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TABLE OF CONTENTS

INTRODUCTION.. 3

THE EXISTENCE OF TRADE SECRETS. 3

Employer-Employee Relations. 3

THE PROTECTION OF TRADE SECRETS. 4

Injunctive Relief 4

Extraordinary Remedy. 4

Balance of Interests. 4

Long Track Record of Injunctions in Trade Secret Cases. 5

THE “INEVITABLE DISCLOSURE” DOCTRINE. 5

The Rationale for the “Inevitable Disclosure” Doctrine. 5

Negative Know-How.. 5

Unjust Enrichment 5

Circumstantial Evidence. 5

Historical Support for the “Inevitable Disclosure” Doctrine. 6

The Modern Era of the “Inevitable Disclosure” Doctrine. 6

PEPSICO, INC. v. REDMOND.. 7

Factual Background. 7

Analysis. 8

THE AFTERMATH OF PEPSICO v. REDMOND.. 8

Increase in Trade Secret Cases. 8

Abuse of the Doctrine Not Tolerated by the Courts. 8

Doctrine Applicable only to Injunctive Relief 9

Proof of Trade Secrets First 9

Actual Misappropriation of Trade Secrets. 9

Activity-Restriction Injunctions. 9

Flexibility and Discretion Are Required. 10

Fact-Intensive Inquiries. 11

Bad Intent Is Not an Element of the Doctrine. 11

Doctrine Applies to Technical and Nontechnical Trade Secrets. 11

The Role of Restrictive Covenants. 11

The “Inevitable Disclosure” Doctrine Exists in California and New York. 11

CONCLUSION.. 12

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INTRODUCTION

It is a fundamental tenet of trade secrets law that the threatened or actual misappropriation of trade secrets may be enjoined.[1]  Trade secrets are fragile assets.  The economic value of a trade secret is derived from the secrecy of the information and a trade secret, once lost, is lost forever.  It is too late to obtain injunctive relief once the horse out of the barn.[2]

Without effective injunctive relief, the intellectual property right in trade secrets could not survive or prosper.  The extent of property rights in trade secrets is determined by the extent to which owners of secrets protect their interest from disclosure to others.[3]

Trade secrets are rapidly becoming the intellectual property of choice in the new economy.  Machinery and mechanisms were the brainchildren of the industrial age and patent law was designed to protect them.  In the Information Age, trade secret protection is better suited to the fast-moving and unpatentable confidential information we need to run our companies.  The Brookings Institution estimates that “at least 50%, and possibly as much as 85%," of the value of American companies is attributable to intangible assets.[4]

The “inevitable disclosure” doctrine is as old as the law of trade secrets.  It is a coined term used to describe the entry of injunctive relief to prevent the threatened misappropriation of trade secrets.  Whether the record in a trade secret establishes an inherent  risk of disclosure, a probable  risk of disclosure, an inevitable risk of disclosure, or an imminent  risk of disclosure, the trade secret owner is entitled to injunctive relief to protect the trade secrets at risk.

Some argue that any time an employee quits and goes to work for a competitor a risk of trade secret misappropriation exists.  The “inevitable disclosure” doctrine provides the employer with an undue advantage to restrain post-employment activities of a former employee without proof of any wrongdoing.  Others argue that post-employment restrictions should be imposed only by contract.

These assaults on the "inevitable disclosure" doctrine are short-sighted and out of step with the law of trade secrets and the role of equity courts in granting and fashioning injunctive relief in trade secret cases.

THE EXISTENCE OF TRADE SECRETS

The modern definition of trade secrets encompasses any information – technical or nontechnical—that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.[5]

The protection of trade secrets promotes investment in research and development, and the sharing and exploitation of commercially valuable information.  The trade secret owner, because of the protection provided, is not subject to unfair competition in the marketplace.[6]  Studies have traced the existence of trade secret rights back to Roman times.[7]  The law of trade secrets in the United States evolved from English cases dating back the to early 19^th century.[8]

The checklist of potential trade secrets is virtually endless. Several examples include:

Further, it is well established that “a trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unique process, design and operation of which, in unique combination affords a competitive advantage and a protectable secret.”[9]

