Legal Spotlight: Misappropriation of Trade Secrets in Maryland Under Ingram v. Cantwell-Cleary
The Appellate Court of Maryland in a recent decision has provided helpful guidance on handling or avoiding trade secret misappropriate claims, in Timothy Ingram, et al. v. Cantwell-Cleary Co., Inc., Slip Op. No. 421, 2023 Md. App. LEXIS 871 (Dec. 22, 2023). The precedent also is a helpful reminder about how to steer clear of such post-employment litigation entanglements in Maryland. Third, the significant wrongdoing found by the trial court here, and upheld upon appeal, underscores that many legal disputes can be avoided through due diligence and good faith.
Let’s take a look.
I. Trade Secrets in Maryland:
The Maryland Uniform Trade Secrets Act, Md. Code, Com. § 11-1201 et. seq., governs the protection of trade secrets and remedies available in an “action for misappropriation” of them, § 11-1206 (see also § 11-1201(c)). While a post-employment confidentiality provision in a written agreement also can cover trade secrets and more, the Act provides standing independent protection for trade secrets. Of course, the Act applies to bona fide trade secrets and not just business information, as defined by the statute.
The Act’s remedies can be additional to a contractual right to confidentiality within employment agreements even when they overlap, § 11-1207(b); accord Cantwell-Cleary, 2023 Md. App. LEXIS 871, at Slip Op. p. 26. The damages under the Act can be assessed either by the loss to the victim company, or by valuing the wrongdoer's gain, via unjust enrichment. § 11-1203. So, the Act provides an option to pursue damages at an optimal recovery value. While the Act provides attorney fees, the Court has discretion and it also requires proof of "bad faith" conduct and/or "willful and malicious misappropriation." § 11-1204.
A. What Is a Trade Secret under the Act?
In Maryland, a trade secret is qualified under the Act if it meets a two-part test. First, it must be “information, including a formula, pattern, compilation, program, device, method, technique, or process” that provides “economic value” through its exclusive use and restricted circulation. Second, the owner of it must have taken steps to maintain its secrecy, § 11-1201(e).
In Cantwell-Cleary, the court upheld the company’s expertise in pricing information about its customer purchasing that had been developed over decades to be a trade secret, in the context of the numerous steps the company took to protect this data. Further, the company thrived in an industry where competitive price-bidding was crucial, and so their knowledge of their own customer purchasing patterns did provide “economic value” to them and whoever else might snatch the data.
II. What Happened Here?
In Timothy Ingram, et al. v. Cantwell-Cleary Co., Inc, a family business sold packaging products to various companies at a large scale. They used vendors to make the actual products, and made profits on the margin of difference as the middle-man.
This family business had decades of experiencing doing so, and had developed detailed customer lists with data on pricing histories, customer needs, and relevant information. The company also had employees signed confidentiality agreements, and took steps to limit the circulation of the data, including banning its removal outside the company physically, on computers, and online.
The Maryland Appellate Court upheld that this detailed customer information was a trade secret providing value. Cantwell-Cleary, supra at Slip Op. pp. 1-26. The company had taken steps to keep it confidential. Id. at Slip Op. pp. 30-40. And so, this company’s data on customer purchasing history was a protected trade secret under The Maryland Uniform Trade Secrets Act.
The dispute that brought this matter to court began when the patriarch of the family died, and one son and his mother had differences of opinion on how the business should be run. The son who committed the misappropriation, along with several employees, quit, set up a competitor business, and took the company’s trade secrets with them, according to the evidence at trial. They also destroyed their non-compete and confidentiality contracts and then claimed these did not exist. The appellate court upheld these factual findings and upheld that the taking of the customer pricing history data and related information constituted a misappropriation of trade secrets. Cantwell-Cleary, supra at Slip Op. pp. 1-26.
III. Avoiding Trade Secret Disputes as an Employee.
If you work in a company with trade secrets, it is likely that you have signed an employment agreement that contracts for confidentiality for these trade secrets, or you have some specific documentation outlining the rules for handling these trade secrets in a policy document.
The company has to a duty to enact measures to keep what they consider to be ‘trade secrets’ secret in fact, compared to business information, systems, and other processes. So if you know about it, you can be cautious about it during and after employment.
Under The Maryland Uniform Trade Secrets Act, the action of misappropriation concerns using trade secrets for unauthorized benefit. This misappropriation often involves obtaining them through “improper means.” § 11-1201. In the case we just reviewed, the improper conduct is quite obvious.
So, for an employee leaving a company, acting in good faith concerning noticed trade secrets (if there are any, of course) is the best way to handle the situation. To use an example, if an employee in a bagel shop left for another job, it might be the bagel recipe was protected as a trade secret. If so, the employee should not take it with them, or copy it, or memorize and reuse it without written consent first from its owner, the former employer.
In matters where it is confusing, you should consult an attorney.
IV. Other Takeaways.
The decision of Timothy Ingram, et al. v. Cantwell-Cleary Co., Inc., Slip Op. No. 421, 2023 Md. App. LEXIS 871 (Dec. 22, 2023) provides some useful guidance in enforcing The Maryland Uniform Trade Secrets Act at court.
First, the Act can work in tandem with an employment agreement. In this case, the employer used the employment agreement to sue for injunctions to stop the competition from using their trade secrets, but used the Act to pursue monetary damages. The pleading clearly delineated this. The employment agreements had liquidated damages clauses providing for $50,000 in total damages. The Act has no such limit. The trial court awarded over $1.5 million under the Act. See, e.g., Slip Op. at 24-28.
Here, the wrongdoing employees were found to have destroyed their employment agreements, including the electronically stored copies, before they quit their jobs. The company presented circumstantial evidence that these existed, including ledger evidence of having had them signed, and further, $50 checks that each person was given for signing them. The Court upheld the finding that they existed based on this circumstantial evidence and testimony about routine company practices.
Gregg H. Mosson, Esq.
Mosson Law, LLC
ABOUT: Our founder and experienced attorney, Mr. Mosson, focuses on representing employees in claims of illegal discrimination, illegal retaliation, disability rights violations, FMLA interference, wrongful terminations, and when seeking owed wages. He also serves people seeking disability benefits from Social Security. His experience and knowledge in these areas of the law are vast and helpful to the clients he represents. For more details, visit the Web site at www.mossonlaw.com. To contact us, you can click here or call 443-226-0601.