FOR PUBLICATION
FILED
Aug 10 2012, 8:26 am
CLERK
of the supreme court,
court of appeals and
tax court
ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
JUDY S. OKENFUSS GARY P. PRICE
THOMAS E. MIXDORF SARA R. BLEVINS
BRIAN J. PAUL MATTHEW S. TARKINGTON
STEPHEN E. REYNOLDS Lewis & Kappes, P.C.
Ice Miller, LLP Indianapolis, Indiana
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
HDNET LLC, )
)
Appellant, )
)
vs. ) No. 49A02-1112-PL-1146
)
NORTH AMERICAN BOXING COUNCIL, )
)
Appellee. )
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Thomas J. Carroll, Judge
Cause No. 49D06-0803-PL-12012
August 10, 2012
OPINION – FOR PUBLICATION
DARDEN, Senior Judge
STATEMENT OF THE CASE
HDNET LLC (“HD”) appeals the trial court’s grant of partial summary judgment
in favor of North American Boxing Council (“NABC”).
We reverse and remand.
ISSUES
1. Whether the trial court erred in determining as a matter of law that
the Indiana Uniform Trade Secrets Act (“IUTSA”) did not preempt
NABC’s common law claim for idea misappropriation where the
claim did not rise to the level of a statutorily-defined trade secret.
2. Whether the trial court erred in determining as a matter of law that
the IUTSA did not preempt NABC’s statutory claim for civil
conversion of its idea.
FACTS
HD is a television channel that broadcasts exclusively in high-definition via cable
and satellite. Its programming is varied and has included mixed martial arts (“MMA”).
NABC is a professional boxing and MMA sanctioning body.
In 2007, HD and NABC exchanged a series of e-mails discussing a broadcast
arrangement involving HD’s broadcast of MMA events and the future development of
weekly broadcasts of a MMA fight series. Included in one of the e-mails was
information wherein NABC outlined how NABC and HD could develop a “unique
branded fight series for [HD]” that was significantly different from the “single entity”
model then in use by the major players in the MMA industry. (App. 19). Further
discussions between the parties fleshed out the information outlined in the e-mail. The
2
parties did not enter into a contract; however, NABC considered the information
communicated to HD to be a protectable commercial idea.
On March 17, 2008, NABC filed a complaint against HD in which it alleged the
following facts:
On or about August 22, 2007, [Mark Cuban, HD’s owner] formed HDNet
Fights. HDNet Fights is a Delaware corporation with principal offices in
Dallas, Texas and Denver, Colorado. HDNet Fights, upon information and
belief, was formed for the purpose of operating a business that sanctions,
promotes and broadcasts mixed martial arts using the confidential and
proprietary information of NABC.
****
NABC has been deprived of the value of its confidential, proprietary
information, despite the promises of HDNet. NABC seeks recovery of all
monies derived from HDNet’s unlawful usurpation of NABC’s information
and business opportunity.
(App. 22, 24). Based upon these facts, NABC alleged the following: Count I: Idea
Misappropriation; Count II: Unfair Competition; Count III: Breach of Oral Contract;
Count IV: Breach of Implied Covenant of Good Faith and Fair Dealing; Count V:
Negligence; Count VI: Misappropriation of Trade Secrets; Count VII: Conversion of
Trade Secrets; and Count VIII: Promissory Estoppel.
In its May 31, 2011 scheduling order, the trial court acted upon a request by the
parties and instructed them to file appropriate motions and supporting memoranda
addressing the preemption provision of the IUTSA and its application to NABC’s idea
misappropriation and conversion claims. On June 10, 2011, NABC filed a motion for
3
partial summary judgment addressing the preemption provision and NABC’s claim of
Count I: Idea Misappropriation and Count VII: Conversion of Trade Secrets,1 and HD
filed a response. The trial court held a hearing on the matter, and on October 18, 2011, it
granted partial summary judgment, finding that NABC’s claims were not preempted
under the IUTSA.
On November 15, 2011, HD filed a motion to certify the trial court’s order for
interlocutory appeal, which the trial court granted. On February 3, 2012, we granted
HD’s motion to accept jurisdiction.