Employer-Employee Relations

There has always been a tension in the law between the employer’s right to protect trade secrets and the employee’s right to pursue his or her livelihood.  A classic statement of the competing policies appears in the 1960 decision in Wexler v. Greenberg, where the court found that trade secret cases bring:

to the fore a problem of accommodating competing policies in our law:  the right of a businessman to be protected against unfair competition stemming from the usurpation of his trade secrets and the right of an individual to the unhampered pursuit of the occupations and livelihoods for which he is best suited.  There are cogent socio-economic arguments in favor of either position.  Society as a whole greatly benefits from technological improvements.  Without some means of post-employment protection to assure that valuable developments or improvements are exclusively those of the employer, the businessman could not afford to subsidize research or improve current methods.  In addition, it must be recognized that modern economic growth and development has pushed the business venture beyond the size of the one-man firm, forcing the businessman to a much greater degree to entrust confidential business information relating to technological development to appropriate employees.  While recognizing the utility in the dispersion of responsibilities in larger firms, the optimum amount of “entrusting” will not occur unless the risk of loss to the business man through a breach of trust can be held to a minimum.

            On the other hand, any form of post-employment restraint reduces the economic mobility of employees and limits their personal freedom to pursue a preferred course of livelihood.  The employee’s bargaining position is weakened because he is potentially shackled by the acquisition of alleged trade secrets; and thus, paradoxically, he is restrained, because of his increased expertise, from advancing further in the industry in which he is most productive.  Moreover, as previously mentioned, society suffers because competition is diminished by slackening the dissemination of ideas, processes and methods.[10]

In balancing these competing interests, several ground rules are in place in any trade secrets case involving the adjudication of employer-employee rights in trade secrets.

From the perspective of the employer, no contract is required to impose trade secret liability.  An employee has an implied obligation during his employment and, thereafter, not to disclose or use the employer’s trade secrets for his own personal benefit or the benefit of others.

From the employee’s perspective, it is clear that the general knowledge, skills and experience of a former employee cannot be restrained.  Second, information that is generally known in the trade cannot qualify as a trade secret. Finally, information that is readily ascertainable by reverse engineering or otherwise cannot be protectable as a trade secret.

THE PROTECTION OF TRADE SECRETS

Injunctive Relief

The primary remedy in any trade secrets case in an injunction.  The value of a trade secret rests upon secrecy.  Any unauthorized disclosure or use of a trade secret causes irreparable harm as a matter of law because once another person or entity obtains access to the trade secret without authorization, the value of a trade secret is diminished or destroyed.

Injunctive relief is the lifeblood of trade secrets law.  The primary objective in any trade secrets case is to protect the trade secret from unauthorized acquisition, disclosure, or use.  Damages will not be an adequate remedy when the competition has obtained the trade secrets.  “The cat is out of the bag and there is no way of knowing to what extent [the competitor’s] use has caused damage or loss.”[11]   It is not by accident that Section 2 of the Uniform Trade Secrets Act, entitled “Injunctive Relief,” precedes Section 3, entitled “Damages.”  The objective is always to plug the leaks in the dam first, then assess the damages afterward.

Extraordinary Remedy

The issuance of an injunction is an extraordinary remedy.  An injunction cannot issue to enjoin a mere possibility of unauthorized disclosure or use.  Injunctions are not available to allay the fears of the former employer.[12]  There must be sufficient evidence of a probable loss or injury to justify the entry of injunctive relief.  There must be a showing of irreparable harm if the injunction is not entered.

Balance of Interests

It is well established that a court of equity shall not grant injunctive relief without balancing the interests of the parties in light of the public interest.  The employer’s interest (to protect trade secret assets), the employee’s interest (to protect employee’s mobility and choice) and the public interest (to protect free and fair competition) must be considered.

Courts require the party seeking injunctive relief to show a probable success on the merits or sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in favor of the party seeking injunctive relief.

The entry of an injunction, without balancing these interests, constitutes an abuse of discretion as a matter of law.

Long Track Record of Injunctions in Trade Secret Cases

Courts of equity have centuries of experience with granting and fashioning injunction relief narrowly tailored to protect the employer’s legitimate interest in protecting trade secrets.  Overboard injunctions are routinely overruled.  In any case in which injunctive relief is sought, the courts have fashioned rulings based upon a careful weighing of both the employer and employee’s interests as well as the public interest in free and fair competition.

