Inadvertent Acquisition of Trade Secrets Not Actionable, According to 4th Circuit

After a competing project bidder, Landis & Gyr Inc., inadvertently received Systems 4's confidential and sealed bid, Systems 4 sued it for misappropriation of trade secrets and unjust enrichment. The 4th U.S. Circuit Court of Appeals ruled for Landis & Gyr, finding that reading trade secrets acquired inadvertently and without use of improper means does not constitute misappropriation.

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Reading trade secrets acquired inadvertently and without use of improper means does not constitute misappropriation, the 4th U.S. Circuit Court of Appeals ruled April 30. Systems 4 Inc. v. Landis & Gyr Inc., No. 00-1987 (4th Cir. 2001) The court affirmed a ruling by Judge Catherine C. Blake of the District of Maryland entering summary judgment for Landis & Gyr Inc. in a suit brought by Systems 4 Inc. Both Systems 4 and Landis & Gyr responded to a 1993 solicitation by the National Gallery of Art for proposals for a new building automation system and performance specification contract. The solicitation required bidders to submit a great deal of specific information, including confidential and proprietary information. As a result, the bidding was closed, meaning that bidders could not review one another’s proposals. Solicitation Withdrawn In July 1995, the National Gallery withdrew its solicitation and announced that it would reissue the solicitation after making revisions. Bidders were told to come and pick up their original proposals. On July 13, 1995, Scott Wallick, a Landis sales engineer, was inadvertently given the Systems 4 proposal by a National Gallery employee when he went to pick up the Landis proposal. Wallick did not realize the mistake until he returned to his office and “thumbed through” it. He did not contact Systems 4 or the National Gallery but returned the proposal to the Landis warehouse. On July 26, 1995, at a meeting regarding the new solicitation, a National Gallery employee asked Wallick if he had received the Systems 4 proposal. Wallick acknowledged that he had. The next day, the proposal was returned to the National Gallery. After an investigation, the National Gallery decided to exclude Landis from the bidding because of the possibility of competitive advantage obtained by viewing the Systems 4 proposal. Systems 4 sued in June 1997, alleging misappropriation of trade secrets and unjust enrichment and seeking lost profits. Landis moved for summary judgment, contending that Systems 4 failed to demonstrate any actual use of its trade secrets. Systems 4 moved to compel discovery, seeking documents produced since July 1995. Landis opposed the motion as overbroad and without foundation. Motion Granted The district court granted Landis’ motion in part, concluding that because Systems 4 had not competed directly with Landis since the National Gallery solicitation, the only damages available were those for unjust enrichment, not lost profits. The court also granted the motion to compel in part, requiring Landis to produce proposals submitted to Washington, D.C.-area companies from July 1995 to December 1997 in which Landis sought a contract as an energy services company. Landis moved for summary judgment again in February 2000, contending that Systems 4 failed to show use of its trade secrets. The district court judge granted the motion, finding any similarities between the Systems 4 National Gallery proposal and any subsequent Landis proposals “minor” and holding that “no reasonable juror could find that Landis has used a Systems 4 trade secret.” No ‘Improper Means’ Affirming, the 4th Circuit held that though the Maryland Uniform Trade Secrets Act permits recovery for misappropriation of trade secrets even if there is no proof that they were used, Systems 4 failed to show that its trade secrets were obtained through “improper means” within the meaning of the statute. “Systems 4 points to no evidence that Wallick intentionally acquired Systems 4′s proposal using deception, trickery or any other dishonest means,” the court said. “Wallick affirmed that he was given the box containing Systems 4′s proposal by a National Gallery employee, and that, when he received the box, it was closed so that he could not see the proposal contained therein. Wallick did not realize that the box did not contain the Landis proposal until he opened the box in his office. Thus, Wallick took possession of Systems 4′s proposal inadvertently, without use of deception, trickery or stealth.” Although Wallick should have returned the proposal when he realized it did not belong to Landis, the court said, “merely looking at information acquired inadvertently does not constitute improper means.” Systems 4 is represented by Lenard Barrett Boss and Timothy D. Junkin of Asbill, Junkin, Moffit & Boss in Washington, D.C. Landis & Gyr is represented by Jan Feldman of Cahill, Christian & Kunkle Ltd. in Chicago and Robert E. Scott Jr. and Thomas V. McCarron of Semmes, Bowen & Semmes in Baltimore.

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