Arizona Trade Secrets Grow New Teeth

By John Doran

 

Over the last 18 months, the courts had diluted Arizona trade secret protections, notwithstanding the recent criminalization of trade secret theft by the AZ legislature. Today, however, the Arizona Supreme Court breathed new life into trade secret protection in Orca Communications Unlimited v. Noder, No. CV-13-0351 (Ariz. November 19, 2014).  Orca Communications sued its former President, Noder, for unfair competition because Noder, while still employed by Orca, informed Orca customers that she was starting a competing business and urged them to do business with her instead of Orca. The trial court dismissed the lawsuit on the premise that Arizona’s Uniform Trade Secrets Act (“AUTSA”) preempts common law claims such as Orca’s unfair competition claim. The Arizona Supreme Court reversed that decision, in part, finding that the AUTSA only preempts common law claims involving trade secrets as defined by the AUTSA, and not claims based on misuse of confidential information that does not constitute a trade secret.

In a peculiar win/lose for employers covetous of their confidential and proprietary information, the Court added two additional points. First, the Court noted that the unfair competition tort might not even be actionable in Arizona. It would have helped if the Court had recognized that somewhat catch-all tort, but that will have to wait for another day. Second, the Court ordered that only that section of the Court of Appeals decision addressing unfair competition claims be depublished. This is extremely significant because the Court of Appeals opinion contained wide-ranging and, frankly, terrifying language with respect to non-competition, non-solicitation, and confidentiality covenants. Thus, while the Supreme Court giveth, it managed to taketh away. The Court would have done all employers a favor had it revisited the Court of Appeals’ opinion specifically with respect to restrictive covenants.