The use of injunctive relief in trade secret cases can be traced back to the early English cases in the 19^th century.  In 1820, in Yovatt v. Winyard, the court enjoined a former employer from the further use of or disclosure of medicinal formulas.[13]  In 1851, in Morison v. Moat, the court enjoined a third party who had acquired the trade secret through another’s breach of confidence.[14]  In 1837, in Vickery v. Welsh, the court issued an injunction to protect trade secrets rights in a contract for sale of a chocolate factory.[15]  In 1868, in  Peabody v. Norfolk, the court affirmed an injunction to protect the trade secrets of a former employer.[16]  Every student of trade secrets law knows that injunctive relief is the primary remedy in trade secrets cases.  The list of cases is endless.

THE “INEVITABLE DISCLOSURE” DOCTRINE

The Rationale for the “Inevitable Disclosure” Doctrine

Negative Know-How

            A former employee cannot wipe the slate clean.  The former employee carries the former employer’s trade secrets in his head.  He knows “what works” and “what doesn’t work.”  He knows the blind alleys.  This negative “know how” is often the most valuable trade secret that a company possesses.  The “inevitable disclosure” injunction is the only way to protect these types of trade secrets.

If an employee has had previous access to a highly developed technology, it should be common sense that the former employee will not start over again at “ground zero” when he commences work for a new employer in the same technology.  Prefrontal lobotomies cannot be performed on former employees.[17] 

Unjust Enrichment

Likewise, companies will not start at ground zero either if they can save money and shortcut the process of research and development by hiring an employee who already possesses the solutions to the problems.  If you scatter a 500-piece puzzle on the floor and ask someone to put it together, it will take much longer, if at all, to complete the puzzle under circumstances where the person has never seen the complete picture on the cover of the puzzle box.    

Circumstantial Evidence

The “inevitable disclosure” doctrine is not a cause of action.  It is inference drawn from the fact that former employees continue to possess trade secrets in their heads when they quit to go to work for new competitors and taking into consideration the fact  that there is no other means for eradicating the trade secrets for their memory.

Most trade secret cases are built on circumstantial evidence.  The classic statement of this state of affairs in a trade secrets case was set forth in Greenberg v. Croydon Plastics Co.:

Misappropriation and misuse can rarely be proved by convincing direct evidence.  In most cases, plaintiffs must construct a web of perhaps ambiguous circumstantial evidence from which the trier of fact may draw inferences which convince him that it is more probable than not that what plaintiffs allege happened  did in fact take place.   Against this often delicate construct of circumstantial evidence there frequently must be balanced defendants and defendants’ witnesses who directly deny everything.[18]

The “inevitable disclosure” doctrine creates an inference, based upon circumstantial evidence, that the former employee will inevitably disclose and use the trade secrets of his former employer in carrying out the same  duties and responsibilities of his new employer.

The following cross-examination in the C & F Packing Co. v. IBP, Inc.[19]case, which resulted in a $10.9 million jury verdict, illustrates the powerful inferences that flow from the “inevitable disclosure” doctrine:

Q:        Mr. McDaniel, when you left C & F, did you have an understanding that you were supposed to keep parts of its process confidential?

A:         I realized that it wasn’t something they wanted me to rush out and tell everybody, yes.

Q:        Have you honored that understanding in your dealings since that time?

A:         I have tried to do so.

Q:        To your knowledge, have you ever violated your understanding of what you were supposed to keep confidential at C & F?

A:         If I did it was completely unintentional.

Q:        So to your knowledge you have not?

A:         Correct.

Q:        Did you draw on your experience at C & F with the Italian sausage toppings to solve these problems at IBP?

