Attorneys who draft confidentiality and non-disclosure agreements would be wise to become familiar with a recent trade secrets decision issued by the United States Court of Appeals for the Fourth Circuit. The case is AirFacts, Inc. v. Diego De Amezaga.

AirFacts, Amezaga’s former employer, develops custom software for clients. Among other things he did, Amezaga downloaded software he had worked on during the last week of his employment and sent it to his personal computer, retaining the software and other data after his employment ended. He claimed he had implied authority to download and keep the software. The case went from the district court to the appeals court twice. It’s now been remanded. There are a number of lessons to be learned from this case.

Lesson 1

Written confidentiality and indemnification clauses should be tightly drawn; what someone else earlier drafted might be easy to adopt but might not fit the circumstances. The language must be carefully thought through.

AirFacts required Amezaga to sign an employment agreement containing confidentiality and indemnification clauses. The employer surely controlled the language as its attorney was the drafter.

For AirFacts to be indemnified, Amezaga had to commit a “material” breach of a “material” provision of the agreement – the “double hoop to jump through” clause. This was the first problem because the district court held Amezaga’s breaches to be immaterial and the circuit court affirmed because there was no evidence that Amezaga’s conduct harmed or in any way prejudiced his employer. Although he violated his agreement because he retained the trade secrets software after he left his employment, there was no evidence he accessed it and AirFacts was not allowed to recover its substantial legal and forensic costs. The language drafted was unfortunate.

Lesson 2

Think about and try to cover as many contingencies as possible. Ask what might happen and try to draft accordingly. Amezaga was required by the terms of his agreement to return trade secrets and confidential material at termination of his employment; he did not. He claimed he had “implied authority” to retain this material because he believed his supervisors might reach out to him with questions after he left. No doubt the briefing on this issue was costly, and ultimately Amezaga failed to prevail. Button it up; avoid the dispute. Either make the obligation absolute (information can be retransmitted to a former employee who might consult under a separate agreement) or require any such claimed authority to retain material to be written and signed by a supervisor. While there might be a clause in the employment agreement requiring all amendments to be written, a requirement relating to this specific situation would be far better to evidence intention and provide clear meaning.

Lesson 3

Under the Maryland Uniform Trade Secret Act, a court may award a reasonable royalty as damages. But why leave open whether it will question or how it might be calculated? AirFacts conceded it could not prove specific injury caused by Amezaga’s misappropriation but sought a reasonable royalty anyway. The court of appeals remanded the district court’s failure to award on the grounds that commercial use is not required to award damages incurring yet more expenses.

All this uncertainty and assertion of creative defenses maybe could have been avoided if the drafter provided for a method to measure damages, or even provided for liquidated damages, as an alternative to royalties, along with equitable relief.

Drafting a workable damages clause might not be easy for many lawyers, but the effort could pay real dividends if the employer has to enforce its rights.