Protecting Maryland Trade Secrets in Family Business Succession

Why Trade Secret Protection Matters in Family Succession

In a family business, competitive advantages often come from know-how that is never patented or publicly disclosed—pricing models, supplier terms, recipes, algorithms, customer lists, and playbooks. During succession, ownership and roles shift, outside advisors may be engaged, and long-tenured employees may exit. Each change increases the risk that confidential information is exposed or that protections lapse.

Maryland law protects trade secrets that derive independent economic value from not being generally known and that are subject to reasonable efforts to maintain their secrecy. Building those efforts into your succession plan helps preserve value and reduce disputes among family members and key employees. See Md. Code, Com. Law § 11-1201.

What Counts as a Trade Secret in Maryland

Under the Maryland Uniform Trade Secrets Act, a trade secret can include formulas, patterns, compilations, programs, devices, methods, techniques, or processes if they provide economic value from being secret and are protected by reasonable measures to keep them confidential. Common examples in family businesses include curated customer lists with buying histories, proprietary recipes or blends, vendor pricing strategies, specialized manufacturing methods, and nonpublic financial models. Whether any specific item qualifies is fact-specific; for example, a customer list is more likely to be protectable if it is not readily ascertainable and you take concrete steps to keep it confidential. See § 11-1201.

Core Steps to Protect Trade Secrets During Transition

• Inventory and classify: Identify trade secrets, map where they reside (systems, devices, files), and assign owners.
• Tighten access: Limit access to need-to-know personnel. Implement role-based permissions and revoke access as responsibilities change.
• Use written agreements: Execute or refresh nondisclosure agreements (NDAs) with family members, employees, contractors, and advisors. Pair NDAs with confidentiality and IP provisions in employment and governance documents.
• Update policies: Adopt clear confidentiality, data handling, device, and exit-interview policies. Train incoming leaders on legal duties.
• Secure systems: Use passwords, MFA, encryption, segmented drives, audit logs, and clean-desk rules. Label confidential materials and avoid public storage.
• Vendor and advisor controls: Add confidentiality clauses and data-security requirements to engagement letters and service agreements.
• Plan for exits: Implement off-boarding checklists—return of devices and files, certification of deletion from personal accounts, reminder of continuing obligations.
• Document efforts: Keep records of security measures, trainings, signed agreements, and access logs to demonstrate reasonable efforts if a dispute arises.

Governance Tools for Family Businesses

• Shareholder or operating agreements: Include confidentiality obligations, restrictions on disclosure in governance roles, and remedies for breaches.
• Buy-sell agreements: Condition transfers on adherence to confidentiality and non-use commitments.
• Employment and incentive plans: Tie equity vesting or bonuses to compliance with confidentiality policies.
• Board protocols: Limit distribution of sensitive materials, use secure portals, and record executive-session handling of trade secret matters.

Handling Multi-Generational Knowledge Transfer

Translate founder knowledge into documented, access-controlled processes. Use mentorship with structured checklists, record key procedures securely, and avoid casual disclosure in family settings. For specialized secrets (e.g., recipes or code), consider compartmentalization—no single person holds all elements unless necessary. Establish a request-and-approval workflow before sharing any trade secret with a next-generation leader.

Confidentiality Agreements That Work

Effective NDAs clearly define what is confidential, state permissible uses, outline exclusions (such as information that becomes public through no fault of the recipient), address independently developed information, require return or destruction on request, and specify governing law and venue. For family members serving as directors, add fiduciary-duty acknowledgments and conflict-management clauses. Ensure terms align with Maryland law and are consistent across employment, contractor, and advisor agreements. Clear NDAs support the reasonable efforts element under § 11-1201.

Responding to Misappropriation

If misappropriation is suspected, act promptly: preserve evidence, restrict further access, and consult counsel. Maryland courts may grant injunctive relief to stop use or disclosure, and award damages for actual loss and unjust enrichment. In appropriate cases, courts may award exemplary damages (for willful and malicious misappropriation) and attorney’s fees in the circumstances specified by statute. See § 11-1202 and § 11-1203.

Common Pitfalls in Family Transitions

• Assuming family ties replace formal protections.
• Allowing broad shared logins or unsecured personal devices.
• Letting former executives retain cloud access after transition.
• Mixing personal and business communications that contain confidential data.
• Over-sharing in marketing or investor decks during a handoff.

Practical Checklist for Maryland Successions

• Identify and label trade secrets; maintain an access registry.
• Refresh NDAs and confidentiality clauses for all participants in the transition.
• Implement technical controls (MFA, encryption, least-privilege access, logging).
• Update governance documents to address confidentiality and remedies.
• Conduct training for incoming leadership on trade secret handling.
• Establish an incident response plan specific to trade secret leaks.
• Schedule periodic audits during and after the transition.

FAQs

Does a Maryland NDA need consideration with family members?

Yes. Consideration can be employment, continued access to confidential information, equity incentives, or other benefits documented at the time of signing.

Are customer lists always trade secrets in Maryland?

No. They are protectable when they are not readily ascertainable and you use reasonable efforts to keep them confidential, such as access controls and labeling.

Can we share trade secrets with potential buyers during succession?

Yes, but use a tailored NDA, watermark and track disclosures, stage access in a data room, and disclose only what is necessary.

How fast should we act after a suspected leak?

Immediately. Preserve logs, disable access, send a preservation and demand letter, and consult counsel to evaluate injunctive relief.

How We Can Help

We assist Maryland family businesses in auditing trade secret assets, updating agreements and policies, designing secure knowledge-transfer processes, and responding to potential misappropriation. Early planning can preserve hard-won advantages while supporting a smooth transition to the next generation.

Contact our Maryland trade secrets team to discuss your succession plan.

Legal citations

• Maryland Code, Commercial Law § 11-1201 (Definitions) (accessed 2025-10-31)
• Maryland Code, Commercial Law § 11-1202 (Injunctive relief) (accessed 2025-10-31)
• Maryland Code, Commercial Law § 11-1203 (Damages; attorney’s fees; exemplary damages) (accessed 2025-10-31)

Disclaimer

This blog is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. Maryland law changes and outcomes depend on specific facts; consult a Maryland-licensed attorney about your situation.