DECISION
Standard of Review
HD contends that the trial court erred in granting partial summary judgment on
NABC’s claim that the IUTSA does not preempt NABC’s common law idea
misappropriation and civil conversion counts. Summary judgment is appropriate where
there is no genuine issue of material fact and the moving party is entitled to judgment as a
matter of law. Ind. Trial Rule 56(C). Questions of statutory construction are particularly
amenable to resolution by summary judgment, as they are pure questions of law.
Koppin v. Strode, 761 N.E.2d 455, 460 (Ind. Ct. App. 2002), trans. denied. We review
questions of law de novo and owe no deference to the trial court’s legal conclusions. Id.
1
Although NABC characterized Count VII in its complaint as the conversion of “trade secrets,” it
referred to the count in its motion for summary judgment on preemption simply as “conversion” and
contended that it could assert such an independent claim even if it failed to prove a trade secret. (App.
885).
4
Background of the Uniform Trade Secrets Act (“UTSA”) and the IUTSA
The UTSA was drafted by the National Conference of Commissioners on Uniform
State Laws (“Commissioners”) in 1979 and amended in 1985. 14 Uniform Laws
Annotated, Uniform Trade Secrets Act With 1985 Amendments, 529, 530 (historical
notes) (2005). The Commissioners expressed the following rationale for drafting of the
UTSA:
Notwithstanding the commercial importance of state trade secret law to
interstate business, this law has not developed satisfactorily. In the first
place, its development is uneven . . . Secondly, even in states in which there
has been significant litigation, there is undue uncertainty concerning the
parameters of trade secret protection, and the appropriate remedies for
misappropriation of a trade secret.
Id. at 531. The Commissioners intended that the UTSA “be applied and construed to
effectuate its general purpose to make uniform the law with respect to the subject of this
Act among states enacting it.” Id. § 8 at 656 (brackets omitted). This general purpose
has been stated as follows:
[T]o create a uniform business environment [with] more certain standards
for protection of commercially valuable information, and to preserve a
single tort action under state law for misappropriation of trade secret as
defined in the statute and thus to eliminate other tort causes of action
founded on allegations of misappropriation of information. If the UTSA’s
preemption provision only preempted claims of misappropriation of
information that meets the statutory definition of a “trade secret,” the
provisions purpose would be undermined. In every instance where a
plaintiff could not meet the statutory requirements of the Uniform Act, the
court would be forced to re-analyze the claim under the various common
law theories. Such a result would undermine the uniformity and clarity that
motivated the creation and passage of the Uniform Act.
5
Firetrace USA, LLC v. Jesclard, 800 F. Supp.2d 1042, 1048-49 (D. Ariz. 2010),
reconsideration denied (citations omitted).
In 1982, Indiana adopted the UTSA “substantially as promulgated by the
[Commissioners].” Amoco Prod. Co. v. Laird, 622 N.E.2d 912, 917 (Ind. 1993). The
Prefatory Note to the UTSA declares not only that the act is “a substitution for unitary
definitions of trade secret, but that it ‘also codifies the results of the better reasoned cases
concerning the remedies for trade secret misappropriation.’” Id. (quoting 14 Uniform
Laws Annotated, Uniform Trade Secrets Act With 1985 Amendments, 435 (prefatory
note) (1990)). “It is thus apparent that Indiana legislators, adopting the UTSA, sought the
uniform application of the UTSA definitions of trade secret consistent with the
application of the act in other adopting jurisdictions.” Id. Therefore, “case law from
other UTSA jurisdictions becomes relevant authority for construction of trade secret law
in Indiana.” Id. at 918.
The IUTSA contains two provisions that are central to the case before us. Indiana
Code section 24-2-3-1(b) provides that the IUTSA “shall be applied and construed to
effectuate its general purpose to make uniform the law with respect to the subject matter
of this chapter among states enacting the provisions of this chapter.” Indiana Code
section 24-2-3-1(c), the preemption provision, provides that the IUTSA “displaces all
conflicting law of this state pertaining to the misappropriation of trade secrets, except
6
contract law and criminal law.”2 This preemption provision is stronger than that found in
either the 1979 or 1985 versions of the UTSA. Infinity Prod., Inc. v. Quandt, 810 N.E.2d
1028, 1033 (Ind. 2004); AGS Capital, 884 N.E.2d at 307.
