Understanding the Inevitable Disclosure Doctrine: Protecting Trade Secrets in Employment Transitions

THE INEVITABLE DISCLOSURE DOCTRINE

The inevitable disclosure doctrine holds – “the former employee would “inevitably disclose” those trade secrets in his or her new position with a competitor employer. The rationale of inevitable disclosure is that even without an actual misappropriation of trade secrets, and even without a negotiated non-compete agreement, disclosure will occur because of the close functional relation of the new employment to the former position.”

The doctrine suggests that “an employee may be preliminarily enjoined by demonstrating that the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer’s trade secrets. Ordinarily, an employer may recover damages from or secure an injunction against the misappropriation or disclosure of trade secrets. In contrast, an employee’s general knowledge is not considered a trade secret.”

If the court finds this actual inevitable disclosure to be true, the erstwhile employer can file for an injunction against the employee from accepting the new job. Initially, the doctrine was applied only to employees in technical fields, but courts have stretched it to cover employees in possession of a range of trade secrets, such as financial, manufacturing, production, and marketing information.

THE PEPSICO CASE

The leading case on inevitable disclosure is PepsiCo. Inc. v. Redmond, which is a decision of the United States Court of Appeals for the Seventh Circuit, holding that it had affirmed a preliminary injunction preliminarily enjoining a former PepsiCo employee from accepting a new position at a competitor company. Here, the allegation was that the defendant, Redmond, worked at PepsiCo and was going to switch jobs to a similar position but to a competitor of his employer. Redmond had signed a non-disclosure agreement with PepsiCo, but he never signed a non-compete agreement. However, the company filed the case to seek an injunction against him so that he would not join their competitor, Quaker. The main contention of PepsiCo was that the defendant had access to their trade secret, and he may use the same working strategies or technical know-how when he joins their competitor firm. The plaintiff argued that the mere existence of a trade secret in written form is inconsequential; instead, what matters is if defendant has mental knowledge regarding the trade secret and through such knowledge has caused considerable harm to the company.

The trade secret information that PepsiCo sought to protect related mainly to strategic sales, marketing, logistics and financial information.  The district court, in its opinion, emphasized Redmond’s bad faith conduct before he began work at Quaker, and included the determination that “unless Redmond possessed an uncanny ability to compartmentalize information, he would necessarily be making decisions. by relying on his knowledge of [PepsiCo] trade secrets.”

The Seventh Circuit Court of Appeals underlined the fact that “a plaintiff may prove a claim of trade secret misappropriation by demonstrating that the defendant’s new employment will inevitably lead to [the disclosure of trade secrets], but the fact that the defendant took a similar position with a competitor does not make the disclosure inevitable by itself.”.

Generally, a preliminary injunction by court will issue only if the Plaintiff demonstrates any of the following: 1) likelihood of success on the merits, 2) a demonstration of at least a reasonable probability of irreparable injury in the absence of the injunction, 3) a balancing of the relevant equities, and 4) a determination that the effect of the injunction upon the public or other interested persons is such as to require denial.

In many instances “courts have not automatically presumed irreparable harm based upon a plaintiff’s argument that disclosure of its trade secrets is inevitable.”

THREATENED MISAPPROPRIATION VS. ACTUAL DISCLOSURE

Traditionally, a trade secret analysis involves search for identification of the existence of a trade secret, identification of its actual or threatened disclosure. Injunctive relief under inevitable disclosure doctrine is found to be sought not only when trade secrets have actually been misappropriated, but if there is apprehension of alleged “threatened misappropriation” resulting from the new employment.

What is threatened in misappropriation is not because the employee intends to steal the former employer’s trade secrets, but because the employee cannot help but commit such misappropriation when performing his/her job responsibilities.

The courts and commentators differ regarding the inevitable disclosure of threatened misappropriation. Threatened misappropriation and inevitable disclosure are considered by some as a single concept, by others as separate theories, while a third person believes eventual revelation as a means of proving threatening misappropriation.

In Barilla Am., Inc. v. Wright, the court has specifically noted that “the inevitable disclosure doctrine appears to be aimed at preventing disclosures despite the employee’s best intentions, and the threatened [misappropriation] doctrine appears to be aimed at preventing disclosures based on the employee’s intentions”.

In Del Monte Fresh Produce Co. v. Dole Food Co., the court treated the inevitable disclosure as a separate and distinct theory from the threatened misappropriation. The court held that “the main distinction between the two theories was the level of proof required. Inevitable disclosure requires a demonstration of ‘a real and present danger of disclosure,’ while threatened misappropriation requires ‘proof beyond inevitability.’”

There is an argument that inevitable disclosure and threatened disclosure are best treated as two different theories. Those commentators argue that “threatened disclosure has already been satisfactorily addressed by common law and can easily be analyzed under standard trade secret analysis. Inevitable disclosure, therefore, must be a theory that fills a “gap” between actual misappropriation and employee general knowledge by addressing non-malicious or unintentional but nonetheless inevitable disclosure.”

Author: Vikram Choudhary, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing

REFERENCES

1. Suellen Lowry, Inevitable Disclosure Trade Secret Disputed, 40 Stan L. Rev. 519 (1988).
2. John H. Matheson, Employee Beware: The Irreparable Damage of the Inevitable Disclosure Doctrine, 10 Loy. Consumer L. Rev. 145 (1998).
3. Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1446 (2002).
4. Hoskins Mfg. Co. v. PMC, 47 F. Supp. 2d 852 (E.D. Mich. 1999).
5. High Tech. L. 161, 166 (2004).
6. 54 F.3d 1262, 1272 (7th Cir. 1995).
7. Niharika Malhotra and Ambika Bohra, America to India: Doctrine of Inevitable Disclosure, Ipleaders (November 2, 2021, 12:30 PM), https://blog.ipleaders.in/america-india-doctrine-inevitable-disclosure/.
8. Inc. v. Redmond, 54 F.3d 1262, 1266 (7th Cir. 1995).
9. at 1267.
10. Faegre & Benson LLP, Doctrine of Inevitable Disclosure (2008), https://ipo.org/wp-content/uploads/2013/04/DoctrineofInevitableDisclosure.pdf.
11. Troy A. Martin, Comment, The Evolution of Trade Secret Law in Texas: Is It Time to Recognize the Doctrine of Inevitable Disclosure?, 42 S. Tex. L. Rev. 1361, 1380 (2001).
12. Linda K. Stevens, Trade Secrets and Inevitable Disclosure, 36 Tort & Ins. L.J. 917, 934 (2001).
13. John H. Matheson, Employee Beware: The Irreparable Damage of the Inevitable Disclosure Doctrine, 10 Loy. Consumer L. Rev. 145 (1998).
14. 4-02-CV-90267, 2002 U.S. Dist. LEXIS 12773 (S.D. Iowa July 5, 2002).
15. Barilla Am., Inc. v. Wright, No. 4-02-CV-90267, 2002 U.S. Dist. LEXIS 12773 (S.D. Iowa July 5, 2002).
16. 148 F. Supp. 2d 1326, 1335 (S.D. Fla. 2001).
17. Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326, 1335 (S.D. Fla. 2001).
18. Jennifer L. Saulino, Locating Inevitable Disclosure’s Place in Trade Secret Analysis, 100 L. Rev. 1184, 1192 (2002).