The Fourth Circuit Court of Appeals issued an important decision in November 2025 clarifying what companies must allege to survive early dismissal of trade secret misappropriation claims under the Defend Trade Secrets Act. The ruling in Samuel Sherbrooke Corporate, LTD v. Mayer establishes that confidentiality provisions in employment contracts can constitute reasonable measures to protect trade secrets, even without additional security protocols alleged at the pleading stage.

For businesses defending against trade secret claims and companies seeking to protect proprietary information, this decision provides crucial guidance on what constitutes adequate protection measures and how courts evaluate misappropriation allegations in the early stages of litigation.

At Bulldog Law, we represent businesses and individuals in trade secret disputes, both defending against misappropriation claims and pursuing remedies when proprietary information has been stolen or misused.

The Business Dispute Behind the Trade Secret Claim

Samuel Sherbrooke Corporate, LTD operates as a captive insurance company providing coverage to affiliated nursing homes. The company has just three shareholders: Samuel Goldner holding majority ownership, with Gabriel Mayer and Joe Queen as minority shareholders. According to the complaint, Mayer and Queen exercised complete managerial control over Sherbrooke despite their minority ownership positions.

In 2022, Goldner hired Beau Walker as chief technology officer. Walker's primary responsibility involved designing, creating, and maintaining proprietary software that allowed Sherbrooke to analyze medical records and project insurance risk pricing for nursing home clients. This predictive software represented significant competitive advantage in the specialized nursing home insurance market.

All three employees, Mayer, Queen, and Walker, executed employment contracts containing confidentiality provisions. These clauses prohibited employees from disclosing, using, or exploiting confidential information for any purpose other than Sherbrooke's benefit. The contracts also included inventions provisions assigning Sherbrooke ownership of any developments created during employment that related to the company's business.

According to Sherbrooke's allegations, Mayer and Queen formed a competing insurance company also serving nursing homes. Shortly after this new company's formation, Walker left Sherbrooke and joined the competing venture. Sherbrooke alleged that all three defendants used the proprietary software to operate their new insurance company in direct competition with Sherbrooke.

The Trade Secret Litigation and Initial Dismissal

Sherbrooke and Goldner filed suit against Mayer, Queen, Walker, and their competing company alleging misappropriation of trade secrets under the Defend Trade Secrets Act along with various state law claims for corporate wrongdoing.

The defendants moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that Sherbrooke failed to adequately allege trade secret protection. The Eastern District of North Carolina granted the motion and dismissed the DTSA claim, concluding that Sherbrooke had not plausibly alleged taking reasonable measures to protect the secrecy of the proprietary software.

This dismissal rested on the district court's determination that confidentiality provisions alone were insufficient to demonstrate reasonable protective measures. The lower court apparently required Sherbrooke to allege additional security protocols or restrictions on access to survive the pleading stage.

Sherbrooke appealed the dismissal to the Fourth Circuit Court of Appeals, setting up an important test of what companies must allege to satisfy the reasonable measures element of trade secret claims.

Fourth Circuit Analysis of Reasonable Measures Requirement

The Fourth Circuit applied de novo review, examining whether Sherbrooke's complaint contained sufficient allegations to state a plausible claim for trade secret misappropriation under the DTSA.

The Reasonable Measures Standard
Under the Defend Trade Secrets Act, information qualifies as a trade secret only if its owner has taken reasonable measures to keep the information secret. This requirement ensures that trade secret protection extends only to information that companies actually treat as confidential rather than information they claim is secret after disputes arise.

The reasonable measures inquiry is fact intensive and context specific. What qualifies as reasonable depends on the nature of the information, the size and resources of the company, industry practices, and the specific circumstances of how information is used and shared.

Confidentiality Provisions as Protective Measures
Sherbrooke argued that its employment contracts, which required all employees to sign confidentiality and inventions provisions, constituted reasonable measures to protect the proprietary software. The Fourth Circuit agreed with this position, reversing the district court's dismissal.

The appellate court explained that at the pleading stage, allegations that employees signed confidentiality provisions covering the information at issue are sufficient on their own to plausibly allege reasonable measures to maintain secrecy. The court relied on Ninth Circuit precedent establishing that confidentiality agreements can satisfy the reasonable measures requirement without additional alleged protections.

The Fourth Circuit emphasized that while plaintiffs often allege more extensive security measures beyond confidentiality agreements, courts should not require such additional allegations to survive Rule 12 dismissal. Confidentiality provisions alone can establish the reasonable measures element at the pleading stage.

Rejecting Defense Arguments for Early Dismissal

The Fourth Circuit addressed and rejected several arguments the defendants raised seeking affirmance of the dismissal.

No Requirement to Disprove Potential Defenses
The defendants argued that Sherbrooke's complaint failed to connect the proprietary software to the confidentiality provision because it did not address whether the software used open source code. This argument suggested that if the software incorporated publicly available code, the confidentiality provision might not cover it.

The court rejected this reasoning, explaining that plaintiffs need not disprove potential defenses to survive the pleading stage. Sherbrooke only needed to plausibly allege that the proprietary software was covered by the confidentiality provision and that this provision constituted a reasonable measure to maintain secrecy. Whether the software actually incorporated open source elements presented a factual question for later stages of litigation, not a pleading deficiency requiring dismissal.

