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Non-compete agreements, inevitable disclosure, and the DTSA.

Byline: Amanda Ciccatelli

The Defend Trade Secrets Act (DTSA) purposely did not adopt the inevitable disclosure document, but it also purposely left the inevitable disclosure doctrine under state laws intact. Why?

We sat down with Bryan Wheelock, a principal at the intellectual property firm Harness Dickey, to dig into this a bit further.

Some version of the Uniform Trade Secret Act is in force in 48 states (Massachusetts and New York have not adopted the UTSA), according to Wheelock. In fact, section 2a of the UTSA states: "Actual or threatened misappropriation may be enjoined." Relying on Section 2a and/or common law principles, some states have adopted the Inevitable Disclosure Doctrine.

"Under the Inevitable Disclosure Doctrine, the former employee of a trade secret owner may be enjoined from working for a new employer even in the absence of a non-compete agreement if it is determined that the disclosure of the former employer's trade secrets is inevitable," he explained.

PepsiCo Inc. v. Redmond is currently the leading case on the Inevitable Disclosure Doctrine. PepsiCo affirmed an injunction against a former employee working for a competitor because PepsiCo showed that it was inevitable that the former employee would rely upon PepsiCo trade secrets. PepsiCo recognized that mere employment by a competitor is not sufficient for disclosure to be inevitable -- in other words, inevitability was in addition to the result of employment by a competitor.

"Reasoning that the law should not prevent workers from pursuing their livelihoods when they leave their current positions, some states have rejected the Inevitable Disclosure Doctrine," said Wheelock. "Some criticize the Inevitable Disclosure Doctrine as an after-the-fact non-compete agreement to enjoin an employee from working for the employer of his or her choice."

At the core of these disparate results is the understanding of "inevitable," according to Wheelock. For instance, in PepsiCo, the Seventh Circuit said the "question of threatened or inevitable misappropriation lies at the heart of a basic tension in trade secret law," and that this tension is "particularly exacerbated when a plaintiff sues to prevent not the actual misappropriation of trade secrets but the mere threat it will occur." But, PepsiCo required more than a showing of employment by a competitor - the Seventh Circuit referenced the demonstrated inevitability that Redmond would rely on PepsiCo's trade secrets in his new job, as well as a "reluctance to believe that Redmond would refrain from disclosing these secrets in his new position."

"Enter the Defend Trade Secrets Act, which provides for an injunction to prevent any actual or threatened misappropriation -- the same language from the Uniform Trade Secret Act from which courts derive the Inevitable Disclosure Doctrine," he said.

However, grant of an injunction is subject to two main limitations. According to Wheelock, first, the injunction must not prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.

Second, the injunction must not conflict with the otherwise conflict with an applicable. State law prohibiting restraints on the practice of a lawful profession, trade, or business. So, the DTSA would not permit an injunction preventing employment under the Inevitable Disclosure Doctrine, but it would permit an injunction restricting employment based on evidence of threatened misappropriation.

He explained, "This is not inconsistent with the PepsiCo application of the Inevitable Disclosure Doctrine. However, some states reject any formulation of the Inevitable Disclosure Doctrine, and protects those states from the imposition of the Inevitable Disclosure Doctrine."

The DTSA does not preempt the UTSA enacted by the various states, so the restrictions on injunctions in the DTSA do not apply to injunctions under the Uniform Trade Secrets Act. He added, "To obtain the broadest injunction, a trade secret owner pursuing a former employee may want to bring claims under both the DTSA, and the applicable versions of the UTSA."

Further reading: Secret Sauce: How to keep the recipe within your company walls Apple sued for stealing engineers Are they going to federalize trade secrets law?
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Publication:Inside Counsel Breaking News
Date:Jul 26, 2016
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