Are Your Trade Secrets Safe? Think about Inevitable Disclosure

Posted by Ashley M. Bowcott on

The inevitable disclosure doctrine comes up frequently in trade secret cases. For example, the doctrine may be raised when an employee who gained access to plaintiff’s trade secrets or other confidential or proprietary information that may qualify as a trade secret accepts employment with an employer in the same industry. This blog previously discussed the Georgia Supreme Court’s rejection of inevitable disclosure of trade secrets as a standalone claim under Georgia trade secret law.

What is the inevitable disclosure doctrine?
Inevitable disclosure is the principle that a former employee will inevitably disclose and use trade secrets of the former employer in the employee’s role with the new employer. In other words, due to the nature of the knowledge acquired by the employee during his tenure with the former employer and the competitive nature of the new employer, it is inevitable that the employee will disclose and use the trade secret information in the employee’s head while he/she works for a competitor.

What can be done to prevent inevitable disclosure?
A former employer who believes its trade secrets are at risk by an employee’s departure may seek to obtain a temporary restraining order or preliminary injunction for immediate relief to prevent misappropriation of trade secrets. In these instances, the inevitable disclosure doctrine may provide a “shortcut” to proving each of the four elements required to obtain injunctive relief, including:
(1) substantial likelihood of success on the merits;
(2) imminent risk of irreparable injury;
(3) that the threatened injury outweighs the harm an injunction would impose on the defendant; and (4) that the injunction is not averse to public interest. 

The inevitable disclosure doctrine exists for circumstances where the probability that an employee would reveal the former employer’s trade secrets is high enough that the court may enjoin a former employee  to prevent threatened misappropriation and ensure protection of trade secrets even if an actual disclosure has not yet occurred.

How is the inevitable disclosure doctrine handled under the Defend Trade Secrets Act?
The Defend Trade Secrets Act (“DTSA”) has acknowledged the doctrine of inevitable disclosure and permits a former employer to seek an injunction based on threatened as opposed to actual disclosure of trade secrets. However, federal courts look to the misconduct of the employee that shows the employee is likely to misappropriate information in deciding whether to rely on the doctrine of inevitable disclosure to enjoin that employee’s employment.

The United States District Court for the Northern District of Georgia recently examined the doctrine of inevitable disclosure under the DTSA in the case of AWP, Inc. v. Henry, 1:20-cv-01625-SDG, 2020 WL 6876299, at *1 (N.D. Ga. Oct. 28, 2020).

AWP is a traffic safety company that provides traffic control equipment to customers in North America. AWP competes with Defendant L30 Consulting, LLC for business. Angela McNulty is the sole member of L30.

In 2015, AWP entered an agreement to purchase a traffic safety company from Defendants Anita and Ed Henry. As part of the purchase, the Henrys agreed to five-year noncompetition and non-solicitation restrictive covenants.

AWP alleged that during the term of those restrictive covenants, the Henrys, along with L30 and Ms. McNulty, acted to expand L30’s business by recruiting AWP employees. AWP alleged that two employees recruited by L3 had access to AWP’s trade secrets, including customer contacts, pricing information, pricing structures, and training procedures and policies. AWP also alleged that Ms. McNulty and L30 lured the employees to L30 for the purpose of obtaining access to AWP’s trade secrets.

The Defendants argued that mere existence and possession of alleged trade secrets was insufficient if they had not actually used or disclosed the trade secrets. AWP relied on the inevitable disclosure doctrine, arguing that the employees had access to AWP’s trade secrets and retained personal knowledge of the trade secrets after joining L30.

The Court’s Findings
The Court found that AWP’s allegations could show that the employees had knowledge of AWP’s trade secrets at the time they went to work for L30. However, AWP failed to allege that the Defendants ever threatened to use or disclose the trade secrets, noting that “[i]t is not enough for AWP to simply allege that [Ms.] McNulty and L30 hired two individuals who happen to possess knowledge of AWP’s trade secrets” and found AWP failed to state a claim for trade secret misappropriation. Id. At *4.

The Court declined to extend the doctrine of inevitable disclosure to this case, relying upon the reasoning of the Georgia Supreme Court in Holton v. Physician Oncology Services, LP. In Holton, the Georgia Supreme Court noted that the inevitable disclosure doctrine is still the subject of considerable disagreement and declined to decide whether a plaintiff can rely on the doctrine to state a claim for trade secret misappropriation. Holton v. Physician Oncology Servs., LP, 292 Ga. 864, 868 (2013). The United States District Court for the Northern District of Georgia noted that other state and federal courts had not reached a clear consensus on the issue. Ultimately, the Court found that allowing AWP to state a claim based merely on its former employees’ possession of trade secrets and AWP’s speculation that they would use them would expand the DTSA and the Georgia Trade Secrets Act too drastically. AWP, Inc., 2020 WL 6876299, at *5.

The Court expressed concern that to hold otherwise would prevent employees from accepting employment with competitors in perpetuity. Id. It appears that for the inevitable disclosure doctrine to be argued successfully, there must be some allegation that the employee in possession of trade secrets has engaged in or is prone to engage in some misconduct.

It’s important to ensure that your trade secrets are safe. As always, please let me know if I can help.