Employees and Trade Secrets in Nevada
Even without a non-disclosure agreement, confidential information obtained by an employee during employment by reason of his or her position cannot be used or disclosed to the detriment of the employer. “An employee is obligated not to reveal employer’s confidential information during employment and after termination of employment.” Nevada codified the Uniform Trade Secret Act (“UTSA” or “NUTSA”) at NRS 600A et. seq. There is a split of authority whether confidential information is protected if it is not covered by NUTSA. These materials will treat all protected confidential commercial information as being contained in NUTSA and all others to be unprotected information.
At termination of employment, an employee who misuses confidential information (customer lists, formulas, etc.), is precluded from using the information and is required to return the materials to the employer. An employer, therefore, at common law, has some protection against disclosure of confidential information even without a valid non-disclosure agreement. “However, an employee can use to his or her own advantage all the skills and knowledge commonly used in the trade that the employee acquired during the employee’s tenure of employment.”
For information regarding the prosecution of a former employee who steals trade secrets, see http://nevadalaw.info/misappropriation-trade-secrets-nevada/ and http://nevadalaw.info/elements-for-a-claim-of-misappropriation-of-trade-secrets-in-nevada/.
 27 Am.Jur.2d Employment Relationship § 224.
 27 Am.Jur.2d Employment Relationship § 226 (citing NCH Corp. v. Broyles, 749 F.2d 247 (5th Cir. 1985); Advanced Magnification Instruments, Ltd. v. Minutemen Optical Corp., 522 N.Y.S.2d 287, 135 A.D.2d 889 (3d Dept. 1987); Gonzales v. Zamora, 791 S.W.2d 258 (Tex. App. Corpus Christi 1990)).
 Id. (citing Service Center of Chicago, Inc. v. Minogue, 180 Ill.App.3d 447, 535 N.E.2d 1132 (1989)).
How Does a Party Prosecute an Action for Misappropriation of Trade Secrets?
NRS 600A.030(2) defines “misappropriation” as:
(a) Acquisition of the trade secret of another by a person by improper means;
(b) 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
(c) Disclosure or use of a trade secret of another without express or implied consent by a person who:
(1) Used improper means to acquire knowledge of the trade secret;
(2) 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 used 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
(3) Before a material change of his 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.
NRS 600A.040 provides injunctive relief for the actual or threatened misappropriation of trade secrets, stating;
- Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction must be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time to eliminate commercial or other advantage that otherwise would be derived from the misappropriation.
* * *
- In appropriate circumstances, the court may order affirmative acts to protect a trade secret. As used in this subsection, “affirmative acts” includes, without limitation, issuing an injunction or order requiring that a trade secret which has been misappropriated and posted, displayed or otherwise disseminated on the Internet be removed from the Internet immediately.
In Frantz, the Nevada Supreme Court found misappropriation of trade secrets based on the fact that: (l) lists containing information were missing after the former employee left the job; (2) the former employee contacted the plaintiff’s customers to offer “more competitive pricing;” and (3) the former employee’s phone records and other evidence indicated calls to plaintiff’s customers. As a result, the former employee was liable for misappropriation of trade secrets. The Court further found that the competitor had misappropriated trade secrets when the competitor hired the former employee, announced that competitor intended to compete against plaintiff by taking all of plaintiff’s customers, and the competitor hired employees from other competitive companies and asked them to use their knowledge about their former employers’ pricing structure and customer base. Id.
To prove misappropriation under NUTSA, a plaintiff must plead and prove: (1) the existence of a valuable trade secret as defined by the statute; (2) misappropriation through use, disclosure, or nondisclosure of use of the trade secret; and (3) the misappropriation was wrongful because it was made in breach of an express or implied contract or by a party with a duty not to disclose. Frantz, 116 Nev. at 466, 999 P.2d at 358. The Court has wide discretion in calculating damages, subject only to a review for abuse of discretion. Id. (citing Diamond Enters., Inc. v. Lau, 113 Nev. 1376, 1379, 951 P.2d 73, 74 (1997) (citations omitted)).