A:         I tried to keep things separate.  Whether I did it unknowingly or not, I cannot say.[20]

Historical Support for the “Inevitable Disclosure” Doctrine

            There are many cases that support the rational for the “inevitable disclosure” doctrine.  In 1902, the Seventh Circuit observed on Harrison v. Glucose Sugar Refining Co.:

Under the circumstances it would require something more than his mere denial to convince us that in the manufacture of glucose he would not employ the secrets of the business of the appellee which had been confidentially communicated to him.  He could not well do otherwise.  He was employed by the rival for that purpose.  He was to give over the skill, including the knowledge, confidentially acquired in the business of the appellee, to his new master.  He could not in good faith serve the one without breach of duty to the other.[21]

In 1919, the court observed in Eastman Kodak v. Power Film Products:

[T]he value of Warren’s services to the defendant company arises from his experience while in the plaintiff’s employ, growing out of the practical application of these trade secrets, and not otherwise. . . . In this view, if he is permitted to enter this employ, injunctive relief in form against the imparting of such special knowledge is more than likely to prove inefficient.  The mere rendition of the service along the lines of his training would almost necessarily impart such knowledge to some degree.[22]

In 1978, the Texas Court of Appeals observed in Weed Eater, Inc. v. Dowling: “Even in the best of good faith, Dowling can hardly prevent his knowledge of his former employer’s [proprietary] methods from showing up in his work.”[23]

In 1982, the Fifth Circuit in FMC v. Varco observed:  “Even 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.”[24]

In 1995, the trial court observed in Marcam Corp. v. Orchard: “Even if Orchard thinks he is keeping Marcam’s secrets, he will, as DataLogix’s employee, inevitably, even if inadvertently, be influenced by the knowledge he possesses of all aspects of Marcam’s development efforts.”[25]

The Modern Era of the “Inevitable Disclosure” Doctrine

The modern era of the “inevitable disclosure” doctrine begins with the B. F. Goodrich v. Wohlgemuth[26] decision in Ohio in 1963.  Donald Wohlgemuth worked his entire career in the “pressure-space suit department” at B.F. Goodrich and he had risen through the ranks to be manager of this highly specialized department in charge of all research and development regarding space suits.

In 1964, Wohlgemuth announced his resignation to go to work for International Latex Corporation in their space suit department, which as 14 years behind B. F. Goodrich in the development of this specialized technology.

B. F Goodrich sued Wohlgemuth to protect its trade secrets.  There was no evidence of “actual” misappropriation of any trade secrets although Wohlgemuth was reported to have said to fellow employees that “loyalty and ethics had their price; insofar as he was concerned, International Latex was paying that price.”

Based on this record, the court had no reservation grating injunctive relief to prevent the threatened misappropriation of trade secrets.  “We have not doubt that an injunction may issue in a court of equity to prevent a future wrong although no right has yet been violated.”  Further, the court stated, “unless a restraining order is entered, Goodrich may suffer irreparable injury.”

That same year, the Delaware Chancery Court addressed an “inevitability” argument in the context of a motion for summary judgment in E.I. Du Pont De Nemours & Co. v. American Potash & Chemical Corp.[27]  A preliminary injunction previously had been entered enjoining Donald Hirsch “from accepting or undertaking any employment by Potash or engaging in any work with Potash in connection with or related to the operation and development of a chloride process or in connection with or related to the manufacture of TiO₂, pigments by a chloride process.”[28]

After discovery, defendants moved for summary judgment.  The court addressed the “inevitability” argument as follows:

            I have no doubt but that the court is entitled to consider, in judging whether an abuse of confidence is involved, the degree to which disclosure of plaintiff’s trade secrets is likely to result from the circumstances surrounding Hirsch’s employment by Potash.  The defendants say that a finding of “inevitability” would be no more than a “prophecy” here.  Nonetheless, in the context of determining whether a threat  disclosure exists, it is but a finding as to the probable future consequences of a course of voluntary action undertaken by the defendants.  Courts are frequently called upon to draw such conclusions based on a weighing of the probabilities, and while a conclusion that a certain result will probably follow may not ultimately be vindicated, courts are nonetheless entitled to decide or “predict” the likely consequences arising from a given set of facts and to grant legal remedies on that basis.  I am satisfied that the degree of probability of disclosure, whether amounting to an inevitability or not, is a relevant factor to be considered in determining whether a “threat” of disclosure exists.[29]

