While “data privacy litigation” may immediately conjure up ideas of data breaches or biometrics, data privacy also extends to sensitive or corporate information—and a recent ruling out of the Fourth Circuit handed down a significant precedent with respect to trade secrets. Earlier this month, the Fourth Circuit ruled on an employer’s (second) appeal of the district court’s judgment in favor of an employee in a dispute arising under the Maryland Uniform Trade Secrets Act, Airfacts, Inc. v. Amezaga, No. 20-2344, 2022 U.S. App. LEXIS 9304 (4th Cir. Apr. 6, 2022). The court affirmed in part, reversed in part, vacated in part, and remanded once again to the district court.
The employer, Airfacts, originally brought suit against employee Diego de Amezaga for breach of his employee agreement and misappropriation of trade secrets based on several documents Amezaga brought with him after he resigned from Airfacts. The documents included (1) documents related to a “proration” software Amezaga helped develop and pitch during his employment and (2) flowcharts displaying ticket price rules and other processing information. Amezaga claimed that he emailed copies of the proration documents because his superiors informed him they might reach out with questions about his work. He subsequently sent copies of the flowcharts in a job application to a prospective employer to help the employer understand the work he had done at Airfacts.
With respect to the breach of contract claims, the Fourth Circuit affirmed that Amezaga had breached his employee agreement. However, under the contract’s indemnification provision, for Airfacts to recover damages, an employee must materially breach a material provision of the contract. While the court found that the provisions were material ones, it affirmed that only nominal damages could be awarded because the provisions had only been breached nominally, as Airfacts did not claim any actual damages, harm, or prejudice stemming from the breach.
The Fourth Circuit subsequently affirmed that Amezaga’s actions with respect to the flowcharts did not breach his employee agreement but reversed the district court’s findings as to the proration documents, finding that emailing copies of the documents to himself constituted a breach. While the court observed that the district court correctly found that the documents contained confidential information, it found that Amezaga did not have implicit authority to keep the documents—even though he had created them—because the employee agreement stated that employees’ inventions were works for hire and the rights in such works were assigned to Airfacts. It remanded for a determination as to whether this breach was material and whether Airfacts was owed anything under the indemnification clause.
Lastly, the Fourth Circuit vacated and remanded the district court’s ruling that Airfacts was not owed any royalty damages under the Maryland Uniform Trade Secrets Act. With respect to the flowcharts, it affirmed that the documents were trade secrets that were misappropriated. However, it disagreed with the district court’s finding that Airfacts was required to show that Amezaga put the flowcharts to commercial use. Acknowledging that case law precedent with respect to the issue is scarce, the court nevertheless found that a plaintiff is not required to show that a defendant put a trade secret to commercial use. It remanded for a finding on whether Airfacts is entitled to reasonable royalty damages (and, if so, how much), clarifying that, while the district court could consider how Amezaga used the flowcharts, commercial use was not a threshold requirement.
Privacy litigators should take note of this ruling and its precedent as it relates to the use and misappropriation of confidential corporate information. Given the sparse case law on reasonable royalty damages within the Fourth Circuit, this ruling is also an important clarification for Maryland litigators that commercial use is not a threshold requirement to recover such damages under the Maryland Uniform Trade Secrets Act.
For more on this, stay tuned. CPW will be there to keep you in the loop.