UNIFORM ARBITRATION ACT OF 2000
NRS 38.206 Short title. NRS 38.206 to 38.248, inclusive, may be cited as the Uniform Arbitration Act of 2000.
(Added to NRS by 2001, 1274)
NRS 38.207 Definitions. As used in NRS 38.206 to 38.248, inclusive, the words and terms defined in NRS 38.208 to 38.213, inclusive, have the meanings ascribed to them in those sections.
(Added to NRS by 2001, 1274)
NRS 38.208 “Arbitral organization” defined. “Arbitral organization” means an association, agency, board, commission or other entity that is neutral and initiates, sponsors or administers an arbitral proceeding or is involved in the appointment of an arbitrator.
(Added to NRS by 2001, 1274)
NEVADA REVISED STATUTES
CHAPTER 38 – MEDIATION AND ARBITRATION
UNIFORM ARBITRATION ACT OF 2000
NRS 38.206 Short title.
NRS 38.207 Definitions.
NRS 38.208 “Arbitral organization” defined.
NRS 38.209 “Arbitrator” defined.
NRS 38.211 “Court” defined.
NRS 38.212 “Knowledge” defined.
NRS 38.213 “Record” defined.
NRS 38.214 Notice.
NRS 38.216 Applicability.
NRS 38.217 Waiver of requirements or variance of effects of requirements; exceptions.
NRS 38.218 Application for judicial relief; service of notice of initial motion.
NRS 38.219 Validity of agreement to arbitrate.
NRS 38.221 Motion to compel or stay arbitration.
NRS 38.222 Provisional remedies.
NRS 38.223 Initiation of arbitration.
NRS 38.224 Consolidation of separate arbitration proceedings.
NRS 38.226 Appointment of arbitrator; service as neutral arbitrator.
NRS 38.227 Disclosure by arbitrator.
NRS 38.228 Action by majority.
NRS 38.229 Immunity of arbitrator; competency to testify; attorney’s fees and costs.
NRS 38.231 Arbitration process.
NRS 38.232 Representation by lawyer.
NRS 38.233 Witnesses; subpoenas; depositions; discovery.
NRS 38.234 Judicial enforcement of preaward ruling by arbitrator.
NRS 38.236 Award.
NRS 38.237 Change of award by arbitrator.
NRS 38.238 Remedies; fees and expenses of arbitration proceeding.
NRS 38.239 Confirmation of award.
NRS 38.241 Vacating award.
NRS 38.242 Modification or correction of award.
NRS 38.243 Judgment on award; attorney’s fees and litigation expenses.
NRS 38.244 Jurisdiction.
NRS 38.246 Venue.
NRS 38.247 Appeals.
NRS 38.248 Uniformity of application and construction. (more…)
For downloadable pdf of this article, click here.
