Bottom Line Business Insights : Maryland Business Lawyer & Attorney : Wagonheim Law Firm : Mergers & Acquisitions & Contractual Negotiation

The American people, we are told, want their government to be more transparent. Whether or not that’s actually true, one thing is for sure: when the subject is business, rather than government, we strongly prefer old-fashioned secrecy. Customer lists, patents, processes, tools, pricing, marketing strategies, product formulae, prospects…you name it. We, as business owners and managers, want the outside world kept in the dark.

As counsel, I tend to come in when this desire for secrecy has already been frustrated – when the proverbial cat has been let out of the bag; that’s when business owners look for the responsible parties and a way to lay blame and collect damages. 

Maryland, like most states and the Federal government, affords companies protection against the misappropriation of trade secrets. In addition to remedies which may arise out of contractual relationships, the Maryland Uniform Trade Secrets Act (“MUTSA”)[1] provides a strong remedy for misappropriation of a trade secret. MUTSA defines a trade secret as:

“Information, including a formula, pattern, compilation, program, device, 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 secrecy.”

It is this final section that insurmountable hurdle for many companies looking to go to war over what they see as the wrongful taking of their trade secrets. Imagine a judge looking down at you from the bench and asking two related questions – one rhetorical, one not:

1. What steps did you take to safeguard what you now claim to be trade secrets?
2. If you didn’t treat this information like a secret, why should I?

Full disclosure: I am one of those small business owners who drive IT people nuts. I hate changing passwords, I fight the inconvenience that comes along with IT security, and I bristle every time NetGear blocks my access to my fantasy football site of choice as “inappropriate or tasteless.” (I’m guessing because of the “fantasy” tag.) The lawyer in me recognizes, however, that, even from a legal perspective, our IT guy has a point. If I don’t take even the most minimal safety precautions by restricting access to what I deem to be sensitive material, what right do I have to ask the court to rectify my error after the horse and the barn have separated? 

Stop for a minute and think about the information your company holds dear. That information may already be the subject of Confidentiality Agreements or other restrictive covenants. The sensitivity of that information may be emphasized in company memos and personnel manuals. But regardless of what it is – customer lists, pricing structure, marketing strategy, or anything in between, honestly answer my hypothetical judge’s questions. (And if you need help figuring out what I mean by an honest answer, you may want to check out Don’t Lie to the Dog.) 

Your challenge, of course, comes after you self-grade your two-question test. If you fail, what are you going to do about it?

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In a disturbing development, the New Jersey Supreme Court ruled that an employee may take confidential files for the purpose of helping in the prosecution of a discrimination claim. The Court, ruling in Joyce Quinlan v. Curtiss-Wright Corporation, found that the employee’s use of the confidential materials was a protected action for which termination would be improper.

Joyce Quinlan had worked for Curtiss Wright for approximately 20 years when she came to believe that she had been wrongfully passed over for promotion in favor of a male employee. She then devoted herself to the collection and copying of over 1,800 documents from personnel files and project work files to which her position gave her access. 

Selecting documents she believed were helpful to her assertion of gender bias within Curtiss Wright, Quinlan turned the documents over to her attorneys. The documents were admitted at trial and served as the basis for a significant award against Curtiss Wright, including punitive damages.

The Supreme Court of New Jersey upheld the verdict.

In its ruling, the Supreme Court attempted to balance the interests of aggrieved employees with those of employers seeking to preserve the confidentiality of their information.   In so doing, the Court acknowledged the competing interests of each party, stating:

In making these evaluations, the court must be mindful that both employers and employees have legitimate rights. Employers have the right to operate their businesses within the bounds of the law and legitimately expect that they will have the loyalty of their employees as they do so. Employees have the right to be free of discrimination in their employment and the right to speak out when they are subjected to treatment that they reasonably believe violates that right. Balancing all of those considerations is a difficult and important task.

Applying a 7 point balancing test, the Court made it clear that employees are generally safe copying and using an employer’s confidential documents if: (1) the employee acquires the documents in the normal course of his or her job duties; (2) the documents are delivered only to counsel; (3) the employee has a good faith basis for believing s/he has a meritorious case; and (4) the copying of the documents does not interfere in the employer’s business. 

What made the Quinlan ruling so alarming was that it was rendered after a thorough review of applicable federal and state case law. The prospect that the Quinlan decision could be adopted by Maryland and other states should send a shock wave through employers seeking to protect their trade secrets and confidential records. 

While certainly not urging employers to shield illegitimate or improper discriminatory behavior, we would highly recommend that companies review their document management and security policies with an eye toward preventing unauthorized access. Our recommendations are as follows:

1. Ensure that applicable written policies place employees on notice that copying or scanning documents as well as removal of documents from the workplace without proper authorization is a termination-level offense.
   
   
2. Review security measures for personnel files – both medical and administrative – as well as other confidential documentation, including trade secrets, pricing, and customer lists. Determine: (a) who has access; (b) when access is permitted; (c) whether unauthorized access is possible; and (d) how management would know if there was unauthorized access, copying, or removal of files.
   
   
3. Update any security measures, document control technology, and access procedures necessary to ensure that your documents only go where you want them to go.

Sure, I know this may sound a bit alarmist, but consider one thing about document management and security: 

It is better to have it and not need it, than need it and not have it.

Questions? Comments? Concerns? Raise it for discussion on Facebook, Twitter, or LinkedIn.

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