“Gist of Action” Doctrine: Don’t Contract Away Your Misappropriation Claim

2 minute read | October.04.2016

The “gist of action” doctrine. Heard of it? Well, if you are dealing with Pennsylvania law, you need to know it. The “gist of action” doctrine asks whether the “gist” of a suit sounds in tort or contract. When applied to a claim of trade secret misappropriation, the doctrine questions whether the wrongful acts constitute a tort or a breach of contract. If the wrongful acts constitute a breach of contract, Pennsylvania law bars any trade secret claim. As evidenced by the case Wiggins v. Physiologic Assessment Services, LLC, whether a claim can be brought as a trade secret claim or a breach of contract claim can turn on the wording of the contract at issue.

In June 2016, the Superior Court of Delaware applied Pennsylvania law and the “gist of action” doctrine to dismiss a claim for misappropriation of trade secrets. The court held that a trade secret claim brought under Pennsylvania’s Uniform Trade Secret Act was barred because there was an employment agreement that prohibited the disclosure of confidential information. More specifically, it held that the trade secret claim was barred because the employer defined confidential information to include trade secrets. Thus, according to the court, the “gist” of the claim was breach of contract, not trade secret misappropriation.

This decision does not stand alone.  In 2001, in Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc., the Third Circuit set aside a jury verdict because it wasn’t clear if the jury’s verdict was based on misappropriation of information covered by a confidentiality agreement or based on misappropriation of other trade secret information that fell outside the scope of that agreement. In that case, the agreement at issue defined certain material as confidential and proprietary. Whether by conscious decision or pure luck, other items—such as client lists, client profiles, and pricing information—were not also identified. Therefore, the Court found that a claim for misappropriation of trade secrets based on the information not covered by the contract would not be barred by the gist of the action, but the claim based on the contractually-defined confidential information would be.

The gist of it is this: if Pennsylvania law applies, make sure you put extra care into how you define confidential information and what actions are prohibited, or risk contracting away your claim for misappropriation of trade secrets.