Many of the complaints that I hear from litigators about arbitration could be resolved if the arbitration clause which forced the parties into litigation were written better. Arbitrations are, of course, a creature of contract. Therefore, the parties’ arbitration agreement is often the beginning and end of the arbitrator’s authority. The arbitrator is bound to give effect to the contractual rights and expectations of the parties “in accordance with the terms of the agreement.” In fact, although the Federal Arbitration Act presumes that arbitration awards will be confirmed except upon a few narrow circumstances, the arbitrator who acts beyond the scope of the authority found in the parties’ arbitration clause risks having the award vacated. So, if you want the arbitrator to behave differently, write a better arbitration agreement. (more…)
VIOLATION OF THE UNIFORM TRADE SECRETS ACT NRS CHAPTER 600A
In Nevada, the elements for a claim of misappropriation of trade secrets or violation of the uniform trade secrets act (known as the Nevada Trade Secrets Act or “NUTSA”) are:
- Plaintiff possesses a viable trade secret as part of its business, including but not limited to market research, customer lists, customer and product pricing information, formulas, patterns, compilations, programs, devices, methods, techniques, products, systems, processes, designs, prototypes, procedures and computer programming instructions which are extremely confidential and derive independent economic value from not being generally known to, and not being readily ascertainable by proper means by the public or any other persons who can obtain commercial or economic value from their disclosure or use;
- Plaintiff took adequate measures and maintained the foregoing information and technology as trade secrets, which secrecy was guarded and not readily available to others;
- Defendant intentionally, and with reason to believe that its actions would cause injury to plaintiff, misappropriated and exploited the trade secret information through use, disclosure, or non-disclosure of the use of the trade secret for defendant’s own use and personal gain;
- The misappropriation is wrongful because it was made in breach of an expressed or implied contract, or by one with a duty not to disclose the trade secret;
- Defendant misappropriated the trade secret information with willful, wanton, or reckless disregard of plaintiff’s rights;
- Causation and damages; and
- Punitive damages.
NRS Chapter 600A; Kaldi v. Farmers Ins. Exchange, 117 Nev. 273, 283-84, 21 P.3d 16, 23 (2001); Frantz v. Johnson, 116 Nev. 455, 466, 999 P.2d 351, 358 (2000) (a customer list can be a trade secret when extremely confidential and where the list was secret and guarded, where the list was missing after an employee had access to the list which went missing after the employee left his employment, then provided customers with “more competitive pricing”); Whitehead v. Nev. Com’n on Judicial Discipline, 110 Nev. 874, 904 n. 6, 878 P.2d 913, 932 (1994); 12 AMJUR POF 3d 711.
To prevail on a claim for a violation of Nevada’s Uniform Trade Secret Act, NRS 600A.010 et. seq., plaintiff must show that the defendant wrongfully used or disclosed a valuable trade secret. NRS 600A.030(2); Caesars World, Inc. v. Milanian, 247 F. Supp. 2d 1171, 1203 (D. Nev. 2003); Frantz v. Johnson, 116 Nev. 455, 466, 999 P.2d 351, 358 (2000)(in determining whether information is entitled to trade secret protection, courts will consider “the extent and manner in which the employer guarded the secrecy of the information.”). An employer is the presumptively the sole owner of any patentable invention or trade secret information developed by the employee in his employment. NRS 600A.500. An employee’s use or disclosure of the same is wrongful when done in violation of a legal or contractual duty to refrain from such use of disclosure. Caesars World, Inc. v. Milanian, 247 F. Supp. 2d 1171, 1203 (D. Nev. 2003). That includes acting as a fiduciary, who owes a fiduciary duty and a duty of loyalty to the company and its owners. Leavitt v. Leisure Sports, Inc., 103 Nev. 81, 86, 735 P.2d 1221, 1224 (1987).
Courts favorably view non-disclosure and invention assignments because, unlike covenants not to work for a competing business, these covenants do not restrict an employee’s ability to provide for themselves and their families. See Revere Transducers, Inc. v. Deere & Co., 595 N.W.2d 751, 761 (Iowa 1999) (“Nondisclosure-confidentiality agreements enjoy more favorable treatment in the law than do noncompete agreements” because “noncompete agreements are viewed as restraints of trade which limit an employee’s freedom of movement among employment opportunities.”). The Revere court announced its standard for whether a nondisclosure-confidential or invention assignment agreement is enforceable as: (1) the restricting prohibiting disclosure is reasonably necessary for the protection of the employer’s business; (2) the restriction doesn’t unreasonably restrict the employee’s rights; and (3) the restriction is not prejudicial to the public interest? Id.
