Introduction
Protecting Your Company’s Competitive Edge: Trade Secrets, Confidentiality, and Employment Restrictive Covenants
By: Ari Lichterman, Esq.
We live in a data-driven, information-based world. It is no surprise, then, that for many companies, their most valuable asset is information—such as customer lists, pricing strategies, internal business processes, and proprietary technology. This information often defines a company and provides its competitive advantage.
Employees frequently have access to this information and rely on it to perform their work. However, when an employee leaves for a competitor—or starts a competing business—the risk of that information being taken or misused becomes significant.
For employers, well-drafted restrictive covenants that ensure confidentiality and protect trade secrets play a critical role in safeguarding a company’s competitive edge. Understanding how trade secrets are defined, and what steps businesses can take to protect them, is essential.
What Is a Trade Secret?
All companies have confidential business, financial, or technical information that can be protected through confidentiality or non-disclosure agreements. However, if this information qualifies as a trade secret, it is entitled to heightened statutory protection beyond contractual safeguards.
In simple terms, a trade secret is confidential business information that provides a competitive advantage because it is not known by others and cannot be easily discovered.
Under Maryland law, the Maryland Uniform Trade Secrets Act (“MUTSA”) defines a trade secret as business information—such as a formula, process, program, method, or compilation of data—that:
- Has independent economic value because it is not generally known or readily discoverable by competitors; and
- Is subject to reasonable efforts to maintain its secrecy.
Md. Code Ann., Com. Law § 11-1201(e).
Federal law provides a similar definition under the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1839(3), which includes financial, business, scientific, technical, or engineering information that:
- The owner has taken reasonable measures to keep secret; and
- Derives independent economic value from being secret.
Although DTSA provides broader examples (e.g., patterns, plans, designs, prototypes, techniques, procedures, or codes), courts generally treat both definitions similarly.
Examples of Trade Secrets
In practice, trade secrets may include:
- Customer and prospect lists
- Pricing strategies and discount structures
- Software algorithms and source code
- Product designs and technical specifications
- Business methods and production processes
- Marketing strategies and business plans
- Recipes and chemical formulas
However, simply labeling information as “confidential” does not make it a trade secret. Employers must demonstrate:
- Independent economic value; and
- Reasonable steps taken to protect the information.
Courts will evaluate factors such as industry knowledge, development cost, difficulty of duplication, and the company’s efforts to maintain secrecy.
Misappropriation: When Confidential Information Is Taken or Used
Under both federal and Maryland law, misappropriation of trade secrets is prohibited. Generally, misappropriation occurs when a person:
- Acquires a trade secret through improper means; or
- Uses or discloses a trade secret knowing it was improperly obtained.
Importantly, misappropriation can occur even before the information is used, as long as it was acquired improperly.
Employers may seek:
- Injunctive relief (to stop actual or threatened misuse); and
- Damages for resulting harm.
For example, suspicious data downloads, copying files before resignation, or sharing confidential information with competitors may support a claim.
Important Exception
DTSA includes an immunity provision allowing disclosure of trade secrets to a government official or attorney solely for reporting or investigating legal violations, or for use in litigation.
18 U.S.C. § 1833.
If this applies, there is no liability under DTSA or MUTSA.
Why Restrictive Covenants Still Matter
Even when trade secret laws do not apply, employers can rely on restrictive covenant agreements to protect sensitive information.
Well-drafted agreements:
- Clearly define confidential or proprietary information
- Require return or destruction of information upon departure
- Prohibit post-employment use of such information
- Provide a contractual basis for legal relief
These agreements are especially valuable because they:
- Create obligations during employment
- Help prevent misuse before it occurs
- Strengthen legal enforcement if violations arise
Importantly, they also help demonstrate that the employer took reasonable steps to protect its information—a key requirement for trade secret protection.
Protecting Your Business Before Problems Arise
The misuse of trade secrets and confidential information can cause significant—and sometimes irreversible—damage to a business.
Employers who proactively implement well-crafted restrictive covenants place themselves in the best position to:
- Prevent misuse
- Protect their competitive advantage
- Enforce their rights when necessary
The attorneys at Luchansky Law are experienced in drafting and enforcing restrictive covenants to protect your business interests while minimizing legal and competitive risk.
For more information, contact Luchansky Law at 410.522.1020 or email ari@luchanskylaw.com.
How Luchansky Law Can Help
Luchansky Law advises employers on compliance, risk mitigation, and litigation strategy. Contact us to protect your business and navigate employment law challenges effectively.
