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CUTSA Preemption in Colorado Redux

Posted by James Juo | Jun 17, 2022 | 0 Comments

A Colorado state district court has revisited how to analyze whether a common law claim is preempted by the Colorado Uniform Trade Secrets Act (“CUTSA”) in CORE Consultants, Inc. v. Ferran, No. 2021CV31719, 2022 WL 20407191 (Colo. Dist. Ct. May 19, 2022).

Two Analytical Approaches: “Elements” and “Facts”

“Some determine whether the common law claim at issue has an additional or qualitatively different element than a misappropriation claim; if it does, the common law claim is not preempted.” In support, the court cited Powell Prod., Inc. v. Marks, 948 F. Supp. 1469, 1474 (D. Colo. 1996); Nucor Corp. v. Bell, 482 F. Supp. 2d 714, 725 (D.S.C. 2007); Stolle Mach. Co., LLC v. RAM Precision Indus., 605 F. App'x 473, 484 (6th Cir. 2015) (discussing the different approaches).

Other courts, however, “hold that to the extent a common law claim arises out of a set of facts involving the misappropriation of trade secrets (or, depending on the court, confidential non-trade secrets information), it is preempted.” Cases cited by the Court included Arthur J. Gallagher & Co. v. Tarantino, 498 F. Supp. 3d 1155, 1175 (N.D. Cal. 2020) (holding that California law, by statute, includes a “nucleus of facts” standard); BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 235 P.3d 310, 323 (Haw. 2010) (applying Hawaii law).

CORE Redux, the Factual Approach

The court found “the factual analysis approach to be the most sound.”

That is, to determine whether a claim is preempted, a court should analyze whether the claim is factually based on misappropriation of trade secrets. As an initial matter, C.R.S. § 7-74-108(2)(b) excludes from preemption “[o]ther civil remedies that are not based upon misappropriation of a trade secret.” The “based upon” language strikes the Court as directing a factual inquiry. Additionally, and critically, it appears few courts outside of the District of Colorado have followed the “elements” approach identified in Powell in the last two decades. Cf. NW Monitoring LLC v. Hollander, 534 F. Supp. 3d 1329, 1338 (W.D. Wash. 2021) (“prevailing view” focuses on facts, not elements); see also Unisource Worldwide, Inc. v. Swope, 964 F. Supp. 2d 1050, 1058 (D. Ariz. 2013) (“broader [than the elements approach] conception of preemption does more than its narrow counterpart to both further uniformity and reduce the possibility of duplicative recoveries”). Thus, applying a factual analysis will further the goal of the law in promoting uniformity across states.

Furthermore, Colorado's definition of “trade secrets” in C.R.S. § 7-74-102(4) (reproduced below) “is different from, and significantly broader than, that in many states,” such that it “reasonably encompasses all confidential commercial information.”

‘Trade secret' means the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value. To be a ‘trade secret' the owner thereof must have taken measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes.

Thus, a Colorado common law claim based on “trade secret and/or confidential business information,” which are plainly encompassed by C.R.S. § 7-74-102(4), may be preempted under C.R.S. § 7-74-108.

The trade secret attorneys at Thomas P. Howard, LLC litigate nationwide including in Colorado.

About the Author

James Juo

James Juo is an experienced intellectual property attorney. He has successfully litigated various intellectual property disputes involving patents, trademarks, copyrights, and trade secrets. He also has counseled clients on the scope and validity of patent and trademark rights.


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