The use of the term “inevitable” in the context of disclosure of trade secrets next appeared in the Allis-Calmers Manufacturing Co. v. Continental Aviation and Engineering Co. case in 1966.[30]

The record was similar to  B. F. Goodrich in certain respects.  Allis-Chalmers was a leader in the development of distributor-type fuel injection pumps.  Continental’s technology, however, was not as well developed.  There had been licensing negotiations between Allis-Chalmers and Continental regarding Continental’s acquisition of this specialized technology.  George Wolff was Allis-Chalmers’ top engineer in distribution-type fuel injunction pumps with access to all the “know how” and research and development   George Wolff resigned and went to work for Continental and a lawsuit ensued. Upon the record, the trial court concluded that “there is an inevitable and imminent danger of ‘disclosure’ of Allis-Chalmers’ trade secrets to Continental.”[31]

A year later in 1967, Judge Rubin in the Eastern District of Louisiana summarized the doctrine as follows in Standard Brands v. Zumpe:

An employee seeking injunctive protection for his trade secrets prior to their disclosure generally alleges either that the ex-employee actually intends to divulge the secrets, or that he will inevitably do so, whether consciously or not, because of the type of work in which he will be involved, or that there is a substantial probability of disclosure.[32]

The modern underpinnings of the “inevitable disclosure” doctrine were now entrenched in the law of trade secrets.   The threatened misappropriation  of trade secrets could be enjoined without regard to proof of actual misappropriation or the intent of the former employee.

PEPSICO, INC. v. REDMOND

The Seventh Circuit Court of Appeals addressed the “inevitable disclosure” doctrine in the now famous case of PepsiCo, Inc. v. Redmond.[33]  Although the case has received much fanfare in the press and the bar, an analysis of the case demonstrates that it is a straightforward application of centuries-old trade secrets law to issue injunctive relief to protect against the threatened misappropriation of trade secrets by a former employer.

Factual Background

PepsiCo (All Sport) and Quaker Oats (Gatorade) were fierce competitors in the “sports drink” market.  Redmond was a high level manager at PepsiCo with intimate knowledge of PepsiCo’s upcoming 1995 strategic business plans, “attack” plans and annual operating plan (AOP) for various markets.

For example, Redmond knew when PepsiCo would dedicate extra funds to support its brands in certain markets.  “To use a hypothetical example, [PepsiCo] might budget an additional $500,000 to spend in Chicago at a particular time to help All Sport close its market gap with Gatorade.”[34]   Testimony and documents demonstrated Redmond’s awareness of these plans and his participation in drafting some of the plans.

Redmond resigned on November 10, 1994 to join Quaker Oats as the Vice President – Field Operations for Gatorade.  Less than a week later, on November 16, 1994, PepsiCo filed suit against Redmond and Quaker Oats seeking an injunction to prevent Redmond from disclosing PepsiCo’s trade secrets.  A preliminary injunction hearing was held from November 23, 1994 to December 1, 1994.  The trial Court granted injunctive relief and Quaker appealed to the Seventh Circuit.

Redmond singed an agreement with Quaker Oats that he would not disclose or use PepsiCo’s trade secrets.  There was no evidence of actual misappropriation of trade secrets in the record.  At best, there was evidence of a “lack of candor” by Redmond and Quaker Oats regarding the circumstances of Redmond’s employment by Quaker Oats.  None of these facts were dispositive.

Analysis

At issue was whether the record supported the trial court’s conclusion that there was a “high degree of probability” of threatened or inevitable misappropriation of PepsiCo’s trade secrets by Quaker Oats.

The Court of Appeals recognized that there was no allegation that Quaker Oats actually had misappropriated any trade secrets.  The Court also recognized that Quaker Oats and Redmond testified that they did not intend to use PepsiCo’s confidential information.  But these facts were not dispositive because Redmond carried in his head detailed information abut how PepsiCo would price, distribute and market its products in 1995.  The Seventh Circuit correctly concluded that, even assuming the best of good faith, this intimate knowledge of PepsiCo’s trade secrets would infiltrate Redmond’s work at Gatorade.

