The Maryland appellate court's recent decision in Ingram v. Cantwell-Cleary Co., Inc., No. 421, 2023 Md. App. LEXIS 871 (Md. App. Dec. 22, 2023) goes to great lengths to lay out the criteria required in order for information to qualify as a "trade secret" worthy of judicial protection. Although not specifically addressed in this decision, as it was limited to a discussion of Maryland law, I was struck by the stark contrast in the substantially lower number of requirements needed to be proven under Maryland law than New York law.
The Questions that the Ingram Court Was Confronted With
In this case, the Court was called to opine on several issues, among them the following:
- Whether the plaintiff/former employer's customer and pricing information qualifies as a trade secret under Maryland's Uniform Trade Secret Act ("MUTSA"); and,
- Whether this statute precluded a finding that the former employees could also be held liable for damages under alternate legal theories.
The Criteria Needed to Establish That Certain Information Qualifies as a Trade Secret Under Maryland Law (as Opposed to Under New York Law)
To that end, the MUTSA states, in pertinent part, that a trade secret is
"[I]nformation, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and,
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
CL § 11-1201(e).
Parenthetically - and in stark contrast - New York's courts (including the Court of Appeals) citing the Restatement of Torts, have articulated a significantly larger laundry list of criteria that must be satisfied before something can be qualified as a "trade secret," namely
(1) the extent to which the information is known outside of [the] business;
(2) the extent to which it is known by employees and others involved in [the] business;
(3) the extent of measures taken by [the business] to guard the secrecy of the information;
(4) the value of the information to [the business] and [its] competitors;
(5) the amount of effort or money expended by [the business] in developing the information; and,
(6) the ease or difficulty with which the information could be properly acquired or duplicated by others”
See, e.g., Ashland Management Inc. v. Janien, 82 N.Y.2d 395 (1993).
Why the Ingram Court Held that Customer Information Qualified as a Trade Secret
In holding that the plaintiff's customer information did constitute a "trade secret," and was therefore protected information, the Court stated as follows:
[W]e hold that Cantwell-Cleary’s internal database stored confidential account-specific information for each customer’s purchasing history that qualified as information constituting trade secrets under section 11-1201(e) of MUTSA. First, as summarized in Philips, customer information often derives independent economic value in a competitive sales industry because “information about potential customers and their buying habits, a competitor’s pricing, business strategies, and vendors is a windfall, granting the recipient a key to undercut the competition’s pricing, outbid their vendor contracts, and attract their customers.” Philips, 2020 WL 5407796, at *8 (quoting Albert S. Smyth Co., 2018 WL 3635024, at *4) ...
We hold that the trial court did not err in determining that Cantwell-Cleary’s confidential customer lists, vendor pricing, profit margins, and “pricing to customers” constituted trade secrets because that information derived independent economic value after having been developed by the company over time, and because it was not generally known to competitors in a highly competitive industry.
Second, as in LeJeune, Cantwell-Cleary took several reasonable steps to protect the information on its internal database. For example, the company restricted access to information on the database, assigning numeric levels of access clearance [which] prevented salespersons from being able to print off account-specific information without managerial approval. Moreover, in the company’s employee handbook, employees are told that “[n]o employee will remove company property from the premises” including “[c]onfidential literature including cost pricing, sales, and customer information[,]” ...
Finally, as noted earlier, all salespersons were required to sign the Non-Compete agreements under which they acknowledged their duty to keep the company’s customer, vendor, and pricing information confidential.
In light of these considerable efforts, we agree with the trial court that Cantwell-Cleary took reasonable steps under the circumstances to maintain the secrecy of its internal customer and pricing information.
What Kind of Damages Are Available for Trade Secret Misappropriation Under Maryland Law
In that regard, the MUTSA provides that
“[A] complainant is entitled to recover damages for misappropriation” under the following measures of recovery:
(b) Items included. — Damages under this subtitle may include:
(1) The actual loss caused by misappropriation; and
(2) The unjust enrichment caused by misappropriation that is not taken into account in computing actual loss.
(c) Alternative measure of damages. — In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.
(d) Exemplary damages. — If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (a) of this section.
CL § 11-1203(b)–(d).
The Ingram court further noted that
[T]here are three fundamental limitations on damages for the plaintiff’s loss. First, the alleged loss must be “attributable to the appropriation of the trade secret” and the plaintiff “bears the burden of proving the fact and cause of any loss for which recovery is sought.” Id.cmt. b. Second, although the plaintiff may seek to prove both its own lost profits as well as the defendant’s gains, the plaintiff “is permitted to recover only the greater of the two measures” so as to prevent a double recovery. Finally, the appropriate durational period for measuring damages is limited to “the period of time that the information would have remained unavailable to the defendant in the absence of the appropriation ... as measured by “the time it would have taken the defendant to obtain the information by proper means such as reverse engineering or independent development.”
Why the Plaintiff's Damages Award for Misappropriation Did Not Inherently Preclude Other Claims
The Ingram court, wisely in my view, cited the Maryland Uniform Trade Secrets Act, and held that this while this statute displaces conflicting tort, restitutionary, and other law of this State providing civil remedies for misappropriation of a trade secret, it does not affect: (i) Contractual remedies, whether or not based upon misappropriation of a trade secret. CL § 11-1207.
The court continued as follows:
Contrary to the statute’s hardline prohibition on pursuing additional tort or restitutionary remedies, MUTSA contemplates that a claim for misappropriation of trade secrets and a claim for breach of contract—even one “based upon misappropriation of a trade secret”—may coexist.
