Various Sources and Authorities Form the Modern Body of Trade Secret Law and Define "Trade Secret"
| Jurisdiction | Maryland |
IV. VARIOUS SOURCES AND AUTHORITIES FORM THE MODERN BODY OF TRADE SECRET LAW AND DEFINE "TRADE SECRET"
Stated succinctly, a trade secret consists of information that is kept confidential through the reasonable efforts of its owner, and commercial or economic value is derived by maintaining its secrecy. Several sources have been relied upon by Maryland courts to define the term "trade secret." The most often relied upon is the statutory definition set forth in the Maryland uniform Trade Secrets Act (MuTSA), MD. CODE ANN., COMMERCIAL LAW II § 11-1201-11-1209 (2013 & Supp. 2018) (hereinafter COM. LAW I, II, or III § ___ ), which was enacted in 1989. While MuTSA's definition preempts previous common law definitions, Maryland courts also still rely upon the RESTATEMENT (FIRST) OF TORTS.36
A. Restatement (First) of Torts (1939)
The RESTATEMENT (FIRST) OF TORTS predates creation of the Uniform Trade Secrets Act (uTSA) but is still widely relied upon as supplemental authority. Maryland courts frequently cite to Section 151, comment b, in trade secret cases, which identifies six factors relevant to determining whether given information constitutes a trade secret:
(1) The extent to which the information is known outside of his business;
(2) the extent to which it is known by employees and others involved in his business;
(3) the extent of measures taken by him to guard the secrecy of the information;
(4) the value of the information to him and to his competitors;
(5) the amount of effort or money expended by him in developing the information;
(6) the ease or difficulty with which the information could be properly acquired or duplicated by others.37
Courts have stated that "although the Restatement factors are no longer a necessary part of the analysis, the 'factors still provide helpful guidance to determine whether the information in a given case constitutes "trade secrets" within the definition of the statute.'"38 Where the Restatement presents a narrower view, the MUTSA will preempt that definition.39
B. Restatement (Third) of Unfair Competition (1995)
A cause of action for trade secret misappropriation may also draw upon the definition contained in the RESTATEMENT (THIRD) OF UNFAIR COMPETITION, which defines "trade secret" as "any information that can be used in the operation of a business or other enterprise that is sufficiently valuable and secret to afford an actual or potential economic advantage over others."40 Comment d to Section 39 provides the following nonexclusive list of information that qualifies as "trade secret":
A trade secret can consist of a formula, pattern, compilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information. A trade secret may relate to technical matters such as a composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular operation or service. A trade secret may also relate to other aspects of business operations such as pricing and marketing techniques or the identity or requirements of customers.41
C. Uniform Trade Secrets Act (UTSA)
To date, 48 states and the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have enacted the Uniform Trade Secrets Act (UTSA), in whole or in part.42 New York and North Carolina are the only two states that have not adopted some form of the UTSA.43 The Act was promulgated in 1979 by the National Conference of Commissioners on Uniform State Laws in an effort to create uniform treatment of trade secret law among the states, and the last significant amendments were made in 1985.44
The central purpose of the Act is to eliminate inconsistencies in the common law and harmonize treatment and remedies applied by the states in trade secret misappropriation cases.45 The Act lacks the textual length and statutory rigidity of patent and trademark law, and was intended to be "sophisticated enough to keep pace with the development of technology in the private sector," while simple enough to facilitate broad application, and clear enough to be readily understood by courts and laymen alike.46
Section 1(4) of UTSA provides a framework for the protection of trade secrets:
"Trade Secret" means information, including a formula, pattern, compilation, program, devise, method, technique, or process, that: (i) 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 (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.47
Section 2(a) permits injunctive relief as a remedy for "actual or threatened misappropriation" where an employer is able to present evidence that an employee, former employee, or third party has "misappropriated" trade secrets and confidential information.48
Although the RESTATEMENT (FIRST) OF TORTS required that a trade secret be continuously used in one's business to receive protection, UTSA does not incorporate a requirement of continuous use.49 The more expansive language of UTSA extends protection to an owner of a trade secret who not yet has commenced actual use of the information in business, as well as to valuable information obtained through an owner's dedication of time and money toward studies or scientific research intended to determine whether or not a particular method or process would be effective.50
In keeping with the broadly stated objective underlying trade secret law—"the maintenance of standards of commercial ethics"51 —UTSA specifically identifies acceptable means for discovery of trade secrets and includes discovery by (1) independent invention; (2) reverse engineering;52 (3) licensing by the owner of the trade secret; (4) observation through public use or display; and (5) obtaining through published literature.53
D. Maryland Uniform Trade Secrets Act (MUTSA)
Maryland was the 29th state to adopt the Uniform Trade Secrets Act, effective July 1, 1989, and with only slight modifications from the text of UTSA.54 The Maryland Uniform Trade Secrets Act (MUTSA) is codified in the Maryland Code of Commercial Law, §§ 11-1201 to 11-1209. MUTSA differs from the Uniform Act in that it excludes the severability provision and time of taking effect provision found in UTSA Sections 10 and 11, respectively.55
Section 11-1201 of MUTSA defines a "trade secret" as—information, including a formula, pattern, compilation, program, devise, method, technique, or process, that:
A. 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
B. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.56
Although MUTSA preempts the definition of trade secret articulated in the common law, Maryland courts still often refer to the six factors found in comment b, § 757 of the RESTATEMENT (FIRST) OF TORTS as guidance when analyzing whether an alleged trade secret falls within its parameters.57 These six factors are set forth in Section IV.A above.
1. What qualifies as a trade secret in Maryland?
Maryland interprets the term "trade secret" broadly. Courts have determined that a trade secret "may be an industrial secret like a secret machine, process or formula, or it may be industrial know-how ... it may be information of any sort; it may be an idea of a scientific nature, or of a literary nature or it may be a slogan or suggestion for a method of advertising ... the product of work, or expenditure of money, or of trial and error, or the expenditure of time."58
The United States District Court for the District of Maryland has held that "although a trade secret cannot subsist in information in the public domain, it can subsist in a combination of such information as long as the combination is itself a secret," and has applied that rationale to protect a compilation of information in a franchisee's business plan where it consisted of both "public information and facts ascertainable from the marketplace . and personal insights and analysis brought to bear through diligent research and by marshaling a large volume of information."59
As a threshold matter for any court's analysis, the plaintiff must adequately identify what it is claiming is a trade secret. While a company does not want to reveal the details of its trade secrets in public court filings, it must at least provide enough information about the subject technology that a court is able to discern whether the technology could be considered a trade secret under MUTSA. For example, in Contracts Materials Processing, Inc. v. Kataleuna, plaintiff failed to describe what aspect of its petroleum refining technology qualified as a trade secret.60 Without sufficient detail, the court was unable to determine if there were any trade secrets involved at all.61 The court reached a similar result in Fyfe Co., LLC v. Structural Group, Inc., when the plaintiff identified approximately 2,400 documents as trade secrets but failed to explain why the contents of these files qualified as trade secrets.62
Maryland courts recognize that computer source code, as well as contents of object code, are protectable where the owner has taken reasonable steps to attempt to maintain its secrecy.63 Computer software has also been found to constitute a protectable trade secret when "although publicly available in its basic form, the specific software at issue [was] customized, enhanced, and unique" to the owner's franchise.64 On the other hand, a static screenshot of a computerized user interface that the plaintiff routinely demonstrated to prospective clients and at industry trade shows was not a trade secret.65
Courts apply fact-intensive analyses to determine whether customer...
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