By Milton E. Babirak, Jr.
Babirak, Vangellow & Carr P.C.
The Maryland Uniform Trade Secrets Act (hereinafter “Maryland Act”)2 was enacted in Maryland, with some modifications to the Uniform Trade Secrets Act3, and became effective on July 1, 1989. In light of the seemingly ever increasing application of the Maryland Act in contemporary litigation, it is appropriate at this time to review the significant provisions of the Maryland Act as well as discuss recent Maryland trade secret case law.
- The Maryland Uniform Trade Secrets Act
- Definition of “Trade Secret”
“[A]n exact definition of a trade secret is not possible.”4 In recognition of this difficulty, the Maryland Act definition of a trade secret is not specific and is defined as any “information, including but not limited to, a formula, pattern, compilation, program, device, method, technique or process.”5 The definition of a trade secret does not require that the information exist in some tangible format or be a high tech secret.6 It need not be more than an idea, theory or concept. Further, this definition of a trade secret does not require that the trade secret be novel.7 The definition does not impose any limit on the length of time that a trade secret can be protected, and may be protected as long as its secrecy is maintained, it is not generally known, and it is not readily ascertainable.
- Requirement That Trade Secret Not Be Generally Known
The Maryland Act definition of a trade secret further requires that the trade secret not be generally known.8 In trade secrets cases, the requirement that the information not be generally known is often a vigorously contested issue and it can be a close factual issue for a judge or jury to decide. For example, consider whether a particular method of selling a product is or is not generally known. A company may argue that it has developed a particular sales method on which it has spent considerable time and money, while maintaining the strict secrecy of the method. On the other hand, a departing employee of that company who wants to use the method for her own benefit may argue that the method is most certainly generally known because you can simply read a book on sales or marketing to find information on almost any sales method or because competitors of the company use the same or a similar method. This scenario is not unlikely in a mature competitive industry.
- Requirement That Trade Secrets Not Be Readily Ascertainable
The Maryland Act also requires that a trade secret not be readily ascertainable by proper means, such as discovery by independent invention or reverse engineering.9 The requirement that a trade secret not be readily ascertainable is a factual issue which is often litigated. A common example in trade secret litigation is the case of a departing employee who takes the customer list with him to a competing business. The former employer of the departing employee will argue that its customer list was developed only after many years of effort and great expenditures on advertising and client development. On the other hand, the departing employee, who has appropriated the list, will argue that the list is comprised of information which is readily ascertainable through publicly available sources.
- Requirement of Reasonable Efforts to Maintain Secrecy
The Maryland Act also provides that a trade secret is protectable only if it “…is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”10 Generally speaking, if trade secret information is disclosed to outsiders or the public, trade secret protection is lost. Trade secret protection is not lost if the trade secret is disclosed in confidence to those who need to know it, such as employees or subcontractors.11 However, courts have also interpreted the Act to require that a trade secret owner demonstrate that he pursued an active course of conduct to keep the information secret.12
Lawyers can provide an important service to their clients by advising them to implement a trade secret protection program. Today’s numerous trade secret law suits are ad hoc testimonials to the fact that many companies still do not take measures that are reasonable under the circumstances to protect their trade secrets.13
- Definition of Misappropriation
The language of the Maryland Act defines the misappropriation of a trade secret as the “. . . acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or the disclosure or use of a trade secret of another without express or implied consent . . ..”14 Misappropriation by improper includes “. . . theft, bribery, misrepresentation, breach of a duty or inducement of a breach of a duty to maintain secrecy . . ..”15 Interestingly, the Act also defines misappropriation as the mere acquisition of a trade secret. The Fourth Circuit has held that the mere acquisition of a trade secret of another by improper means is a sufficient misappropriation under the Maryland Act.16
- Other Provisions of the Act
Because of the nature of trade secrets cases, monetary damages may be an inadequate remedy and injunctive relief may be necessary. In recognition of this, section 11-1202(a) of the Maryland Act specifically provides that a court may order an injunction in the case of actual or threatened misappropriation. The court order imposing the injunction can specify that the injunction shall terminate when the trade secret has ceased to exist or continue for an even longer period in order to eliminate any commercial advantage that otherwise would be derived from the misappropriation.
