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New Jersey Trade Secrets Law Headed for Governor's Desk

  • November 3, 2011

A new civil action for the misappropriation of trade secrets, with remedies for the aggrieved holder of a trade secret, would be created under legislation passed by the New Jersey General Assembly and the New Jersey Senate.  The New Jersey Trade Secrets Act (A-921) must be signed by Governor Chris Christie before becoming law.  Once signed, the Act will take effect immediately.  It will not apply retroactively.

Statutory Definition

The bill defines “trade secret” as:

Information, held by one or more people, without regard to form, including a formula, pattern, business data, compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype or process that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Current New Jersey case law (i.e., common law) addresses the protections given to trade secrets and provides an analysis of what information constitutes trade secrets.  The Act’s definition of trade secret would supersede existing definitions (except the one in the Tort Claims Act).
The Act expressly protects a holder of a trade secret from those who improperly acquire or disclose the trade secret.  The following would violate the Act:

Theft, bribery, misrepresentation, breach or inducement of a breach of an express or implied duty to maintain the secrecy of, or to limit the use or disclosure of, a trade secret, or espionage through electronic or other means, access that is unauthorized or exceeds the scope of authorization, or other means that violate a person’s rights.  

Available Statutory Remedies

The Act provides remedies for claims of unlawful misappropriation of trade secrets and bad faith claims of misappropriation.  An aggrieved trade secret holder can sue for damages consisting of compensation for an actual loss and unjust enrichment for a misappropriation.  The Act also allows a court to award attorney’s fees and costs to a trade secret holder where a misappropriation is found to be “willful and malicious.”  In addition, the Statute allows a court to award attorney’s fees and costs against a plaintiff who litigates a claim in bad faith. 

Under exceptional circumstances, in lieu of damages measured by another method, a court may order damages of a reasonable royalty to a trade secret holder for an unauthorized disclosure by one who misappropriates.  A court also may award punitive damages, not to exceed twice the actual damages award — a new form of relief not now available under the common law.

Other Significant Implications

The Act provides injunctive relief for an actual or threatened misappropriation.  An injunction may be in effect for an “additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.” 

An aggrieved trade secret holder is provided a three-year statute of limitations after an misappropriation is discovered or should have been discovered based on due diligence

During discovery in litigation, the Act requires a court to “preserve the secrecy of an alleged trade secret by reasonable means consistent with” court rules.
Currently, trade secret is not defined by federal statute nor are trade secrets afforded protection.  While many states have voluntarily adopted at least some part of the Uniform Trade Secrets Act, the State of New Jersey has not done so.  Compared to the Uniform Trade Secrets Act, the New Jersey Trade Secrets Act defines trade secret more broadly and provides legal means to acquire trade secrets, such as reverse engineering and independent invention.

Practical Guidance

Employers who are trade secret holders should review their confidentiality and restrictive covenant agreements and employment policies to ensure they define trade secrets in a manner consistent with the Act.  Such agreements and policies may include provisions that identify the trade secret holder’s potential remedies, to put employees and users of the trade secrets on notice of the potential recourse and remedies for an unauthorized misappropriation.  Jackson Lewis attorneys are available to assist clients in restrictive covenant and trade secret matters.

©2011 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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