PepsiCo argued that Redmond “could not help but rely upon” PepsiCo’s trade secrets as he helped plot Gatorade’s new course because he knew how PepsiCo would price, distribute and market its products during the next year.  The Seventh Circuit affirmed the entry of injunctive relief by the trial court using the following analogy:  “PepsiCo 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”[35]

THE AFTERMATH OF PEPSICO v. REDMOND

There has been a resurgence of “inevitable disclosure” cases since the decision in PepsiCo v. Redmond.  There have been outcries and attacks on the doctrine.  Some have called for its abrogation or strict limitation to certain fact situations.  These attacks on the doctrine are shortsighted and manifest a lack of understanding of the centuries-old law of trade secrets and the role of the courts in granting injunctive relief.

Without the right to obtain injunctive relief to enjoin the threatened misappropriation of trade secrets, there can be no protection of trade secrets.  And without the protection of trade secrets, there can be no intellectual property right in trade secrets.

Increase in Trade Secret Cases

The increase in “inevitable disclosure” cases should come as no surprise.  As we enter the Information Age, there has been an exponential increase in trade secret cases.  Concomitantly, one would expect an exponential increase in “inevitable disclosure” claims in such cases.  This is not an alarming trend.  This is a reflection of the importance of trade secrets in the Information Age.

The prominence of the Supreme Court’s decision in PepsiCo v. Redmond has undoubtly spurred the filing of “inevitable disclosure” claims in inappropriate circumstances.  The doctrine is attractive because it appears to eliminate any requirement of proof.  Ostensibly, all that is required is the incantation of “inevitable disclosure” any time an employee quits and goes to work for a head-to-head competitor.  Ironically, just the opposite is true.  “Inevitable disclosure” cases are often the most difficult cases to win.  It is always better to catch the former employee in the act of stealing something.

Abuse of the Doctrine Not Tolerated by the Courts

The trial courts have not tolerated abuse of the doctrine.  The North Carolina decision in FMC Corp. v. Cyprus Foote Mineral Co. provides a good example:[36]  FMC Corporation and Foote Mineral Company were the only two producers of battery-quality lithium products in the United States.  They were head-to-head competitors in the marketplace.  Fickling was a key FMC metallurgical engineer who was instrumental in inventing or developing many of FMC’s current technologies.  Fickling began his career with Lithium Corporation, which was acquired by FMC in 1985.  Between 1990 and 1994, FMC laid off a number of engineers and technical employees.  Fickling was the only former employee of [Lithium] still employed in his department at FMC.

On July 10, 1995, Fickling resigned from his position at FMC and went to work for Foote as a development engineer in the same general areas that he worked while he was an employee of FMC.  Fickling had signed a nondisclosure agreement while employed by FMC.

FMC brought an action for breach of contract and for violation of North Carolina’s Uniform Trade Secrets Act, seeking to enjoin Fickling from performing any research and development work in seven general areas relating to battery-quality lithium products.

The court denied the motion for a preliminary injunction because FMC had not come forward with evidence establishing “the precise nature of its trade secrets.”  Further, the court found that FMC had not presented sufficient evidence that its processes were trade secrets.

“In short, FMC asserts that it has trade secrets that implicate about every stage in the production of battery-lithium metals.  But the evidence offered in support of those assertions is very general, and FMC seeks an injunction that effectively precludes Fickling from doing any work in his general area of expertise.”[37]

The court refused to apply the “inevitable disclosure” doctrine under these factual circumstances.  To hold otherwise, the court reasoned, no employee could ever work for its former employer’s competitor on the theory that disclosure of confidential information is “inevitable.”  The preliminary injunction was denied.

Doctrine Applicable only to Injunctive Relief

The applicability of the “inevitable disclosure” doctrine is strictly limited to the entry of injunctive relief.  It is not a separate cause of action.  An award of damages in a trade secrets case requires proof of actual misappropriation.

Proof of Trade Secrets First

The “inevitable disclosure” doctrine does not come into play unless and until the plaintiff has made a prime facie showing of the existence of trade secrets.  If the information sought to be enjoined from disclosure or use does not qualify as a trade secret, then the court will not proceed further because the “inevitable disclosure” doctrine is irrelevant under such circumstances.  There can be no likelihood of success without a showing of the existence of trade secrets entitled to protection.