Importantly, this equitable form of relief is also encompassed in the doctrine of inevitable disclosure. The inevitable disclosure doctrine is applied to enjoin or limit the subsequent employment of a departing employee who leaves the employment of his employer to work for a competitor of his employer at a job where it is alleged that it is inevitable that the employee will use or disclose the trade secrets of his employer in order to perform his new job at the employer’s competitor.17 However, the Court of Appeals of Maryland, in LeJeune v. Coin Acceptors, Inc., rejected the inevitable disclosure doctrine, holding that inevitable disclosure did not serve as a basis for granting a plaintiff injunctive relief under the Maryland Act because it created a de facto covenant not to compete and ran counter to the strong public policy favoring employee mobility.18
Damages and Attorney’s Fees
Section 11-1203 of the Maryland Act provides that damages for the misappropriation of a trade secret can include damages for actual loss to the trade secret owner and unjust enrichment damages or, in lieu of other damages, damages measured by a reasonable royalty.19
Measuring damages by a royalty amount instead of by actual loss or unjust enrichment may be advantageous for some plaintiffs. Plaintiffs may not easily be able to determine their own actual losses because the defendant has kept secret his misappropriation and the plaintiff may not be aware of, or be able to reasonably calculate the effects of
the defendant’s misappropriation on plaintiff’s business. A royalty amount may be much easier for the plaintiff to prove because plaintiff has the information concerning its trade secret and may already know its value. From a defendant’s point of view, measuring damages by a royalty amount may be disadvantageous. The defendant may have had the secret for only a short time and may not have been able to use it to its full potential.
Exemplary damages may also be awarded under section 11-1203(d) of the Maryland Act if there is a finding of willful and malicious misappropriation.20 In addition, section 11-1204 of the Maryland Act provides that the Court may award reasonable attorney’s fees to the prevailing party if there is willful and malicious misappropriation or if the claim of misappropriation is made in bad faith.21
Preservation of Secrecy and Statute of Limitations During the course of a court proceeding, section 11-1205 of the Maryland Act requires that a court preserve the secrecy of any alleged trade secret by reasonable means which may include protective orders or sealed records.22 Quite frequently in trade secret litigation, the alleged trade secrets of both plaintiff and defendant are discoverable. In such cases, counsel for both parties may negotiate, prepare, and submit to the court a stipulated protective order, applicable to all parties, restricting the disclosure of information in discovery, depositions, and at trial.
Section 11-1206 of the Maryland Act sets forth a statute of limitations of three years for misappropriation actions. This three year period starts after the misappropriation is discovered or should have been discovered by the exercise of reasonable diligence.
After seventeen years since the Maryland Uniform Trade Secret Act’s enactment, Maryland courts have decided numerous cases under the Act which have interpreted its provisions. A critical review of the Act and much of the reported Maryland trade secrets case law suggests that the Maryland Act currently meets the needs of trade secret litigants for a unified and comprehensive body of law. This case law also suggests that many Maryland businesses are not making efforts that are reasonable under the circumstances to maintain the secrecy of their trade secrets. Accordingly, Maryland lawyers should advise their clients as to the need for a comprehensive and demonstrable program to establish and maintain efforts that are reasonable under the circumstances to maintain the secrecy of such trade secrets.
1This article is derived from a law review article entitled The Maryland Uniform Trade Secrets Act: A Critical Summary of the Act and Case Law, 31 U. Balt. L. Rev. 181 (2002).
2Md. Code Ann., Com. Law II § 11-1201 to 1209 (2000).
3Uniform Trade Secrets Act, 14 U.L.A. 437, et seq. (1990).
4See, Restatement of Torts, § 757, comment b.
5Md. Code Ann., Com. Law II § 11-1201(e).
6See, e.g., Home Paramount v. FMC, 107 F. Supp. 2d 684, 692 (2000) (holding that a customer list is a trade secret).
7See, e.g., Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974) (noting that “novelty in the patent law sense is not required for a trade secret”).
8See, Md. Code Ann., Com. Law II § 11-1201(e)(1) (stating that a required element of a trade secret is that it “[d]erives independent economic value, actual or potential from not being generally known”).
9Uniform Trade Secrets Act, §1, 14 U.L.A. 439 (1990) Commissioners’ Comment.
10Md. Code Ann., Com. Law II § 11-1201(e)(2). See also, Trandes Corp v. Guy F. Atkinson Co., 996 F.2d 655, 657 (4th Cir. 1993) (holding that the trade secret owner made reasonable efforts to maintain secrecy).
11Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475 (1974).
12Jet Spray Cooler, Inc. v. Crampton, 282 N.E.2d 921, 925 (Mass. 1972)
13See, Richard C. McCrea, Jr., Protecting Trade Secrets & Confidential Business Information (with Forms) 44 No. 5 Prac. Law. 71 (July 1998).
14Md. Code Ann., Com. Law II § 11-1201.
15Id. at § 11-1201(b).
16See, Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 657 (4th Cir. 1993).
17See supra note 1 for a more complete discussion of inevitable disclosure doctrine.
18See, LeJeune v. Coin Acceptors, 381 Md. 288 (2003) (citing Milton Babirak, Jr., The Maryland Uniform Trade Secrets Act: A Critical Summary of the Act and Case Law, 31 U. Balt. L. Rev. 181 (2002)).
19Md. Code Ann., Com. Law II § 11-1203.
20Md. Code Ann., Com. Law II § 11-1203(d).
21See, e.g., Optic Graphic v. Agee, 87 Md. App. 770 (1991).
22Id. at § 11-1205.