IMED Corp. v. Systems Engineering Associates Corp.

• Decision Date: 10 July 1992
• Citation: 602 So.2d 344
• Parties: IMED CORPORATION, et al. v. SYSTEMS ENGINEERING ASSOCIATES CORPORATION, et al. 1910064-CER.
• Court: Alabama Supreme Court

Page 344

602 So.2d 344

IMED CORPORATION, et al. v. SYSTEMS ENGINEERING ASSOCIATES CORPORATION, et al.

1910064-CER.

Supreme Court of Alabama.

July 10, 1992.

R. Stan Morris of Harris, Evans, Berg, Morris & Rogers, P.C., Birmingham, for appellants.

Michael C. Quillen and William H. Pryor, Jr. of Walston, Stabler, Wells, Anderson & Bains, Birmingham, and Harold F. See, Tuscaloosa, for appellees.

HOUSTON, Justice.

The United States District Court for the Northern District of Alabama certified the following questions of law to us:

"1. Can defendant Jan Lewis be held liable under the provisions of § 8-27-3, Code of Alabama 1975, or common law, for continued uses or disclosures of a trade secret, after notice of alleged appropriation, if Jan Lewis first disclosed or used the trade secret of plaintiff(s), which allegedly had been misappropriated by a third person from whom Lewis learned the trade secret, before Lewis knew or should have known that the information used or disclosed was a trade secret and that it had been misappropriated by the third person from whom she received the secret?

"2. Can Lewis be liable if she learned the secret without notice of its having been obtained by improper means or breach of confidence, but used or disclosed it for the first time after she received such notice?

"3. Would the answer(s) to 1. or 2. be any different depending on whether the notice to Lewis comes from a plaintiff or another defendant?"

(Emphasis in original.) We note that the district court made the following distinction between the first and second questions:

"The distinction between the first two questions is that, in the first instance, Lewis used or disclosed before notice, but continued to use or disclose after notice, and, in the second instance, she learned the trade secret without notice, but thereafter obtained notice and then used the secret for the first time."

The following pertinent facts were also provided by the district court for our consideration:

"[Systems Engineering Associates Corporation, a corporation; Louis Sheppard, an individual; Sherrell Smith, an individual; David Alexander, an individual; and John O. Kramer, Jr., an individual ('Plaintiffs') ] ha[ve] sued, among other defendants, a defendant Jan Lewis, for alleged trade secret violations. Defendant Jan Lewis is a district manager of defendant IMED Corporation. Her job duties involve marketing IMED's products. Plaintiffs alleged that after Lewis first disclosed or used the alleged trade secret, she then received notice that the secret had been misappropriated by third person(s) and that Lewis continued to use or disclose the secret after this notice. It is not alleged that said defendant Lewis discovered the trade secret by improper means or that she breached a confidence reposed in her, or that she learned the secret with notice to her of its having been obtained by another by improper means or by breach of confidence. It is alleged that after Lewis had learned the secret and had used or disclosed it, she was put on notice that the secret had been obtained by breach of confidence of person(s) who disclosed it to her, and that she then continued to use or disclose it. In the alternative, it has been alleged, or may be alleged by amendment, that although Lewis did not obtain the secret by improper means or by breach of confidence reposed in her and that she first learned the secret without notice of any such misappropriation, she was later put on notice of the alleged misappropriation before she first used or disclosed the secret, and did after said notice use or disclose the secret."

(Emphasis in original.)

The parties are at issue over whether Lewis can be held liable for misappropriating a trade secret under either the Alabama Trade Secrets Act, Ala.Code 1975, § 8-27-1 et seq. ("the Act"), or the common law doctrine of trade secrets, which was first recognized in Alabama in Drill Parts & Service Co. v. Joy Manufacturing Co., 439 So.2d 43 (Ala.1983). The plaintiffs maintain that if it is possible for them to state a claim against Lewis under the Act, then our inquiry need go no further; however, if it is not possible to state a claim under the Act, then, the plaintiffs argue, we must look to the common law to answer these certified questions.