Actual Misappropriation of Trade Secrets

If the record establishes an actual misappropriation of trade secrets, the predicate for injunctive relief is satisfied.  Under these circumstances, injunctive relief is warranted, without more, to prevent such misappropriation from occurring again in the future.  It is not necessary to consider the “probabilities” of inevitable disclosure because there is already evidence in the record of actual misappropriation.  No further proof is necessary for injunctive relief.

Activity-Restriction Injunctions

The entry of injunctive relief is not absolute.  The injunction must be vague or overbroad.  The “inevitable disclosure” injunction should be narrowly tailored to protect against the “threatened” misappropriation of specific trade secrets.  This means that most “inevitable disclosure” injunctions will contain specific activity restrictions.  In other words, an employee is not barred from going to work for a competitor – instead, he is enjoined from certain activities for a certain period of time.  This is not a draconian result as some suggest.  This is the result of a careful balancing of the various interests at stake in a trade secrets misappropriation case.

Both the early and more recent “inevitable disclosure” cases illustrate this principle of activity-restriction injunctions reasonably tailored to protect against the threatened misappropriation of trade secrets.

In the 1966 decision in Allis-Chalmers v. Continental Aviation and Engineering Corp., Judge Krauss carefully drafted his order to strike a proper balance between the employee’s interest in protecting and encouraging an individual to pursue  his livelihood in the vocation he chooses, including the right to migrate from one job to another, and the employer’s interest in protecting its trade secrets obtained by the expenditure of great amounts of time and money.

Balancing these interests, the injunction prohibited only work in “the design and development of distributor-type pumps.”  Other than that specific restriction, “Mr. Wolff is able to work at Continental in application engineering without limitation as to the field of activity, and to engage in design and development in all fields of fuel injunction systems and pumps except a distributor-type pump.”[38]

Conley v. DSC Communications Corp.[39] provides a modern example of the application of this principle.  DSC was a manufacturer of “next generation digital loop carriers.”  Conley worked for DSC from 1982 until May 13, 1993, when he resigned to go to work for Advanced Fibre Communications (AFC), a competing manufacturer of digital loop carriers.

Prior to his resignation, in February 1998, Sprint sent out a request-to-bid proposal to various manufacturers of digital loop carriers, including DSC and AFC.  Conley “captained” the preparation of DSC’s response to Sprint’s request.

On May 18, 1998, when Conley resigned, Spring had narrowed its choice of digital loop carriers to DSC or AFC.  DSC sued Conley on May 22, 1998, seeking injunctive relief to prevent the disclosures or use of DSC’s proprietary information relating to the Sprint bid.

The trial court entered an activities-restriction injunction enjoining Conley from “working in any capacity to sell, market or support digital loop carrier products and systems to Spring/Sprint North Supply.”[40]  On appeal, the injunction was narrowed even further to enjoin Conley from “using in his employment” or “disclosing to persons outside of DSC” certain proprietary information relating to the Sprint negotiations and other DSC digital loop carrier products.[41]

Flexibility and Discretion Are Required

There are courts that have suggested a rigid and mechanical approach to the application of the “inevitable disclosure” doctrine.  One New York court recently suggested that the “inevitable disclosure” doctrine should be limited to cases where there is actual evidence of misappropriation.[42]   This would defeat the underlying purpose of the doctrine, which is designed to protect the threatened misappropriation of trade secrets before actual misappropriation occurs.

Fact-Intensive Inquiries

Trade secret cases are fact-intensive.  Every aspect of a trade secrets case—the identification of the alleged trade secrets, the evidence of misappropriation, and the appropriate relief to be granted—is highly factual.  Trade secret cases must often be proven through, and by, a web of circumstantial evidence because typically the defendant denies everything.  Trial judges often base their rulings on the credibility of the witnesses and their demeanor under oath.  No two trade secret cases are exactly alike.

Because trade secret cases are fact-intensive, the applicability of the “inevitable disclosure” doctrine requires flexibility and the discretion of the trial court to determine whether there exists a probable threat of misappropriation of trade secrets based upon the totality of the circumstances in the case. Since each trade secret case is sui generis, the adoption of a mechanical and rigid approach to the application of the “inevitable disclosure” doctrine is not well taken.

