Trade Secret Misappropriation in Kentucky: The Uniform Trade Secrets Act and Your Remedies

Your best salesperson leaves for a competitor. Two weeks later, your largest customers start getting calls that reference pricing only your company knew. Or the reverse: you hired someone from a competitor, and now that competitor’s lawyer is accusing your business of theft. Both scenarios land in the same body of law, the Kentucky Uniform Trade Secrets Act, and both move fast.

What the Act covers

The Kentucky Uniform Trade Secrets Act, KRS 365.880 to 365.900, protects information that meets two tests. First, it must derive independent economic value from not being generally known or readily ascertainable by proper means. Second, it must be the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Customer lists, pricing formulas, supplier terms, manufacturing processes, software, and business plans can all qualify. So can a compilation of individually public facts, if the compilation itself is valuable and kept confidential.

The second test is where many claims fail. If the “secret” was stored on an open shared drive, emailed to vendors without a confidentiality agreement, or known to every employee without any restriction, a court is unlikely to find reasonable secrecy efforts. Businesses that want protection need to act like the information is secret before the dispute arises: access controls, confidentiality agreements, marked documents, exit procedures.

What “misappropriation” means

Misappropriation under KRS 365.880 includes acquiring a trade secret by improper means (theft, bribery, misrepresentation, breach of a duty to maintain secrecy, or espionage), and disclosing or using a trade secret without consent when the person knew or had reason to know it was acquired improperly or under a duty of confidence. Independent development and reverse engineering are not misappropriation. Neither is using general skills and knowledge an employee acquired on the job; the line is between an employee’s experience, which goes with her, and the employer’s confidential information, which does not.

Remedies

Injunction. KRS 365.882 authorizes injunctions against actual or threatened misappropriation. In practice this is usually the most important remedy, because the harm from disclosure cannot be undone with money. Temporary restraining orders and preliminary injunctions under CR 65 are common at the outset, and courts can order affirmative steps such as returning or destroying materials.

Damages. KRS 365.884 allows recovery of the actual loss caused by misappropriation and the unjust enrichment of the defendant not already counted in the loss. If neither can be proven, the court may award a reasonable royalty. Where the misappropriation was willful and malicious, the court may award exemplary damages up to twice the compensatory award.

Attorney’s fees. Under KRS 365.886, fees may be awarded to the prevailing party where misappropriation was willful and malicious, where a claim of misappropriation was made in bad faith, or where a motion to terminate an injunction is made or resisted in bad faith. Fee exposure runs in both directions, which keeps weak claims and weak defenses in check.

The federal overlay

The federal Defend Trade Secrets Act, 18 U.S.C. § 1836, creates a parallel federal claim for trade secrets related to products or services in interstate commerce, with similar remedies and the option of federal court. Kentucky businesses frequently plead both. The choice of forum depends on the parties, the relief sought, and where the evidence sits.

The limitations period

KRS 365.890 requires suit within three years after the misappropriation was discovered or should have been discovered through reasonable diligence. A continuing misappropriation counts as a single claim for this purpose, so the clock does not restart each time the secret is used.

Preemption of other claims

One feature of the Act catches litigants off guard. KRS 365.892 displaces conflicting tort and other civil remedies for misappropriation of a trade secret. Claims for conversion, unjust enrichment, or unfair competition that are really trade secret claims in disguise are generally preempted. Contract claims, such as breach of a confidentiality agreement, are expressly preserved, as are claims based on conduct that is wrongful independent of the secrecy of the information.

If you are the plaintiff

Move quickly, but build the record first. Preserve the departing employee’s devices and accounts, pull access logs, and document exactly what was taken and when. Identify the trade secrets with specificity; courts do not grant injunctions over vague “confidential information.” Send a cease-and-desist to the former employee and the new employer so neither can later claim ignorance.

If you are the defendant

Do not delete anything. Separate the new hire from any information arguably belonging to the former employer and document the separation. Evaluate whether the claimed secrets were actually secret, whether the former employer took reasonable steps to protect them, and whether the employee’s knowledge is general skill rather than protected information. A thin claim pressed in bad faith exposes the plaintiff to a fee award.

Whether you are protecting your company’s information or responding to an accusation, call (859) 225-9540 or contact us online. Trade secret matters reward early, deliberate action.

Joseph D. Buckles is a civil litigation attorney at Buckles Law Office, PLLC in Lexington, Kentucky, with a focus on civil litigation and probate litigation.