Tort: Trade secrets claim is reinstated

Where the district court dismissed a trade secret claim because it concluded that a company did not plausibly allege it took reasonable measures to protect the secrecy of the proprietary software, it erred. The company plausibly alleged that the proprietary software was covered by the confidentiality provision, which was a reasonable measure intended to keep it secret.

Background

Samuel Sherbrooke Corporation and Samuel Goldner sued Gabriel Mayer, Beau Walker and Joe Queen for violating the Defend Trade Secrets Act, or DTSA, as well as various state law claims related to corporate malfeasance. After a hearing, the district court entered a written order granting appellees’ motion for judgment on the pleadings as to the DTSA claim and declining to exercise supplemental jurisdiction over all of the remaining state law claims.

Secrecy

To state a viable DTSA claim, a plaintiff must plausibly allege that (1) it owns a trade secret; (2) the trade secret was misappropriated and (3) the trade secret implicates interstate or foreign commerce. Pursuant to the DTSA, information is a trade secret if (1) its owner “has taken reasonable measures to keep [it] secret” and (2) it “derives independent economic value” from its secrecy.

The district court determined that appellants failed to plausibly allege they took reasonable measures to protect the secrecy of the proprietary software. On appeal, appellants argue they did sufficiently plead the secrecy element because they pled that appellees were required to sign the employment contract which included the confidentiality agreement and invention provision. And they argue that they sufficiently connected those provisions to the proprietary software. The court agrees.

The complaint makes clear that the “Proprietary Software is—and always has been—the confidential property of Sherbrooke.” It also alleges that the employment contract specified that employees “shall not, at any time hereafter, disclose Confidential Information.”

And it alleges that the Invention Provision provided, “any invention, idea, design, process, system, procedure, improvement, development or discovery (an ‘Invention’) conceived, created, made or developed by Employee” through their employment “shall become the sole and exclusive property of [Sherbrooke].” Taking these allegations as true, the complaint sufficiently alleges that the Proprietary Software, which was “confidential property,” was treated as confidential information under the employment contract.

Appellees argue that the complaint fails to make this connection because the facts pled do not allow the court to “know[] whether, for example, the ‘Proprietary Software’ uses open source code which is already publicly available (and, thus, could not be confidential as a matter of law). As such, it is impossible to know if the alleged confidentiality provision would apply (or whether it would even be enforceable).”

But this argument requires too much. Appellants did not need to prove anything. They only needed to plausibly allege that the Proprietary Software was covered by the confidentiality provision, which was a reasonable measure intended to keep it secret. Appellants did so here.

Even still, appellees argue that the existence of a confidentiality provision alone is not sufficient as a matter of law to demonstrate reasonable efforts to maintain secrecy. At this stage of the proceedings, the court disagrees, and the Ninth Circuit has concluded similarly. Trade secrets take many forms and what may constitute “reasonable measures” must be considered in light of the nature of the trade secret and the context in which it exists.

At the pleading stage, then, it is sufficient that appellants allege they protected the Proprietary Software by requiring employees to sign the confidentiality agreement and Invention Provision contained in the employment contract.

Misappropriation

The DTSA defines misappropriation as the “disclosure or use of a trade secret of another” without consent by a person who, at the time of the use, “knew or had reason to know that the knowledge of the trade secret was . . . acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret.”

The only question is whether the complaint plausibly alleges that appellees disclosed or used the trade secret. Appellees argue it does not because, in their view, the complaint only includes a single conclusory allegation that they “[are] actively using” the Proprietary Software to operate their new competing insurance company. Not so.

The complaint explains that Walker created the Proprietary Software and Queen and Mayer were shareholders, directors and officers of Sherbrooke, such that they knew about the Proprietary Software. The complaint alleges that all three appellees created a competing business and used the Proprietary Software to assist that competing business, rather than Sherbrooke. In the context of this alleged Propriety Software, these allegations are sufficient to state a claim for misappropriation.

Reversed and remanded.

Samuel Sherbrooke Corporate Ltd. v. Mayer, Case No. 24-2173, Nov. 18, 2025. 4th Cir. (Thacker), from EDNC at Raleigh (Boyle). Dylan Michael Bensinger for Appellants. David L. Pardue for Appellees. VLW 025-2-415. 12 pp.