Massachusetts Case: 1st Apparent "Willful and Malicious" Trade Secrets Misuse Guidance

Both the federal Defend Trade Secrets Act (DTSA) and its Bay State analogue, the Massachusetts Uniform Trade Secrets Act (MUTSA), allow for the award of exemplary (i.e., punitive) damages if the court finds that the trade secret misappropriation at issue was "willful and malicious." Neither the DTSA nor MUTSA provides a definition of what "willful and malicious" trade secret misappropriation means, however, leaving trade secret plaintiffs and defendants without a firm understanding of what standard courts will employ. Fortunately, in the recent case of KPM Analytics North America Corporation v. Blue Sun Scientific, LLC, et al., the U.S. District Court for the District of Massachusetts provided guidance on what the phrase means under both the DTSA and, for apparently the first time, MUTSA.

In April 2021, KPM Analytics North America Corp. (KPM), a Massachusetts company, filed a lawsuit against two companies, Blue Sun Scientific LLC (Blue Sun) and Innovative Technologies Group & Co. LTD (ITG), along with four former employees, on a number of counts, including trade secret misappropriation under the DTSA and MUTSA. Specifically, KPM alleged that the defendants stole their trade secrets related to Near Infrared (NIR) analyzers, which are devices that use light to determine the chemical composition of common substances in consumer products.

After a nine-day trial, a jury returned a verdict mostly in favor of KPM, including on the DTSA and MUTSA claims. Following trial, KPM filed a motion asking the court to find that the defendants' trade secret misappropriation was "willful and malicious" and for exemplary damages.

The court began by noting that both the DTSA and MUTSA provisions containing the phrase "willful and malicious" were substantially similar and, thus, analyzed both laws together. The court then noted that neither statute defined what the phrase "willful and malicious" meant and also noted that it could not locate any Massachusetts case law interpreting the phrase. Consequently, the court looked to other out-of-jurisdiction courts.

The court observed that there were generally two approaches to defining the phrase "willful and malicious," with the main difference being the interpretation of "malicious." According to the court, the minority view requires a finding of a "conscious disregard for the rights of another," while the majority view focuses on whether there is "an intent to cause injury or harm." After noting that the leading treatise on trade secrets defines malicious as an act "done with the intent to cause injury," the court likewise adopted the majority view, then went about applying this standard to the conduct of the various defendants.

As to Blue Sun, the court found that its misappropriation of KPM's trade secrets was both willful and malicious. Regarding the malice prong, the court pointed to evidence that Blue Sun sales representatives had "poisoned the NIR analyzer market" by misrepresenting KPM's ability to continue to operate and service customers and by using KPM's misappropriated customer information to undercut KPM on price with certain customers. The court also found that each of the individual defendants had willfully and maliciously misappropriated trade secrets by either using KPM's trade secrets to service Blue Sun's customers, performing work for KPM customers and billing that work to Blue Sun or deliberately soliciting KPM employees in violation of contractual obligations. (The jury did not find that ITG misappropriated trade secrets.)

The court's guidance on the definition of "willful and malicious" under both the DTSA and MUTSA should be helpful to those involved in Massachusetts trade secret misappropriation litigation or similar claims under the DTSA.