Confidentiality Agreements Suffice at Pleading Stage
The defendants argued that as a matter of law, confidentiality provisions alone cannot demonstrate reasonable measures to maintain secrecy. This position would require companies to implement and allege additional security protocols such as password protection, restricted access, non disclosure reminders, or physical security measures.

The Fourth Circuit explicitly rejected this bright line rule. The court acknowledged that companies typically implement multiple protective measures and often plead various security protocols in their complaints. However, the court declined to make such additional measures mandatory for surviving Rule 12 dismissal.

This holding recognizes that discovery often reveals security practices not detailed in initial complaints and that requiring exhaustive pleading of all protective measures would impose an unrealistic burden at the earliest litigation stage.

Plausible Misappropriation Allegations

Beyond the reasonable measures issue, the Fourth Circuit concluded that Sherbrooke plausibly alleged actual misappropriation of the proprietary software.

The court considered the factual allegations collectively: Walker created the proprietary software specifically for Sherbrooke during his employment. All three individual defendants were Sherbrooke insiders with access to confidential information and systems. The defendants formed a directly competing insurance company serving the same nursing home market. The defendants allegedly used Sherbrooke's proprietary software to operate their competing venture.

Viewed together, these allegations plausibly suggest that the defendants misappropriated trade secrets rather than independently developing similar software or using only publicly available information. The court emphasized that at the pleading stage, plaintiffs need not prove their case but only allege facts that, if true, would establish liability.

Implications for Businesses and Defense Strategy

The Fourth Circuit's decision has significant implications for both companies seeking to protect trade secrets and defendants facing misappropriation claims.

For Companies Protecting Proprietary Information
The ruling confirms that robust confidentiality agreements provide meaningful trade secret protection under federal law. Companies need not implement elaborate security protocols to qualify for DTSA protection, at least at the pleading stage.

However, businesses should not interpret this decision as eliminating the need for additional security measures. While confidentiality agreements suffice to survive early dismissal, they may prove inadequate at summary judgment or trial when courts examine the totality of protective measures in greater detail.

Effective trade secret protection still requires layered security including confidentiality agreements with clear scope definitions, restricted access to sensitive information based on business need, password protection and encryption for digital information, regular training reminding employees of confidentiality obligations, exit interviews reinforcing continuing duties when employees depart, and documentation of security measures and enforcement efforts.

For Defendants Facing Misappropriation Claims
The decision makes early dismissal of trade secret claims more difficult when plaintiffs allege that defendants signed confidentiality agreements. Defendants cannot rely on arguments that confidentiality provisions alone are legally insufficient or that complaints must detail extensive security protocols.

Defense strategies must shift to factual challenges and later litigation stages. Defendants should focus on discovery examining whether confidentiality provisions actually covered the alleged trade secrets, whether the information was actually secret or was publicly available, whether the company actually treated the information as confidential in practice, and whether defendants acquired or used information through independent development or legitimate means.

Motion practice at summary judgment provides better opportunities to challenge whether protective measures were actually reasonable when examined comprehensively rather than at the pleading stage.

Practical Lessons for Employment Relationships

The Sherbrooke case illustrates common patterns in trade secret disputes arising from competitive employment situations.

Insider Access Creates Misappropriation Risk
Trade secret cases frequently involve company insiders who had legitimate access to proprietary information during employment but allegedly misused that information after joining or forming competing businesses. The combination of access, competitive motivation, and opportunity creates substantial misappropriation risk.

Companies should implement enhanced protections when employees with access to critical proprietary information plan to leave, particularly when departing to competitors or starting competing ventures. Exit procedures should include reminders of continuing confidentiality obligations, return of all company property and information, and confirmation that no confidential information has been retained.

Employment Contracts Provide Foundation for Protection
Well drafted employment agreements containing comprehensive confidentiality and inventions provisions provide the foundation for trade secret claims. These contracts should clearly define confidential information with sufficient breadth to cover proprietary developments, explicitly prohibit use or disclosure for non company purposes, assign ownership of work product and inventions to the company, and survive termination of employment.

Visit our blog for additional insights on trade secret protection, defending against misappropriation claims, and managing legal risks in competitive employment situations.

Moving Forward After the Fourth Circuit Decision

The Fourth Circuit reversed the district court's dismissal and remanded for further proceedings. Sherbrooke's DTSA claim will now proceed through discovery, where both sides will develop factual records regarding what protective measures were actually in place, whether the software qualified as a trade secret, and whether misappropriation actually occurred.

For businesses and legal practitioners, the decision provides important clarity that confidentiality agreements constitute reasonable protective measures sufficient to survive pleading challenges under the Defend Trade Secrets Act. However, the ruling does not resolve what showing will ultimately be required at summary judgment or trial.

At Bulldog Law, we help businesses protect trade secrets through comprehensive employment agreements and security protocols. We also defend companies and individuals against misappropriation claims, challenging allegations at every litigation stage from pleading through trial. Whether you need to protect proprietary information or defend against trade secret claims, we bring the technical understanding and litigation experience to advance your interests in this complex area of law.