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North Carolina Supreme Court Requires Specific Pleadings for Trade Secret Claim

    Client Alerts
  • April 23, 2018

Like most states, the North Carolina Trade Secrets Protection Act prohibits individuals or businesses from misappropriating or misusing certain confidential business information belonging to someone else. However, not all business information falls within the definition of a protected trade secret under the Act. Earlier this month, the North Carolina Supreme Court set forth the requirements for pleading a statutory trade secrets claim, rejecting a lawsuit that only contained generalities about the nature of the alleged misused information.

In Krawiec v. Manly, the plaintiffs owned a ballroom dance studio. They sponsored two instructors’ visas, and entered into employment contracts that prohibited the instructors from working for another studio. The plaintiffs claimed that the instructors almost immediately violated this agreement, and began working for another dance business, disclosing their “original ideas and concepts for dance productions, marketing strategies and tactics, as well as student, client and customer lists and their contact information.” Among other claims, the plaintiffs sued under the Trade Secrets Protection Act.

After the North Carolina Business Court dismissed these claims based on the pleadings, the plaintiffs appealed to the state Supreme Court. After reviewing the pleading standards under the Act, the court agreed, affirming dismissal of the claim. In its opinion, the Supreme Court required that the pleadings match the specific requirements of the Act. A general reference to confidential business information is insufficient. The claim must contain in detail a description of particular claimed trade secrets, as well as the specific steps that the plaintiff took to identify the information as secret and protect against its disclosure.

In this case, while the plaintiffs’ claims could have involved protected trade secrets, this was not clear from the pleadings. For example, customer lists can be trade secrets, but only if the information compiled is not readily obtainable by a competitor through other means. In order to seek recourse, the plaintiffs needed to better explain why their ideas, concepts, strategies and tactics constituted protectable trade secrets. While the pleadings themselves do not need to disclose the trade secrets, companies wishing to pursue claims should carefully describe the nature of the information, and why it is considered highly proprietary.