BFV Perspectives, Noncompete & Trade Secrets, | Sep 02, 2010

Bakery Executive Gets a Rise Out of Former Employer

Bakery Fears Disclosure of “Nooks and Crannies” Secret

When executive Chris Botticella left his employment with Bimbo Bakeries USA, Inc. (“Bimbo Bakeries”), maker of the popular Thomas’ brand of english muffins, to join competing bakery Hostess Brands, Inc. (“Hostess”), his former employer sued.  Citing Botticella’s high-level knowledge of its confidential information, products and business strategies, Bimbo Bakeries asked the court to enjoin him from working for Hostess until its trade secret misappropriation claim could be resolved at trial.  Bimbo Bakeries was particularly concerned because Botticella was one of only seven people with enough knowledge to independently replicate the “nooks and crannies” in Thomas’ English Muffins.  The trial court issued the requested injunction.

In an opinion issued on July 27, 2010, the United States Court of Appeals for the Third Circuit affirmed the injunction issued by the district court.  The Third Circuit agreed that, under the doctrine of inevitable disclosure, Botticella should be barred from working for Hostess pending trial.  Bimbo Bakeries USA, Inc. v. Botticella, No. 10-1510, slip op. at 3 (3d Cir. Jul. 27, 2010).

Under the doctrine of inevitable disclosure, a court can bar an employee from working for his former employer’s competitor if it would inevitably lead to the disclosure of the former employer’s trade secrets.  This doctrine takes traditional trade secret claims a step further, as it does not require proof that an employee actually has misappropriated any of his former employer’s trade secrets – it simply requires a showing that such misappropriation is likely to occur.

In discussing the proper standard to apply in Bimbo Bakeries, the Third Circuit explained that Bimbo Bakeries did not need to show that it was “virtually impossible” for Botticella to work for Hostess without disclosing trade secrets.  Bimbo Bakeries, slip op. at 25-26.  Rather, the court explained, an injunction would be appropriate where there was a “sufficient likelihood or substantial threat of disclosure of a trade secret.”  Id. at 26.  The Third Circuit agreed that, given the similarities between Botticella’s position at Bimbo Bakeries and his proposed new position with Hostess, such a threat existed.  Id. at 33.

The Bimbo Bakeries case applied Pennsylvania law and is not binding in Georgia.  Indeed, Georgia courts have not explicitly recognized the doctrine of inevitable disclosure (although it has arguably been recognized implicitly).  Nevertheless, the reasoning applied by the Third Circuit in Bimbo Bakeries is instructive for Georgia employers and practitioners.  The Third Circuit applied the same line of reasoning used by the Georgia Supreme Court in Essex Group, Inc. v. Southwire Co., 269 Ga. 553, 501 S.E.2d 501 (1998), when it implicitly adopted the inevitable disclosure doctrine.  In Essex, the Georgia Supreme Court affirmed an injunction in favor of a cable and wire company that had invested $2 million to develop a logistics system that gave it a significant competitive advantage over other similar companies.  Essex, 269 Ga. at 558, 501 S.E.2d at 506.  When the employee who had headed the system design team left to join a competitor, his former employer obtained an injunction to prevent him from working in the competitor’s logistics department.  Id. at 553, 502.  Implicit in the Supreme Court’s opinion was the reasoning that the former employer’s trade secret logistics system would inevitably be disclosed if the employee worked in a similar capacity for a competitor.

When seeking injunctions against high-level former employees who leave to work for a competitor, Georgia employers may wish to refer to the Third Circuit’s rationale in Bimbo Bakeries, and similar rationales applied in other jurisdictions outside of Georgia.  Indeed, research by at least one legal scholar suggests that inevitable disclosure arguments are persuasive despite the fact that Georgia has not explicitly recognized the inevitable disclosure doctrine.  See Brandy L. Treadway, An Overview of Individual States’ Application of Inevitable Disclosure: Concrete Doctrine or Equitable Tool?, 55 SMU L. Rev. 621, 622 (2002) (concluding that courts in states that have not adopted the inevitable disclosure doctrine are nevertheless increasingly embracing inevitable disclosure arguments to grant injunctive relief).

BFV Perspectives, Noncompete & Trade Secrets, | Sep 02, 2010