Monday, August 13, 2007, 8/13/2007 09:43:00 AM

North Carolina Trade Secrets Law Requires Some Evidence of Misappropriation

A new unpublished case from the North Carolina Court of Appeals, Modular Technologies, Inc. v. Modular Solutions, Inc., makes an interesting point concerning the need for actual evidence of misappropriation of trade secrets.

The case concerned two competitors in the business of modular building sales and construction.

In 1997, the plaintiff outsourced its bookkeeping and accounting to firm that included defendant Alice Rouse. She worked on the account until she formed a competitor, MSI, in 2001. Even though she was the president, sole shareholder and sole director of MSI, she apparently had little to do with the day-to-day operations of the company.

The plaintiff got upset when it found itself competing with her company on various bids. It sued for misappropriation of trade secrets and other claims.

After the jury deadlocked on the trade secrets claim, the court granted directed verdict to the defendants. Plaintiff appealed.

The court of appeals found that Mrs. Rouse "had access to plaintiff's sensitive business information such as vendor lists, price lists, customer lists, etc." But, the court held, "even assuming that at least some of the information to which [she] had access qualifies as trade secrets, plaintiff has not introduced substantial evidence that Mrs. Rouse acquired the information for disclosure or use, or disclosed or used the information."

In other words, there was "no evidence to support their claims that Mrs. Rouse wrongfully disclosed any of plaintiff's confidential business and financial information."

In so holding, the court distinguished an earlier case, Byrd's Lawn & Landscaping, Inc. v. Smith, 142 N.C.App. 371, 542 S.E.2d 689 (2001), in which a former employee's knowledge of bid information led to a trade secrets claim.

Here, the court held, plaintiff had not made "any showing that Mrs. Rouse similarly reviewed plaintiff's confidential information immediately prior to incorporating MSI or that Mrs. Rouse was even involved in preparing MSI's bids for projects."

Thus, "[w]hile MSI bid on projects for customers who were past customers of plaintiff, these projects were entirely new projects and not projects for which plaintiff was required to re-bid each year as were the yearly landscaping projects in Byrd's."

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