Does South Dakota's Uniform Trade Secrets Act displace our contractual confidentiality remedies, and what counts as a protectable trade secret?
No: the Act displaces only tort and restitutionary remedies for misappropriation, and expressly preserves contractual remedies. SDCL 37-29-7 provides: "(a) Except as provided in subsection (b), this chapter displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret. (b) This chapter does not affect: (1) Contractual remedies, whether or not based upon misappropriation of a trade secret." Whether information actually qualifies as a trade secret is a separate, fact-intensive question under SDCL 37-29-1(4): information is a trade secret only if it "[d]erives 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 "[i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy." DT-Trak Consulting, Inc. v. Kolda shows that generic skill and knowledge an employee develops on the job, and materials that change too often to hold stable value, can fail that test even when a confidentiality agreement labels them proprietary: the court, quoting the employee's own brief with approval, described the protocol notes as having "changed daily[,] if not hourly, were not always customer specific," granted her summary judgment on that count, and concluded of the notes and her accumulated experience that "neither meet the definition of a trade secret enunciated in SDCL 37-29-1(4)(i)." The test it applied for that comes from Weins v. Sporleder as DT-Trak quotes it: a compilation of information or materials "cannot be considered a trade secret" if the compilation was "within the realm of general skills and knowledge in the relevant industry."
The trap
Labeling information "Confidential Information" or a "trade secret" in the contract does not make it one: DT-Trak confirms that "[t]he existence of a trade secret is a mixed question of law and fact," with the legal threshold question (could this information even qualify under § 37-29-1(4)'s first part) decided independent of the parties' own contractual label, and the remaining factual question (was it actually kept secret) decided separately. An employee's own accumulated skill, experience, and general industry know-how (as opposed to the employer's own compiled proprietary information) is the kind of thing DT-Trak found does not qualify, even where a confidentiality agreement purported to cover it. Because § 37-29-7(b)(1) preserves contractual remedies "whether or not based upon misappropriation of a trade secret," a confidentiality or non-disclosure clause can still be enforced on its own contractual terms even where the specific information at issue turns out not to meet the statutory trade-secret definition, but that contractual claim is a different cause of action from a misappropriation claim under the Act and it carries its own evidentiary burden. DT-Trak decided exactly that combination, and the employer lost it too: Count 1 pleaded the agreement's broader confidential-information category alongside a trade secret, and the court held that the record contained "no evidence other than DT-Trak's representative's speculation that Kolda has disclosed and used or will use and disclose any DT-Trak trade secret, proprietary information, or" anything else the agreement defined, adding that "use and disclosure is an integral component of DT-Trak's claim in Count 1." The disposition followed: "We conclude that summary judgment should have been granted to Kolda as a matter of law on Counts 1, 2, and 4." So a broader confidentiality clause does survive the Act, but enforcing it still needs proof of actual or threatened use and disclosure, and suspicion is not proof.
10 authorities
- statuteSDCL § 37-29-7enactment date not established
The words that state the rule
(a) Except as provided in subsection (b), this chapter displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.
- statuteSDCL § 37-29-7enactment date not established
The words that state the rule
(b) This chapter does not affect: (1) Contractual remedies, whether or not based upon misappropriation of a trade secret; (2) Other civil remedies that are not based upon misappropriation of a trade secret; or (3) Criminal remedies, whether or not based upon misappropriation of a trade secret.
- statuteSDCL § 37-29-1enactment date not established
The words that state the rule
(4) "Trade secret," information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) 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 (ii) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The words that state the rule
The “existence of a trade secret is a mixed question of law and fact. The legal question is, ‘whether the information in question could constitute a trade secret under the first part of the definition of trade secret’ under SDCL 37-29-1(4) . . . . The factual inquiry involves the remaining subsections of SDCL 37-29-1(4)(i) and (ii).”
The words that state the rule
we conclude that neither meet the definition of a trade secret enunciated in SDCL 37-29-1(4)(i).
The words that state the rule
the protocol notes, as Kolda emphasizes in her brief, “changed daily[,] if not hourly, were not always customer specific, and are not used by [Kolda] at San Carlos.” For this reason, we conclude that Kolda is entitled to summary judgment as a matter of law on Count 4.
The words that state the rule
it is difficult to conceive how these documents and Kolda’s work experience could be trade secrets or further, how Kolda is using, disclosing, or misappropriating any trade secret
The words that state the rule
In other words, the compilation of information or materials “cannot be considered a trade secret” if the compilation was “within the realm of general skills and knowledge in the relevant industry.” Weins v. Sporleder, 1997 S.D. 111, ¶ 21, 569 N.W.2d 16, 21 (cleaned up).
The words that state the rule
The record contains no evidence other than DT-Trak’s representative’s speculation that Kolda has disclosed and used or will use and disclose any DT-Trak trade secret, proprietary information, or “Confidential Information” as defined in the Agreement—and use and disclosure is an integral component of DT-Trak’s claim in Count 1.
The words that state the rule
We conclude that summary judgment should have been granted to Kolda as a matter of law on Counts 1, 2, and 4. Accordingly, we affirm the circuit court’s denial of summary judgment to DT-Trak on Count 2; reverse the circuit court’s denial of summary judgment to Kolda on Counts 1, 2, and 4; and remand for further proceedings consistent with this opinion.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.