Are State Governments Immune From Suit For Misappropriation Of Trade Secrets?

3 minute read | July.19.2019

You are a state-government contractor. You respond to an RFP issued by a state-government entity. In your bid proposal, you submit documents that contain your trade secrets. You do not get the contract, but you later learn that the state-government entity gave your trade secret information to your direct competitor who did get the contract. Do you have any options under federal or state trade secret laws to sue the state?

With respect to federal trade secret law, at least one district court has determined that contractors cannot rely on the Defend Trade Secrets Act (DTSA) to sue a state government.

Instead, a government contractor is likely left with only state-law remedies. But sovereign immunity typically insulates state government actors from liability, leaving a hypothetical government contractor out of luck. And each state will likely address it differently. For example: North Carolina recognizes immunity because the North Carolina Trade Secrets Act does not contain a “plain and unmistakable waiver of sovereign immunity.” Illinois applies similar logic to reach the same conclusion. Texas would also almost certainly find sovereign immunity in this hypothetical as such immunity has already been implicitly recognized in at least one case. Massachusetts might split the baby, denying relief against the state itself, but permitting our hypothetical contractor to seek and obtain narrowly drawn injunctive relief against the specific state actors responsible for misappropriating the contractor’s trade secrets. While this is not an exhaustive list, you get the gist.

However, a recent Georgia appellate case identifies a potential path forward for contractors in that state (and perhaps others). In Board of Regents of the University System of Georgia v. One Sixty Over Ninety, LLC (June 27, 2019), the plaintiff (“One Sixty”), a media and branding agency, sued the defendant state university (the “State”) after a State employee provided One Sixty’s trade secrets, submitted to the State in response to an RFP, to a competitor. The State moved to dismiss One Sixty’s complaint, arguing that the complaint was barred by sovereign immunity.

The Georgia appellate court, relying on well-trodden reasoning, first affirmed the State’s sovereign immunity under Georgia’s Trade Secrets Act because “the Trade Secrets Act neither expressly nor impliedly waived the state’s sovereign immunity.” Nevertheless, the Georgia court held that the State was not immune from One Sixty’s suit. How did One Sixty accomplish this feat?

Shakespearean clichés ring true. A rose called by another name indeed smells just as sweet.

One Sixty brought its claim for misappropriation of trade secrets against the State pursuant to Georgia’s Tort Claims Act, which does waive sovereign immunity, rather than Georgia’s Trade Secrets Act, which does not.

After reviewing dictionary and statutory definitions of the word “tort” as well as the history of the Uniform Trade Secrets Act and the Georgia Trade Secrets Act modelled on the same, the trial court concluded, and the appellate court affirmed, that a violation of the Trade Secrets Act is “a tort claim.” Therefore, the court held that One Sixty could sue the State for misappropriating its trade secrets as a “tort” under the Tort Claims Act.

The reasoning deployed by the Georgia court, relying on dictionary definitions as well as the history and purpose of the Uniform Trade Secrets Act, could apply to other states. Time will tell whether other states will follow Georgia’s lead, but the result does make some logical sense.

State uniform trade secrets acts typically supersede conflicting common law tort claims. Statutory codification does not necessarily change the underlying legal nature – or “tortness” – of the misconduct.

Assuming the soundness of the once-a-tort-always-a-tort reasoning, the Georgia court asks a logical follow-up question: Why would the adoption of a uniform trade secrets act that is silent on sovereign immunity grant a state greater immunity from suit than it had before adoption of the act? This court’s answer: it wouldn’t.