Tennessee Adopts Expansive Trade Secret Preemption Standard

In a case of first impression decided August 19, 2014, the Tennessee Court of Appeals has decided the standard for determining the scope of preemption under the Tennessee Uniform Trade Secrets Act (TUTSA). The court adopted a "same proof" standard under which a claim will be preempted when it necessarily rises or falls based on whether the defendant is found to have "misappropriated" a "trade secret" as those terms are defined in TUTSA. Ram Tool & Supply Co. v. HD Supply Construction Supply, Ltd., No. M2013-02264-COA-R3-CV, 2014 WL 4102418 (Tenn. Ct. App. Aug. 19, 2014).

Adopted in 2000, TUTSA was intended to bring uniformity and simplicity to the business torts arena by abolishing freestanding alternative causes of action for the taking or misuse of confidential or proprietary information falling short of trade-secret status (such as misappropriation of "confidential business information"). TUTSA does so by providing, through Tenn. Code Ann. § 47-25-1708, that it "displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret." However, since TUTSA also provides that it does not preempt "other civil remedies that are not based upon misappropriation of a trade secret," courts have had to determine whether common law tort claims in cases involving allegations of trade secret misappropriation are preempted by TUTSA. Courts across the country have offered differing interpretations of how to determine if such claims are preempted under the uniform act, which 47 states have adopted. Although no Tennessee appellate court had interpreted TUTSA's preemption provision, courts in each of Tennessee's three federal districts, as well as the Sixth Circuit, have applied the so-called "same proof" standard adopted in Hauck Manufacturing Co. v. ASTEC Industries, Inc., 375 F. Supp. 2d 649 (E.D. Tenn. 2004). See, e.g., PartyLite Gifts, Inc. v. Swiss Colony Occasions, 246 Fed. Appx. 969 (6th Cir. 2007).

The issue in the Ram Tool case was whether the plaintiff's claims of breach of fiduciary duty/loyalty, aiding and abetting breach of fiduciary duty/loyalty, and conspiracy to unlawfully recruit were preempted because they were, according to the defendants, based on alleged misappropriation of trade secrets. Ram Tool was a construction supply business that lost several at-will employees to a competitor. It claimed the defendants had used trade secrets and confidential business information...