Irreparable harm is presumed in situations where a confidentiality agreement or restrictive covenant has been breached or trade secrets have been misappropriated. EchoMail, Inc. v. American Exr. Co., 378 F. Supp. 2d 1, 4 (D. Mass. 2005); Storage Tech. Corp. v. Custom Hardware Eng’g & Consulting, Inc., 2004 WL 1497688 (D. Mass. 2004); FMC Corp v. Taiwan Tainan Giant Indus. Co., Ltd., 730 F.2d 61, 63 (2nd Cir. 1984) (trade secrets, once lost, is lost forever; its loss cannot be measured in money damages); Ivy Mar Co. v. C.R. Seasons, Ltd., 907 F. Supp. 547, 566 (E.D. N.Y. 1995); Computer Assoc., Inc. v. Bryan, 784 F. Supp. 982, 986 (E.D. N.Y. 1992); Refractory Technology, Inc. v. Koski, 1990 WL 119560, at *3 (N.D. Ill., Aug. 13, 1990) (loss of trade secret would cause plaintiff immediate, irreparable harm); ISC-Bunker Ramo Corp. V. Altech, Inc., 765 F. Supp. 1310, 1338 (N.D. Ill. 1990) (“it is often difficult to …. Determine the monetary damages suffered thereby”); CPG Prod. Corp. v. Mergo Corp., 214 U.S.P.Q. 206, 2145 (S.D. Ohio 1981) (the threat of disclosure, destruction, or dilution of trade secret constitutes irreparable injury justifying injunctive relief); Donald McElroy, Inc. v. Delany, 72 Ill. App. 3d 285, 294-95, 389 N.E.2d 1300, 1308 (1st Dist. 1979)(“Once a protectable interest has been established, injury to plaintiff will presumably follow if that interest is not protected:; threat of irreparable harm sufficient where former employee violated the terms of a non-disclosure agreement and was about to use confidential information against the plaintiff, irreparable injury was shown and preliminary injunction was properly granted). Loss of goodwill, destruction of trade secrets, loss of client confidentiality and competitive disadvantage constitute irreparable harm for which no adequate remedy at law exists. IDS Life Ins. O. v. SunAmerica, 136 F.3d 537, 543 (7th Cir. 1998) (irreparable injury presumed for loss of customer goodwill, future business, customer relationships, business reputation and trade secrets). The law requires that such agreements be “supported by valuable consideration and . . . otherwise reasonable in its scope and duration.” NRS 613.200(4); see generally Camco, Inc. v. Baker, 113 Nev. 512, 936 P.2d 829, 832 (1997) (“[A]n at-will employee’s continued employment is sufficient consideration for enforcing a non-competition agreement.”).
Even without a non-disclosure agreement, confidential information obtained by an employee during employment by reason of his or her position cannot be used or disclosed to the detriment of the employer. “An employee is obligated not to reveal employer’s confidential information during employment and after termination of employment.” 27 Am. Jur. 2d Employment Relationship § 224. Nevada codified the Uniform Trade Secret Act (“UTSA” or “NUTSA”) at NRS 600A et. seq. There is a split of authority whether any confidential information is protected if it is not covered by NUTSA. These materials will treat all protected confidential commercial information as being contained in NUTSA and all others to be unprotected information.
At termination of employment, an employee who misuses confidential information (customer lists, formulas, etc.), is precluded from using the information and is required to return the materials to the employer. 27 Am. Jur. 2d Employment Relationship § 226 (citing NCH Corp. v. Broyles, 749 F.2d 247 (5th Cir. 1985); Advanced Magnification Instruments, Ltd. v. Minutemen Optical Corp., 522 N.Y.S.2d 287, 135 A.D.2d 889 (3d Dept. 1987); Gonzales v. Zamora, 791 S.W.2d 258 (Tex. App. Corpus Christi 1990)). An employer, therefore, at common law, has some protection against disclosure of confidential information even without a valid non-disclosure agreement. “However, an employee can use to his or her own advantage all the skills and knowledge commonly used in the trade that the employee acquired during the employee’s tenure of employment.” Id. (citing Serv. Ctr. of Chicago, Inc. v. Minogue, 180 Ill.App.3d 447, 535 N.E.2d 1132 (1989)).
