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The Inevitable Disclosure Doctrine Introduction In a resulting lawsuit, the prior employer argues that the engineer could not use her job experience for a competitor, as her knowledge is allegedly tainted with an assortment of its confidential information and trade secrets, which she inevitably would use while working for a competitor. The prior employer thus argues that such employment should be enjoined by a court. The engineer contends that the research and development she had performed years earlier relates to technology that is generally available and, in any event, that she cannot recall any information specific enough to use. She reasons that any employee should be allowed to change jobs and use her basic skills and knowledge. Of course this situation also affects the engineer’s prospective employer, which feels that it has the right to hire the engineer and is not attempting to misappropriate trade secrets. However, the prospective employer also has to weigh whether retaining the engineer is worth the price of being embroiled in a lawsuit. The foregoing situation is not unique to engineers, nor is it unique to a particular state. Instead, in a tightening skilled-labor market, it is becoming more common throughout the country as employers seek to retain at-will employees who have not signed a covenant not to compete. Accordingly, any company with a research and development, manufacturing or sales facility should be aware of and actively address the issue of trade secrets with respect to prospective and departing employees. While the aforementioned issues often arise in a non-compete agreement case, application of the inevitable disclosure doctrine may effectively create a non-competition obligation where no such agreement was negotiated. Conversely, lack of application of the doctrine could invite the loss of valuable trade secrets. As a result of these inherent tensions, state and federal courts across the U.S. constantly struggle to weigh employee rights against those of trade secret owners even outside the context of non-competition agreements. This changing landscape, multiplied by the number of different jurisdictions, multiplied by the infinite number of specific fact patterns, requires lawyers to tackle difficult challenges in an inevitable disclosure case.
Inevitable Disclosure Basics
The doctrine of inevitable disclosure has most often appeared in decisions under state statutes incorporating the Uniform Trade Secret Act (“UTSA”) which allows “threatened” misappropriation to be enjoined.2 At last count, 45 states have adopted some form of the UTSA, but, not all of those states have interpreted “threatened” misappropriation as acceptance of the inevitable disclosure doctrine. In fact, California courts expressly have rejected the inevitable disclosure doctrine “as contrary to California law and public policy because it creates an after-the-fact covenant not to compete, restricting employee mobility.”3 Despite the opportunity, Texas courts have not officially recognized the inevitable disclosure doctrine.4 However, courts applying Texas law have arguably adopted some form of the doctrine.5 For example, the Fifth Circuit, applying Texas law to a claim of trade secrets misappropriation, entered a preliminary injunction that prevented a former employee from divulging any trade secrets to his new employer. 6 The court specifically enjoined the new employer from putting the employee “in a position that poses an inherent threat of disclosure or use of [the former employer’s] trade secrets.”7 The Fifth Circuit noted that “[e]ven assuming the best of good faith, [the former employee] will have difficulty preventing his knowledge of FMC’s [proprietary] manufacturing techniques from infiltrating his work.”8 Similarly, a Texas appellate court entered a temporary injunction preventing an employee from performing any duties for his new employer that were similar to the duties performed for his prior employer based on the risk of disclosure of trade secrets.9 While neither court referenced the inevitable disclosure doctrine by name, both courts arguably were applying some version of the inevitable disclosure doctrine. A leading case on inevitable disclosure and one of the first in which a circuit court upheld an injunction is Pepsico v. Redmond.10 In that case, a general manager of Pepsi accepted a job in Quaker’s sports drink division to execute its sports drink marketing plans. The general manager had worked at Pepsi for ten years, had signed a confidentiality agreement, and had access to Pepsi’s confidential plans for increasing its market share in sports drinks. The Court prevented the manager from taking the Quaker job for six months on the grounds that the proposed employment would inevitably lead the manager to disclose trade secrets of his former employer and make decisions for his new employer based on those trade secrets.11 The Court said that Pepsi “finds itself in the position of a coach, one of whose players has left, playbook in hand, to join the opposing team before the big game.”12
How Long After an Employee Leaves Can the Doctrine be Applied? In a recent trade secret trial, a federal court declined to apply the inevitable disclosure doctrine in the circumstance of a scientist who had left his prior employer four years before joining a direct competitor. However, in other circumstances, courts have applied the inevitable disclosure doctrine over a year after the employee had left his prior employment.13 In reviewing the cases from jurisdictions that follow the doctrine, it is apparent that there is no bright line rule. Instead, courts consider several issues that seem to be important as courts wrestle with whether to apply the doctrine. First, courts consider the technology involved. The more rapid the technology-at-issue evolves, the less willing a court is to apply the doctrine after a passage of time.14 The rationale apparently is that if technology is advancing rapidly, then over time an employee’s prior knowledge is less relevant, any remaining trade secrets are less valuable, and the employee’s rights should trump the trade secret owner’s rights. Conversely, when the technology is less progressive, then the inevitable disclosure doctrine is more likely to be applied to prevent an employee from competing.15 A second factor to predict the applicability of the doctrine is the nature of the trade secrets and the extent of the employee’s exposure to those trade secrets.16 A court may determine whether the employee who has been removed from the industry for a period of time will remember the alleged trade secrets in sufficient detail and if so, whether the employee can separate her general industry knowledge from her knowledge of the trade secrets.17 If the nature of the trade secrets is such that they are easy to remember and the employee had daily access to them for a number of years, then the doctrine is more likely to apply. Conversely, if the alleged trade secrets are more complex (such as comprehensive financial data or a complicated chemical formula involving specific amounts of a large number of ingredients), then the doctrine may be less likely to apply.18 This is especially true if the employee had only brief exposure to the trade secret. Of course, a host of other factors appear when examining whether the doctrine applies to an employee who does not immediately join a competitor. For example, a court may review the efforts of the new employer to prevent inadvertently obtaining the trade secrets, or may consider the credibility of the employee.19 Generally, the doctrine is more likely to be applied when there are no steps taken by the new employer or if there is a lack of truthfulness by the employee in regard to the scope of employment or exposure to the alleged trade secrets.20
Application Outside the Injunction Context There is not a lot of published information about the use of the inevitable disclosure doctrine in the context of a trial. However, based on personal experience and anecdotal information, use of the inevitable disclosure doctrine at trial is not generally accepted. For example, trade secret owners’ request for the inclusion of inevitable disclosure in the jury instructions in lieu of or in addition to actual misappropriation has been denied. Similarly, when a competing product has been developed by the former employee and his new employer, trade secret owners have tried unsuccessfully to use the doctrine to obtain an inference that the product was not developed independently. The rationale for disregarding the doctrine in these circumstances is that the doctrine’s applicability is a matter of law, and applying it at trial would allow the trade secret holder to prevail without presenting evidence of actual use of the trade secret. Of course, as there is not an absolute prohibition against use of the doctrine at trial, it is possible that some circumstances may justify its application.
Conclusion Gregory Porter and Joseph Beauchamp are attorneys at the Houston office of Jones Day, specializing in patent and trade secret litigation. Porter has acted as lead counsel in trade secret cases in both state and federal court.
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