Bad Intent Is Not an Element of the Doctrine

Other courts have suggested that the “inevitable disclosure” doctrine should be limited to cases where there is evidence of “bad” intent on behalf of the former employee.[43]  This rule would also undermine the rationale for the “inevitable disclosure” doctrine.  The former employee’s actual duties and responsibilities working for the new employer, not intent, is the controlling factor in “inevitable disclosure” cases.  The issue is whether the new employment will inevitably lead the former employee to disclose or use his former employer’s trade secrets, whether consciously or unconsciously.  Intent may be considered, but it is not dispositive.

Doctrine Applies to Technical and Nontechnical Trade Secrets

It also has been suggested that the “inevitable disclosure” doctrine should be limited to technical trade secrets or to employees who leave high-technology companies to join low-technology companies.[44]  Once again, such rules do not reflect the modern law of trade secrets.  Today, the definition of trade secrets protects both technical and nontechnical trade secrets.  The trade secrets at issue in PepsiCo v. Redmond were nontechnical (marketing, sales and financial) trade secrets.  Further, Redmond was leaving PepsiCo, which lagged far behind, to join the market leader (Quaker Oats) in the sports drink market.  Reliance on such artificial rules would have prevented the effective protection of PepsiCo’s trade secrets in the case.

The Role of Restrictive Covenants

Tension still exists between the law of restrictive covenants and trade secrets.  Detractors of the “inevitable disclosure” doctrine argue that the doctrine permits employers to obtain ex post facto restrictive covenants that were not bargained for in advance by the employer with the employee.   This viewpoint is out of step with the modern law of trade secrets.

A contact is not required to create trade secret rights.  There is no requirement of a “writing” or an “agreement” contained anywhere in the Uniform Trade Secrets Act.  Trade secret rights are created and exist as a matter of law.  Every employee is obligated, both during and after the termination of his employment, not to disclose or use the trade secrets of his or her former employer absent any agreement whatsoever.

Restrictive covenant agreements—or noncompetition agreements—are not well suited to protect trade secret rights under many circumstances.  They are often viewed as contracts of adhesion executed by the employee before he is even exposed to any trade secrets.  These contracts are not favored by the courts and are unenforceable by statute in some states.  The strict requirements of reasonable temporal and geographical limitations often are not adequate to protect trade secret rights that are worldwide in scope and perpetual in nature.

Nonetheless, there are still pro-restrictive covenant states.  New York and Minnesota are two states that come to mind.  The trial courts routinely uphold post-employment restrictions imposed by contracts in these states.  If a company can obtain effective protection of its trade secret rights by contract, then the law of contracts provides an additional option available to the employer.  However, under no set of circumstances should the existence or nonexistence of a restrictive covenant or noncompetition agreement impact a court of equity’s power to enter injunctive relief to protect a party against the actual or threatened misappropriation of trade secrets.  No contract is required for the protection of trade secret rights.

The “Inevitable Disclosure” Doctrine Exists in California and New York

There have been debates regarding whether the “inevitable disclosure” doctrine exists in particular states.  New York and California have been mentioned in these debates.  The issue is whether the courts have formally adopted the doctrine. The answer is that the doctrine inherently exists in the equity jurisprudence of the courts in those states.

Every state protects trade secrets (including California and New York).  A fortiori, every state empowers its chancery courts to issue injunctive relief to prevent the actual or threatened misappropriation of trade secrets.  Without the right to injunctive relief, there can be no trade secrets.  Call it the “inevitable disclosure” doctrine (or call it something else), but the availability of injunctive relief to protect against the threatened misappropriation of trade secrets exists in every state, including New York and California.

CONCLUSION

The threatened or actual misappropriation of trade secrets may be enjoined.  The economic value of a trade secret is derived from the secrecy of the information.  Once a trade secret is disclosed, it is too late.  One cannot “unring the bell.”

The “inevitable disclosure” doctrine is as old as the law of trade secrets itself.  It is a doctrine that should be embraced by the courts – not rejected.  Trade secrets will play a vital role in our society in the Information Age and the “inevitable disclosure” doctrine will play a vital role in the protection of these trade secret assets.