Trade Secret is Defined by Statute
NUTSA defines exactly what is considered as protected confidential information in NRS 600A.030, which defines it as:
- “Trade secret” means information, including, without limitation, a formula, pattern, compilation, program, device, method, technique, product, system, process, design, prototype, procedure, computer programming instruction or code that:
(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by the public or any other persons who can obtain commercial or economic value from its disclosure or use; and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
See elements for other claims at the Nevada Law Library
I have seen it many times. A company grows from the kitchen table to a storefront and builds a successful enterprise. The owner sweats and toils for years to build brand awareness and goodwill. Things are finally gaining momentum for the once struggling business and they feel they are about to “make it”. Then they get a registered letter from a law firm in a different state demanding that they stop using their own business name, tear down their signs, rip up their business cards, and start over. The law firm claims that another business actually owns the right to the name and demands that the small company cease and desist using their name immediately, and that they might sue for damage! Can they do that?
Yes, they can in certain circumstances if they have a priority trademark registration. And you should make sure that you are on the side of the one sending the letter, not the one receiving it. Read more from this article by one of my partners on how a Federal Trademark Registration may help your business.
In Nevada, the elements for a claim trademark infringement are:
- Plaintiff has a valid, protectable symbol or name described as:______ (the “Mark”);
- Plaintiff owns the Mark as a trademark;
- Defendant used the Mark in commerce in connection with the sale or advertising of goods or services without the consent of the plaintiff in a manner that is likely to cause confusion among ordinary consumers as to the source, sponsorship, affiliation, or approval of the goods; and
- Causation and damages.
In Nevada, the elements for a claim of breach of fiduciary duty are:
- A fiduciary relationship exists between two persons such that one of them is under a duty to act for or give advice for the benefit of another upon matters within the scope of that relationship;
- Failure of the party owing the duty to use due care or diligence, act with utmost faith, exercise ordinary skill, or act with reasonable intelligence;
- Plaintiff suffered losses or injuries resulting from defendants’ breach of duty; and
- Causation and damages.
NRS 78.138-39; Klein v. Freedom Strategic Partners, LLC, 595 F. Supp. 2d 1152, 1162 (D. Nev. 2009) Stalk v. Mushkin, 125 Nev. 21, 199 P.3d 838 (Nev. 2009); Shoen v. SAC Holding Corp., 122 Nev. 621, 137 P.3d 1171 (Nev. 2006); Foley v. Morse & Mowbray, 109 Nev. 16 (1993); Hoopes v. Hammargren, 725 P. 2d 238 (Nev. 1986); Linland v. United Business Inv., Inc., 693 P.2d 20 (Ore. 1984); 18 Am.Jur 2d Corporations 1695, 1710, 1712-13; Restatement (Second) of Torts § 874 Cmt. a (1979).
See elements for other claims at the Nevada Law Library
TEMPORARY RESTRAINING ORDER, PRELIMINARY INJUNCTION, AND PERMANENT INJUNCTION
In Nevada, in order to obtain a temporary restraining order, preliminary injunction, or permanent injunction, generally, the following are considered by the courts:
- A party must demonstrate that it has a reasonable probability of success on the merits of its underlying claims;
- Without injunctive relief, plaintiff will suffer irreparable harm for which compensatory damages are inadequate;
- The court may weigh the public’s interest in seeing the harm stopped, as well as the relative hardships of the parties should the court take or refuse to take action; and
- The purpose of the restraining order/injunction is to preserve the status quo, or to “preserve a business or property interest.” Buion v. Terra Mktg. of Nev., Inc., 90 Nev. 237, 240, 523 P.2d 847, 848 (1974).
- Imposition of a bond is required by NRCP 65(c).