Rules of Statutory Construction
In statutory construction, our primary goal is to ascertain and give effect to the
intent of the legislature. U.S. Steel Corp. v. Northern Ind. Pub. Serv. Co., 951 N.E.2d
542, 553 (Ind. Ct. App. 2011), trans. denied. The language of the statute itself is the best
evidence of legislative intent, and we must give all words their plain and ordinary
meaning unless otherwise indicated by the statute. Id. Furthermore, we presume that the
legislature intended statutory language to be applied in a logical manner consistent with
the statute’s underlying policies and goals. Id. We must read the statute as a whole and
excessive reliance on a strict literal meaning should be avoided. Jones v. Farmers Mut.
Ins. Co., 926 N.E.2d 116, 121 (Ind. Ct. App. 2010).
1. Idea Misappropriation
NABC contends that the IUTSA is unambiguous, and that if the language of the
preemption provision of Indiana Code section 24-2-3-1 is given its plain meaning, then it
applies only to actions where a “conflicting law” that “pertains” to the misappropriation
2
AGS Capital Corp. v. Prod. Action Int’l, LLC, 884 N.E.2d 294, 308 n.4 (Ind. Ct. App. 2008) and courts
across the country have used the term “preemption” as a synonym for “displace.” We follow their lead.
7
of “trade secrets” is at issue. NABC reasons that the preemption provision applies only
to “trade secrets” and that its claim of idea misappropriation does not “pertain” to a
“trade secret” as the term is used in the IUTSA. Thus, NABC concludes that its idea
misappropriation claim cannot be “conflicting law.” NABC claims that any other
construction would read more into the statute than the plain language allows. NABC’s
Br. at 12-13.
As stated above, one essential goal of the UTSA is to make uniform the law of the
states adopting it. Indeed, our legislature specifically adopted this goal in Indiana Code
section 24-2-3-1(b). NABC’s construction of the preemption provision completely
disregards the legislature’s directive that the IUTSA is to be “applied and construed to
effectuate its general purpose to make uniform the law . . . .” Thus, NABC fails to read
Indiana Code section 24-2-3-1 as a whole, ignoring subsection (b) to excessively rely on
the isolated terms of subsection (c). The result is a narrow reading of the IUTSA that
does not comport with the intent of our legislature or the majority of courts that have
analyzed the preemption provisions of their uniform trade secret acts.
NABC’s construction of IUTSA’s preemption provision is reminiscent of that
proposed by the plaintiff in BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 123 Hawai’i
314, 235 P.3d 310, 319 (Haw. 2010), wherein BlueEarth argues that
the plain language of the preemption provision [“HUTSA”] . . . refers only
to “trade secrets” as defined by the Act. The preemption provision nowhere
refers to “other confidential information.” It follows, then, that the statute
only anticipates preemption of common law claims involving trade secrets.
8
Since there is no statutory language regarding preemption of other
confidential information not rising to the level of trade secrets, there is no
reason to think such preemption was intended.3
In rejecting BlueEarth’s construction of the Hawai’i preemption statute, the
Supreme Court of Hawai’i recognized that a minority of courts have adopted the “plain
language” construction of USTA-inspired state statutes. However, the BlueEarth court
joined the majority of jurisdictions in holding that the USTA’s preemption provision
“abolishes all free-standing alternative causes of action for theft or misuse of
confidential, proprietary, or otherwise secret information falling short of trade secret
status (e.g. idea misappropriation, information piracy, theft or commercial information,
etc.).” Id. at 321 (quoting Hauck Mfg. v. Astec Indus., 375 F. Supp.2d 649, 655 (E.D.
Tenn. 2004)).
The rationale for these majority decisions has been explained as follows:
3
(a) Except as provided in subsection (b) of this chapter, 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;
(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.
