IP Tech Knowledgy

When drafting non-competition agreements, be sure to consider how any relevant trade secrets statute may also fit into any obligation, potential claims, and possible damages.  A recent Maryland court ruled that damages under the Maryland Uniform Trade Secrets Act (MUTSA) could be awarded in excess of the liquidated damages limit in the parties’ non-competition agreement.

In December, the Appellate Court of Maryland addressed these issues in deciding Ingram et al. v. Cantwell-Cleary Co., an appeal from a lawsuit Cantwell-Cleary brought against former employees who formed a company to compete with Cantwell-Cleary. Four issues were raised on appeal from rulings by the Anne Arundel County Circuit Court, two of which are:

1. Whether the trial court properly awarded damages under the MUTSA instead of under a non-compete agreement the departed employees had signed, which provided for $50,000 in liquidated damages for breach; and
2. Whether the departed employees had misappropriated trade secrets under MUTSA.

For context, the trial court had awarded several hundred thousand dollars per defendant based on the MUTSA – well over a million dollars in total. 

Interestingly, the parties agreed that the non-compete agreements were enforceable, even though copies were never produced. The defendants therefore argued that since they were enforceable, the liquidated damages should be awarded in lieu of the larger awards. However, the non-competes made no mention of MUTSA, but did indicate that the liquidated damages did not preclude Cantwell’s right to seek other relief for breach.  

The Appellate Court drew a distinction between contract claims for breach of the non-competes and trade secret misappropriation claims, which are statutory. The Court found this distinction sufficient to uphold the trial court’s award of damages for MUTSA violations, although there were some lingering questions on how those damages should be calculated. 

Ultimately, the Appellate Court ruled that customer, pricing, margins, vendor and supplier information, along with marketing and business development plans, all of which were considered confidential, were trade secrets, and could not be used by the appellants to start a competing business. The case highlights a business need to preserve other claims such as those under MUTSA and other laws when drafting non-competes. 

S. Scott Lloyd
410-576-4249 • slloyd@gfrlaw.com