Georgia Supreme Court Rejects Inevitable Disclosure Doctrine, For Now

Posted by Benjamin I. Fink on

The inevitable disclosure doctrine has been applied in some jurisdictions to enjoin a former employee from working for a competitor where a court finds that the employee will inevitably disclose or use his former employer’s trade secrets in a new position with a competitor.  There has been considerable disagreement among courts as to the viability of this doctrine.  Until recently, no Georgia appellate court had adopted or rejected the doctrine.  However, in an opinion issued on May 6, 2013, the Georgia Supreme Court seems to have rejected the inevitable disclosure doctrine, though it has left the door open for the doctrine to be adopted at some point in the future under different circumstances.

In Holton v. Physician Oncology Services, LP (Case No. S13A0012), the Georgia Supreme Court held “[b]ecause a stand-alone claim for the inevitable disclosure doctrine of trade secrets – untethered from the provisions of our state trade secrets statute – is not cognizable in Georgia, we reverse the part of the Order enjoining Holton from the inevitable disclosure and use of trade secrets.”

Holton was a former executive of Physician Oncology Services (“POS”), which provides radiation therapy services to cancer patients.  After leaving POS, Holton accepted a position as Chief Executive Officer of a competitor.  POS sought and obtained an injunction against his continuing as CEO of the competitor on various grounds, including that he would inevitably disclose trade secrets of POS.

In support of its conclusion that Holton “would inevitably disclose the confidential and trade secrets” of POS, the trial court cited the Georgia Trade Secrets Act, as well as Essex Group Inc. v. Southwire Co., 269 Ga. 553, 501 S.E.2d 501 (1998).  In Essex, the Georgia Supreme Court had upheld a five-year injunction prohibiting an employee who headed a 3 year, $2 million dollar development project from working for a competitor’s logistics department. However, in that decision, the Georgia Supreme Court never used the words “inevitable disclosure” or referred to that doctrine.  Therefore, in Holton, the Supreme Court held that Essex did not expressly address or adopt the doctrine.

 In Holton, the Supreme Court held that the inevitable disclosure doctrine is not an independent claim under which a trial court may enjoin an employee from working for an employer or disclosing trade secrets.  Therefore, it reversed the part of the trial court’s order relying on the inevitable disclosure doctrine to enjoin Holton from working for the competitor or disclosing trade secrets and other confidential information.

In a section of the opinion which leaves some possibility of adopting the inevitable disclosure doctrine in the future, the Supreme Court held “because it appears that the trial court did not reach [POS’s] claim for actual or threatened misappropriation of trade secrets and the case returns to the trial court for a final adjudication on the merits, we decline to address today whether the inevitable disclosure doctrine may be applied to support a claim for the threatened misappropriation of trade secrets.”

Thus, while the Supreme Court rejected the inevitable disclosure doctrine under the circumstances present in Holton, it does not appear the court rejected it for all purposes.