HRS § 482B-8 (2008).
9
States adopting statutory provisions analogous to the UTSA’s section 7
intend that at least some prior law relating to the protection of commercial
information be displaced. Permitting litigants in UTSA states to assert
common-law claims for misappropriation or misuse of confidential data
would reduce the UTSA to just another basis for recovery and leave prior
law effectively untouched. Further, by expressly exempting “contractual
remedies, whether or not based upon misappropriation of a trade secret”
and “other civil remedies that are not based upon misappropriation of a
trade secret” from its preemptive penumbra, the UTSA makes clear that
only those claims addressing or arising out of wrongs distinct from pure
information piracy survive passage of the trade secret statute. Indeed,
contrary interpretations of the UTSA’s “Effect on Other Law” provision . . .
effectively negate the UTSA’s goal of promoting uniformity in “trade
secrets” law. Additionally, these contrary interpretations render the
statutory preemption provision effectively meaningless.
Id. at 321-22 (quoting Unikel, Bridging the “Trade Secret” Gap, 29 Loy. U. Chi. L.J. at
887-88 (footnotes omitted)). The UTSA creates a “two-tiered” approach to protection of
commercial knowledge, under which “information is classified only as either a protected
‘trade secret’ or unprotected ‘general skill and knowledge.’” Id. at 322 (quoting Unikel
at 867-68 (footnote omitted)).
Although such an interpretation of Indiana Code section 24-2-3-1(c) seems harsh,
we emphasize that our statute does not preempt claims for misappropriation of
information or ideas that are protected by contract. See BlueEarth, 235 P.3d at 322. To
the extent that a plaintiff is seeking to recover for the defendant’s misappropriation of
plaintiff’s intellectual property, it is seeking to recover for misappropriation of trade
secrets. These secrets are protected under the IUTSA, and
a plaintiff who complains of the defendant’s use of its information, but who
cannot prove that the information is secret, should not be able to rely on
10
one of these [common law] torts (or any other common law variants) to
bypass the requirement that it prove secrecy. If trade secret law does not
preempt these torts, the point of the secrecy requirement will be lost, and
with it the benefits of dissemination of new inventions.
Id. (quoting Mark A. Lemley, The Surprising Virtues of Treating Trade Secrets as IP
Rights, 61 Stanford L.Rev. 311, 345-46 (Nov. 2008). In short,
A claim cannot be preempted or not preempted based entirely upon whether
or not the information at issue qualifies as a trade secret. If the information
is a trade secret, the plaintiff’s claim is preempted: if not, the plaintiff has
no legal interest upon which to base his or her claim. Either way, the claim
is not cognizable.
Hauck, 375 F. Supp.2d at 657.
NABC’s interpretation of the IUTSA would encourage piece meal litigation and
would thus fail to implement the legislature’s intended goal of uniformity. Accordingly,
we conclude that the trial court’s summary judgment order is erroneous as a matter of
law.4
4
Although the parties do not address the standard of proof, we note that the standard is important. As one
court has stated:
[P]erhaps a better formulation of the UTSA preemption standard would be a “same
proof” standard under which a claim will be preempted when it necessarily rises or falls
based on whether the defendant is found to have “misappropriated” a “trade secret” as
those two terms are defined in the UTSA. Stated another way, if proof of a non-UTSA
claim would also simultaneously establish a claim for misappropriation of trade secrets, it
is preempted irrespective of whatever surplus elements or proof were necessary to
establish it.
Hauck, 375 F. Supp.2d at 658.
11
2. Conversion
HD contends that the trial court erred in granting summary judgment on NABC’s
civil conversion claim. In evaluating HD’s contention, it is important to understand
NABC’s argument. First, NABC claims that its civil conversion claim falls within the
preemption provision of the IUTSA, which as stated above, provides that the IUTSA
“displaces all conflicting law of this state pertaining to the misappropriation of trade
secrets, except contract law and criminal law.” I.C. § 24-2-3-1(c). NABC points to AGS
Capital as particularly instructive. In AGS Capital, we examined a civil RICO claim
related to the theft of trade secrets and specifically addressed the question of whether that
claim was preempted by the IUTSA. 884 N.E.2d at 306. We held that the RICO claim
was not preempted by the IUTSA because the civil remedy is derivative of criminal law.
