Inevitable Disclosure Doctrine: Everything You Need to Know
Inevitable disclosure doctrine allows employers to prevent former employees from working in another job that would require the disclosure of its trade secrets.3 min read
2. How Inevitable Disclosure Works
3. Defend Trade Secrets Act
4. Sample Inevitable Disclosure Case
Inevitable disclosure doctrine is a law allowing employers to prevent former employees from working in another job that would require the disclosure of its trade secrets. However, this federal law does not supersede state trade secret laws, so California, Florida, and some other states have successfully chosen not to adopt this doctrine.
Determining Inevitable Disclosure
Courts use several factors to determine whether inevitable disclosure applies, including:
- What the employee's role is at the new company and whether he or she will be responsible for making decisions
- Whether the responsibilities of the new job are similar to those of the old job
- Whether product development is part of the new role
- If the employee created or assisted with the creation of the trade secrets in question
- Whether the trade secrets in question could be easily memorized
How Inevitable Disclosure Works
Assume an individual has been employed with the same company for five years and has been privy to many trade secrets during his tenure. He did not sign a non-compete agreement but did agree not to share confidential information. He resigns from the company to accept a job with a fast-growing new competitor.
The president of the original company is angered because he believes that inevitable disclosure of trade secrets to this new competitor will result. However, the previous company is unlikely to be able to stop the employee from accepting the job. In most cases, actual or threatened misappropriation must be proven in court for this to occur.
Defend Trade Secrets Act
Signed into law in May 2016, the Defend Trade Secrets Act (DTSA) was one of the biggest changes to the laws governing intellectual property (IP) in recent memory. It also provides significant advantages for companies that own trade secrets, including nationwide discovery access, and property seizure to prevent stolen trade secrets from being shared.
Those accused of stealing trade secrets are protected by the DTSA with provisions including limits on available injunctive relief and a hearing within seven days of seizure of property.
The status of inevitable disclosure doctrine under the DTSA is unclear. Some state laws will prevent an employee from getting a job with a company's competitor if inevitable misappropriation can be proven as described above. This is beneficial for company owners because the actual occurrence of misappropriation can be difficult to prove in court. However, the doctrine also receives criticism because it enforces the terms of a non-compete agreement against someone who has never signed this type of agreement.
The DTSA notes the mere knowledge of trade secrets does not necessarily indicate that misappropriation will occur, which seems to negate inevitable disclosure. However, some court opinions since the DTSA was enacted uphold the inevitable disclosure doctrine.
Though the court may not find the accused guilty based on inevitable disclosure, a company could still sue a former employee under this doctrine in hopes that substantiating evidence will be found during the discovery period.
Sample Inevitable Disclosure Case
Inevitable disclosure doctrine moved to the forefront of trade secret law in the mid-1990s with PepsiCo, Inc. vs. Redmond, heard in the U.S. Court of Appeals for the Seventh Circuit. After 10 years with PepsiCo, a general manager named Redmond moved to Quaker Oats. As general manager, he was responsible for strategic planning, advertising, marketing, pricing, and distribution.
After Redmond left the company, PepsiCo sued for inevitable trade secret misappropriation because Quaker Oats was a major competitor in the sports drink sector. The court found the conflicting interests in this situation lead to tension because of the inevitability of misappropriation if the new rule requires the employee to rely on the trade secrets from the previous company.
The court analyzed whether the trade secrets would likely be used in the new role with Quaker Oaks. PepsiCo alleged that because Redmond would be responsible for packaging, marketing, and distributing Quaker's soft drinks, knowledge of Pepsi's pricing, margins, costs, and other trade secrets would be used in this role. The court agreed with PepsiCo and prevented Redmond from working for Quaker Oats.
Although this decision has been criticized, some states have used it as a foundation for their own use of the inevitable disclosure doctrine. In most cases when it is used, however, it is narrowly applied.
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