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A General History of Western Trade Secret Law from the Time of Preliterate Society to Today - Pt. 2

Posted By Dominick Severance, Jan 22, 2013

Overview and Application of the Inevitable Disclosure Doctrine

The inevitable disclosure doctrine is a relatively new legal concept, with the earliest cases appearing in the 1980s.[1] The doctrine allows a court to enjoin an employee from working for a competitor of his former employer if the former employer can prove that the new position would inevitably result in the disclosure or use of company trade secrets.[2] So far only 19 states have ruled on the issue of whether to adopt the inevitable disclosure doctrine: six outright rejected the doctrine (CA, FL, LA, MD, MI, VA), while thirteen have applied it on at least one occasion (AK, CT, DE, IL, IA, MA, MN, NJ, NY, NC, OH, PA, UT).[3]

Although not required, courts do consider the actions of departing employees in their determination of the risk of future disclosure or use. For example, in Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 103 (3d Cir. 2010), Chris Botticella, a vice president of Bimbo and one of only seven people who knew the company’s secret muffin recipe, copied non-muffin related trade secret documents to an external hard-drive before he left his employer to work for a rival, Hostess.[4] Even though both Botticella and Hostess testified that no secrets were misappropriated, the district court granted Bimbo’s injunction based on inevitable disclosure.[5] The court reasoned that Botticella took the documents after he had accepted a position with the rival and before announcing his intention to leave Bimbo: his actions undermined his trustworthiness and created at least a substantial threat that he would disclose Bimbo’s trade secrets in the course of his employment at the rival.[6]

Courts have applied the doctrine even without evidence of employee impropriety or threatened misappropriation. For example, the courts in both International Business Machines (IBM) v. Papermaster, 2008 WL 4974508, 1 (S.D.N.Y. 2008) and Pepsico, Inc. v. Redmond, 54 F.3d 1262, 1264 (7th Cir. 1995) granted the plaintiff employer’s request for an inevitable disclosure injunction even though the court found no evidence that the respective employee had misappropriated any trade secrets or acted dishonorably. Although the basis of these rulings was to protect an employer’s trade secrets, they ultimately allow companies to use the law to effectively intimidate employees seeking to work with a rival through the threat and expense of litigation.[7]

Alternatives to Inevitable Disclosure

As a state that prohibits any kind of post-employment restriction and thus the doctrine of inevitable disclosure, California is a center for industry efforts at restricting current employee mobility. One such method is the non-solicitation agreement amongst rival companies. In September 2010 the Justice Department filed an antitrust complaint in court against six Silicon Valley companies: Apple, Adobe, Google, Intel, Intuit, and Pixar.[20] For the past five years, these six companies had abided by an unwritten agreement to not cold-call each other’s employees.[21] The companies had intentionally limited the mobility of current employees by having competitors withhold potential offers of employment.[22] These companies achieved similar results as a non-compete agreement or inevitable disclosure injunction by simply decreasing the chance of a current employee going to a competitor.[23] Ultimately, based on antitrust concerns, the companies settled with the Justice Department by agreeing to refrain from future non-solicitation deals for the next five years.[24]

Another method companies use to bypass post-employment regulation is by requiring employees to agree to a “garden clause” provision as part of the terms of employment. In the garden leave clause, the employee promises to give a certain amount of notice to the employer in advance of the employee’s resignation from employment.[25] In exchange, the employee stays at home with little to no company work so he can focus on “tending the garden.”[26] During this set time at home, the employee is still employed and paid a regular salary by the employer.[27] The hope is that the time the employee spends in garden leave will allow the employer to prepare for the leakage of any secrets the employee may communicate to a competitor.

The garden leave clause has some of the same benefits of a non-compete: if the employee begins working for another employer during the time of the leave, the employer may request an injunction that would enforce the provision or make a separate claim of breach of employee loyalty.[28] Moreover, because garden leave is paid leave, employers are not faced with the prospect of asking a court to enjoin an employee from pursuing his or her chosen field of endeavor or to prevent an employee from earning a living.[29] See Estee Lauder Companies Inc. v. Batra, 430 F. Supp. 2d 158, 182 (S.D.N.Y. 2006), (upholding a restrictive covenant containing a garden leave clause since the loss of livelihood was mitigated by the continual payments of the annual salary during the running of the non-compete agreement).

Although California has a bar on post-employment restrictions, California courts could enforce these garden leave clauses as a natural extension of an ongoing employer-employee relationship. Garden leave only applies during the employee-employer relationship, not after it has concluded. If the courts agree with such reasoning, companies will have a way to protect trade secrets without relying on inevitable disclosure claims. Whether courts will allow garden leave clauses to remain effective has yet to be seen and will be an interesting item to watch as trade secret law adapts to the world today.

Sources

[1]Barry Cohen, The Current Status of the Inevitable Disclosure Doctrine: A Unique Trade Secret Litigation Tool, 3 No. 2 Landslide 40, 43 (2010).

[2] Eric Welsh, Actions Speak Louder than Words: Bad Faith Conduct Supports Finding of “Inevitable Disclosure” of Trade Secret, (Feb. 19, 2010), http://blogs.parkerpoe.com/tradesecrets/trade-secrets/actions-speak-louder-than-words-bad-faith-conduct-supports-finding-of-inevitable-disclosure-of-trade-secret/.

[3] Cohen at 43.

[4] Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 107 (3d Cir. 2010).

[5] Bimbo at 109

[6] Ibid.

[7] Charles Graves & James DiBoise, Do Strict Trade Secret and Non-Competition Laws Obstruct Innovation?, 1 Entrepreneurial Bus. L.J. 323, 338 (2006).

[8] Whyte v. Schlage Lock Co., 125 Cal.Rptr.2d 277, 293 (Cal. App. 4th 2002).

[9] Ibid.

[10] Michael Greco, Garden Leave as Consideration for a Non-Compete, (Oct. 10, 2010), http://www.noncompetenews.com/post/2010/10/10/Garden-Leave-as-Consideration-for-a-Non-Compete.aspx

[11] Bad-news-all-around dept, Noncompete Agreements are the DRM of Human Capital, (Dec. 5, 2007), http://www.techdirt.com/articles/20071204/005038.shtml

[12] Ibid.

[13] Ibid.

[14] Ibid.

[15] Ibid.

[16] Ibid.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] P. May, M. Swift, & J. Boudreau, Apple, Google, Intel, Other Tech Firms Admit Secret Agreements to not Poach Employees, (Sept. 27, 2010), http://www.consumerwatchdog.org/story/apple-google-intel-other-tech-firms-admit-secret-agreements-not-poach-employees

[21] Ibid.

[22] Ibid.

[23] Ibid.

[24] Ibid.

[25] Jeffrey Klein & Nichols Pappas, ‘Garden Leave’ Clauses in Lieu of Non-Competes, 241 N.Y. L.J. 1 (2009).

[26] Ibid.

[27] Ibid.

[28] Tyler Paetkau, Paetkau on the Case for “Garden Leave” in California, 2009 Emerging Issues Analysis 4513 (2009).

[29] Ibid.