Id. at 308.
NABC argues that civil conversion is also “derivative” of criminal law because it
provides a civil remedy for a crime.
However, our analysis in AGS Capital is more nuanced than NABC’s reading of
the case. In reaching our conclusion in AGS Capital, we considered that civil RICO and
criminal RICO were part of the same statutory scheme having a significant deterrent
purpose. Id. at 308. Although the civil and criminal RICO statutes were codified in
12
different locations in the Indiana Code, they were enacted as part of the same public law.5
In AGS Capital, we emphasized that the civil RICO statute was part of a conscious one-
two punch adopted by the legislature to combat “the more sinister forms of corruption
and criminal activity.” Id. We stated:
[T]he preemption provision of IUTSA should not prohibit RICO from
fulfilling its purpose where the form of the corruption involves the
systematic acquisition of economically valuable information through the
artifice of competitors’ employees in order to gain an unlawful economic
advantage in the marketplace. RICO is structured to reach and punish these
diabolical operations that are a greater threat to society than random theft.
In consideration of the purpose and goals of the entire RICO framework,
we conclude that the civil remedy portion providing for a private action is
derivative of the criminal law. Thus, this type of action is not preempted by
IUTSA.
Id. We further explained that our ruling would result in a greater disincentive for the
“strategic, repetitive theft of trade secrets” because under the civil RICO provision treble
damages and attorney fees are mandatory, whereas under the IUTSA they are
discretionary. Id. at 308-09. It is for these reasons that the civil RICO statute is
“derivative,” not simply because it provides a civil remedy for a crime.
The same is not true of the Crime Victim’s Relief Act (“the Act”), which contains
Indiana Code section 34-24-3-1, the statute that defines civil conversion. The Act was
5
The civil RICO statute, Indiana Code section 34-24-2-6 (formerly Indiana Code section 34-4-30.5-5),
and the criminal RICO statute, Indiana Code section 35-45-6-2, were both enacted by P.L. 199-1980.
13
not enacted as part of the same statutory scheme as criminal conversion. 6 The Act is not
part of a one-two punch—or “two fronts and a field of land mines to deter and ultimately
eliminate egregious and schematic criminal activity”—that makes up the unique RICO
statutory scheme. See AGS Capital, 884 N.E.2d at 308. Rather, the Act provides a civil
remedy for a host of crimes, including random theft. Its focus is on providing the victim
“relief” for the alleged crime, allowing him or her to recover attorney fees and costs in
pursuing the action. See I.C. § 34-24-3-1. Thus, it is not “derivative” in the way that we
held that the civil RICO statutory scheme is derivative of the criminal RICO scheme.
The upshot is that NABC’s civil conversion allegation does not delineate a
criminal act; it merely outlines another allegation of civil misappropriation of NABC’s
ideas. Thus, the conversion action is not saved by the criminal law exception to the
IUTSA’s preemption provision.
CONCLUSION
The IUTSA is intended to foster uniformity in the definition of state laws, and a
party may not read this design out of the statutory scheme under the guise of “plain
language” or any other rule of construction. NABC’s “plain language” reading of
IUTSA’s preemption provision lays waste to both legislative intent of the IUTSA and the
overall intent of the UTSA. Accordingly, the trial court erred in granting summary
judgment on NABC’s idea misappropriation claim.
6
The civil conversion statute is part of the Crime Victim’s Relief Act that was enacted by P.L. 26-1977,
while the criminal conversion statute, Indiana Code section 35-43-4-3, was enacted by P.L. 148-1976.
14
NABC’s civil conversion claim does not fall within the “criminal law” exception
to the IUTSA’s preemption provision. Therefore, the trial erred in granting summary
judgment on the claim.
Reversed and remanded for further proceedings.
FRIEDLANDER, J., and BROWN, J., concur.
15