Maryland’s intermediate court created new and binding precedent for cases related to misappropriation of trade secrets under the Maryland Uniform Trade Secrets Act (“MUTSA”). In the reported opinion of Ingram, et al. v. Cantwell-Cleary Co., Inc., the Appellate Court of Maryland held that customer lists and pricing information constitute trade secrets under the MUTSA, even if such secrets were memorized by defecting employees. As a matter of first impression among Maryland appellate courts, the Court considered the question of how to measure lost profits in assessing a plaintiff’s actual loss of misappropriation of trade secrets, ultimately clarifying how to properly calculate such damages in trade secret cases under MUTSA. The case could have wide-sweeping implications on jurisprudence under the MUTSA.

What You Need to Know

• Information in a company’s internal database, including customer lists, vendor pricing, profit margins, and other pricing information, can constitute trade secrets under the MUTSA where, among other considerations, it has independent economic value and the company takes reasonable steps to maintain the secrecy of its trade secrets.
• A physical misappropriation is not necessary; a former employee memorizing and later using trade secrets can establish liability for misappropriation.
• Circumstantial evidence, such as a competing company using identical packaging and pricing as plaintiff, can prove misappropriation of trade secrets. 
• When sufficient information is available, a plaintiff’s damages should be based on the actual sales that were diverted by a competitor’s use of misappropriated information. The use of past sales by plaintiff, without justification, is more speculative and does not account for lost business that had nothing to do with the misappropriation. 
• Damages are only available for the period of time it would have taken for defendant to independently obtain the trade secrets. 

The Court’s Analysis in Ingram, et al. v. Cantwell-Cleary Co., Inc.

The case involved a feud over a family-run business, Cantwell-Cleary, Co., Inc. (“Cantwell-Cleary”), which sold packaging materials, cleaning and office supplies, and paper products. A disgruntled family member started a competing company, Cleary Packaging, LLC (“Cleary Packaging”), taking numerous employees, clients, and trade secrets with him. Cantwell-Cleary sued three former employees (the “Defendants”) for breach of contract and misappropriation of trade secrets under the MUTSA. Following a bench trial, the circuit court found in favor of Cantwell-Cleary and awarded nearly $2 million in damages.

The Appellate Court affirmed the trial court regarding liability, finding that Cantwell-Cleary’s confidential customer lists, vendor pricing, profit margins and “pricing to customers” were trade secrets under the MUTSA. The statute sets forth a two-part test: (1) whether the information derived independent economic value after having been developed by the company; and (2) whether the company took reasonable efforts to maintain the information’s secrecy. The Court held that because Cantwell-Cleary developed the information over time that was not generally known to competitors, and because Cantwell-Cleary restricted access to the information in an internal database, prohibited removal thereof via an employee handbook, and required employees to sign agreements acknowledging a duty to keep the information confidential, Cantwell-Cleary established that the information constituted trade secrets.

There are several ways to establish misappropriation of a trade secret under the MUTSA, including by establishing: (1) it was acquired by a person who knows or has reason to know that the trade secret was acquired by improper means; (2) it was acquired without consent through improper means; (3) it was acquired without consent under circumstances giving rise to a duty to maintain secrecy or limit its use; or (4) it was obtained from or through a person who had a duty to keep the information secret or limit its use. The Court held that there was sufficient evidence to establish the Defendants had misappropriated trade secrets because, among other things, customers testified that they received identical packaging and pricing from the Defendants as they did from Cantwell-Cleary. The Court held that even if the Defendants didn’t physically take company documents, memorizing trade secrets and later using them still constitutes misappropriation. The Court further held that circumstantial evidence was sufficient to establish misappropriation in this case. 

The Appellate Court reversed the trial court’s decision to award lost profit damages to Cantwell-Cleary based on its expert’s improper methodology. As a matter of first impression, the Appellate Court clarified that, when there is sufficient data available, damages should be measured by evaluating the actual sales a defendant made due to the misappropriation of trade secrets. The trial court, however, improperly relied on expert testimony based on past gross sales Cantwell-Cleary made to its customers, rather than on Cleary Packaging’s actual sales to those same customers. By relying on past sales, Cantwell-Cleary’s expert wrongly incorporated alleged damages for customers who left, but did not defect to Cleary Packaging as a result of the misappropriation. The Appellate Court stated that past sales could still be used to measure damages in some instances where a plaintiff provides a justifiable reason. However, when sufficient information is available, the preferred method is to base damages on the actual sales diverted by the misappropriated information, rather than modeling based on past sales.   

Finally, the Court clarified that the damages period for a trade secrets case is limited. Damages are only appropriate “for the period of time that information would have remained unavailable to the defendant in absence of the misappropriation,” 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.” Once the defendant(s) had sufficient time to obtain the contested information through ordinary business means, plaintiff was not entitled to further damages. 

Looking Forward

The Ingram decision provides critical clarification on certain liability and damages questions in trade secret cases under the MUTSA that have obscured the lines representing actionable misappropriation and recoverable lost profits. With clearer guidance, companies can now better assess the strengths (and weaknesses) of potential misappropriation claims, and lost profit damages flowing therefrom, to make more informed business decision when such conflicts arise.