’s early years through the lens of the first big lawsuit before the Minnesota Supreme Court. Electro-Craft is a gem because it shows how the common law of trade secrets was effortlessly integrated into the UTSA’s statutory framework and handled many of the same difficulties as today.
Factual background
ECC sued CMI and former national sales manager John Mahoney for trade secret misappropriation. Mahoney founded and presided over CMI. Both firms made “servo” D.C. motors with moving coil and brushless technology. In May 1980, Mahoney covertly considered starting a business. An attorney prepared a prospectus for Mahoney’s new CMI company. The prospectus predicted third-month revenues without R&D costs.
Mahoney discreetly met with four key ECC personnel in June 1980: a mechanical engineer who designed ECC products, a quality assurance plant manager, a technician, and a buyer who knew ECC’s vendors and motor parts.
Mahoney and the four ECC workers resigned to start CMI on August 6, 1980. Mahoney and other former ECC employees signed a confidential agreement without a non-compete clause. Only one of four employees signed a trade secret acknowledgment form at the leave interview.
ECC sued CMI and Mahoneon on September 26, 1980, for UTSA trade secret misappropriation, 980. ECC and CMI Motors shared several characters, but the competitors’ products differed. Although the different procedures, proprietary adhesives, and other materials were similar, ECC information copying was suspected.
The key defense was reverse engineering. A CMI specialist predicted reversing the engineering of a rival prototype motor would take two to three months. According to ECC’s expert, reverse engineering ECC goods would take six to twelve months. The juryless trial court decided CMI stole ECC’s trade secrets and granted a 12-month injunction. CMI appealed to the Minnesota Supreme Court.
Trade Secret Concerns
The UTSA continues, explains, and clarifies several trade secret common law provisions. However, the UTSA controls when it modifies common law. The court must follow statutory terminology.
Trade secrets must (1) not be widely known or readily ascertainable, (2) give a competitive advantage, (3) have been developed at the plaintiff’s expense, and (4) be the subject of the plaintiff’s purpose to keep it confidential.
As the threshold issue for trade secret existence, the court should focus on property rights rather than a private relationship. The court acknowledged that a private relationship is required for a misappropriation case and that trade secret status and confidentiality should not be artificially separated. They depend. The court cannot award remedies without a trade secret. Otherwise, the court would risk making the UTSA a catch-all for industrial torts.
To find trade secrets, the trial court must first examine what ECC claims and what the district court discovered. CMI stated that ECC and the district court did not specify trade secrets. ECC also redefined its trade secrets through litigation.
The Minnesota Supreme Court sided with CMI. Unspecified trade secrets were asserted. ECC did not give the dimensions and tolerances claimed to be trade secrets. ECC claimed trade secrets were only “design procedures.” This ambiguity doomed ECC’s claim. According to the Minnesota Supreme Court, ECC failed to identify trade secrets that could be stolen. Due to ECC’s vagueness, the district court could not create a meaningful injunction that would not hinder legitimate competition.
Insufficient steps to preserve alleged trade secrets were another justification for reversal. Using the UTSA definition of a trade secret, the Minnesota Supreme Court concluded that ECC had failed to prove trade secrets again.
The trial court decided that ECC exhibited “intention” to keep its data and operations secret. UTSA requires more than intention. The plaintiff must demonstrate reasonable secrecy attempts. ECC did not warn staff that sensitive material was confidential and had no physical security measures. ECC treated its data as a non-trade secret. No ECC policy declaration defined a trade secret. According to the Minnesota Supreme Court, ECC failed to prove a trade secret under the UTSA.
No trade secrets were misappropriated under the UTSA because none existed.