Section 8-27-3 defines "misappropriation" as follows:

"A person who discloses or uses the trade secret of another, without a privilege to do so, is liable to the other for misappropriation of the trade secret if:

"(1) That person discovered the trade secret by improper means;

"(2) That person's disclosure or use constitutes a breach of confidence reposed in that person by the other;

"(3) That person learned the trade secret from a third person, and knew or should have known that (i) the information was a trade secret and (ii) that the trade secret had been appropriated under circumstances which violate the provisions of (1) or (2), above; or

"(4) That person learned the information and knew or should have known that it was a trade secret and that its disclosure was made to that person by mistake."

(Emphasis added.)

The parties disagree as to what the emphasized language above means. According to the plaintiffs, a person is liable under § 8-27-3 if he obtains information from a third person and then "discloses or uses" that information, knowing, or possessing information from which he should know, at the time of disclosure or use that the information is a trade secret and that it had been misappropriated by the third person. However, Lewis, relying heavily on the comment to § 8-27-3, insists that a person cannot be held liable under § 8-27-3 unless he knew or should have known at the time he learned the information that it had been misappropriated by the third person. We conclude that the plaintiffs correctly interpret the Act.

The fundamental rule of statutory construction is to ascertain and give effect to the intent of the legislature in enacting the statute. Words used in a statute must be given their natural, plain, ordinary, and commonly understood meaning, and where plain language is used a court is bound to interpret that language to mean exactly what it says. If the language of the statute is unambiguous, then there is no room for judicial construction and the clearly expressed intent of the legislature must be given effect. Tuscaloosa County Comm'n v. Deputy Sheriffs' Ass'n of Tuscaloosa County, 589 So.2d 687 (Ala.1991).

Section 8-27-3 is not ambiguous. It clearly states that "[a] person who discloses or uses a trade secret of another ... is liable to the other for misappropriation ... if ... [t]hat person learned the trade secret from a third person, and knew or should have known that" he was disclosing or using a misappropriated trade secret. It would require a tortured reading of the statute for us to conclude, as Lewis suggests, that a person cannot be held liable unless he knew or should have known at the time he learned the trade secret that it had been misappropriated by the third person. Our conclusion in this regard is consistent with the purpose of the act--to protect individual property rights in trade secrets and, thereby, to foster the development of new products and technology in this state. The Alabama Law Institute's committee on trade secrets law, which drafted the Act, included the following "Preface" in its proposed legislation:

"New technology cannot always rely on the patent laws because of the time and the expense involved in obtaining a patent. The state law of trade secrets has been vital in the development of new industry and new technology. Trade secrets law enables those who develop new ideas to call upon the law to help and protect their ideas from misappropriation through espionage and breach of faith.

"Until the Alabama Supreme Court, in 1983 in Drill Parts [ & Service Co.] v. Joy Manufacturing [Co.], 439 So.2d 43, expressly recognized the common law doctrine of trade secrets it was not even clear that the doctrine existed in Alabama. With that decision Alabama businesses could rely on the law of trade secrets. But with only one case many questions remain about the scope and content of trade secret law in Alabama.

"The Alabama Law Institute Committee on trade secret law has drawn heavily from the common law as embodied in the Restatement of Torts and case law, and has reviewed the Uniform Trade Secrets Act and the trade secrets acts of other states. The Committee has drafted a forward-looking trade secrets act that will help to make Alabama attractive to high technology and other innovative industries.

"The Act provides significant protection to trade secret owners while drawing a fairly distinct line between that which is a trade secret and that which is not. Therefore, the users of ideas are secure both in protecting their trade secrets and in knowing what they are free to use without fear of misappropriating the trade secrets of others."

The Act itself is also illustrative of its purpose. ¹ The purpose underlying the Act would surely be thwarted if a person, although innocently acquiring a trade secret from a third person, could nonetheless disclose or use that trade secret with impunity after being placed on notice that the trade secret had been misappropriated by the third person. Likewise, our interpretation of the act is consistent with the common law doctrine of trade secrets, which as previously noted, was recognized approximately four years before the effective date of the Act in Drill Parts & Service Co. v. Joy Manufacturing Co., supra. Section 758B, Restatement of Torts (1939), provides:

"One who learns another's trade secret from a third person without notice that it is secret and that the third person's disclosure is a breach of his duty to the other, or who learns the secret through a mistake without notice of the secrecy and mistake,

"....

"(b) is liable to the other for a disclosure or use of the secret after...