In Nevada, the elements for a claim of breach of the duty of loyalty are:
- Defendant is a fiduciary to Plaintiff company;
- Defendant owed plaintiff the duty of loyalty, requiring defendant to maintain, in good faith, the corporation’s and its shareholders’ best interests over anyone else’s interests;
- Defendant breached the duty of loyalty; and
- Causation and damages.
Shoen v. SAC Holding Corp., 122 Nev. 621, 632 (Nev. 2006); White Cap Indus., Inc. v. Ruppert, 119 Nev. 126, 67 P.3d 318 (2003); Rhine v. Miller, 94 Nev. 647, 649, 583 P.2d 458 (1978).
See elements for other claims at the Nevada Law Library
Generally, a Covenant Not to Compete is “[a]n agreement, generally part of a contract of employment or a contract to sell a business, in which the covenantor agrees for a specific period of time and within a particular area to refrain from competition with the covenantee.” Black’s Law Dictionary 364 (6th ed. 1990). The Covenant Not to Compete is known by multiple other names: the “restrictive covenant,” “non-competition agreement,” or as an “agreement not to compete” (hereinafter the “Covenant”). Griffin Toronjo Pivateau, Putting the Blue Pencil Down: An Argument for Specificity in Noncompete Agreements, 86 Neb. L. Rev. 672, 675 (2008). (more…)
A trademark is a word, name, symbol, or device that is used to distinguish one’s goods from others’ goods. A service mark is a mark that is used in the marketing of services rather than goods. The processes for protecting trademarks and service marks are the same, so for simplicity, we will use the term “mark”.
Marks can be protected in three ways: common law use, federal registration, and state registration. You do not have to register a mark under the common law; rights in a mark can be established by proof of legitimate use of the mark. However, only limited protection is provided under the common law. (more…)
In Nevada, the appointment of a receiver over a business may be appropriate if:
- The appointment of a receiver is governed by statute and is appropriate only under circumstances described in statute. State ex rel. Nenzel v. Second Jud. Dist. Ct., 49 Nev. 145, 155, 241 P. 317 (1925); Shelton v. Second Jud. Dist. Ct., 49 Nev. 487, 494, 185 P.2d 320 (1947);
- Any stockholder may apply if the corporation is insolvent. NRS 78.347;
- Any holder of 1/10 of a corporation’s issued and outstanding stock may apply for the appointment of a receiver when a corporation has been mismanaged. NRS 78.650. A showing of any one of the ten circumstances enumerated in the statue will authorize the appointment of a receiver upon application by a ten-percent shareholder. Transcontinental Oil Co. of Nev. v. Free, 80 Nev. 207, 210-11, 391 P.2d 317, 319 (1964);
- A holder of 1/10 of issued stock may apply for appointment of a receiver of a solvent corporation where the business is being conducted at a great loss, the operation is prejudicial to creditors or stockholders such that the business cannot be conducted with safety to the public. NRS 78.630;
- The Court must consider the entire circumstances of the case when considering the appointment of a receiver. Bowler v. Leonard, 70 Nev. 370, 383 (1954);
- A Receiver may be appointed when a corporate is in imminent danger of insolvency. NRS 32.010;
- A Receiver is a neutral party appointed by the court to preserve, protect, and administer the business’ assets for benefit the business. In all cases, directors or trustees who have been guilty of no negligence nor active breach of duty must be preferred over all others in making the appointment of a receiver. NRS 78.650. Peri-Gil Corp. v. Sutton, 84 Nev. 406, 411 422 P.2d 35, 38 (1968). Such directors have a right to be heard as to their qualifications. Shelton v. Second Jud. Dist. Ct., 64 Nev. 487, 492-93, 185 P.2d 320, 323 (1947); and
- Appointment of a receiver is appropriate when the business’ property at issue is at risk of waste, loss of income, or is insufficient to secure a debt. NRS 32.010; NRS 107.100;