Navigating the New Jersey Trade Secrets Act And Other Claims Against Departing Employees

August 12, 2016Articles Garden State Gavel Blog

While the New Jersey Trade Secrets Act has been in effect since January of 2012, there have been no reported cases interpreting the Act until this year when the Court considered Baxter Healthcare Corporation v. HQ Specialty Pharma Corporation. In some ways, the Baxter case raises more questions than it resolves on the issue of an employer’s exposure to misappropriation claims brought by an employee’s former employer. Given the potential for punitive damages under the Act, employers should carefully consider the Court’s analysis of the claims in Baxter when an employee from a competing organization is hired.

One month after leaving Baxter, a scientist began discussions with HQ Specialty Pharma (“HQ”) about a proposal to develop a product similar to one that he worked on during his employment by Baxter. Baxter asserted tortious interference with contractual or business relationships and misappropriation of trade secrets, based on HQ’s employment of Baxter’s former scientist who, while working for the company, assisted with a formulation of a patent. The scientist had entered a nondisclosure and employment agreement barring the disclosure or use of any of Baxter’s confidential information.

When HQ hired the scientist, HQ inquired regarding the employee’s contractual obligations to Baxter and repeatedly received assurances that the employee was not violating any contractual duties to his former employer. This conduct of inquiry supported a dismissal of Baxter’s tortious interference claim against HQ, but also potentially supported a misappropriation claim because according to the Court’s analysis, the inquiry itself demonstrated that HQ had a “reason to know” misappropriation may have occurred.

Baxter’s tortious interference claim was subject to the four (4) prong test elucidated in Vosough v. Kierce, 437 N.J.Super. 218, 234 (App. Div. 2014), requiring Baxter to demonstrate:

  1. a protected interest – either a prospective economic or contractual relationship;

  2. malice, i.e., intentional interference without justification;

  3. a reasonable likelihood that the interference caused the loss of the (prospective economic or contractual) gain; and

  4. resulting damages.

The Court made clear that “malice” requires intentional conduct with respect to a known contractual duty of another, and that the “should have known” standard is not enough to show intent. According to the Court, the evidence did not show that HQ acted with malice – HQ had no actual knowledge of the employee’s prior agreements barring his disclosure of confidential information or subsequent employment with a competitor. Without evidence before the Court that HQ engaged the employee with a desire to harm Baxter or otherwise to interfere with its contractual and business relationships, the Court dismissed the tortious interference claim. But not so fast…stay tuned for the analysis of the misappropriation claim.