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Trade Secrets Law Still Murky in Georgia Courts
It remains to be seen how far a recent state Supreme Court decision will go in limiting the ability of companies to stop their employees from jumping ship to competitors.
The unanimous May 6 decision said that Georgia law does not allow employers to hamstring the mobility of their employees solely based on the so-called "inevitable disclosure doctrine," which under certain circumstances assumes an employee inevitably would share secrets from his former company. But the decision left open when an employer can stop an employee's move.
Employers trying to shield their secrets from competitors can avoid uncertainties by drawing up a noncompete agreement, something made easier under a 2011 change by the state Legislature, said Erika Birg, an Atlanta partner at Nelson Mullins Riley & Scarborough who is not involved in the case. "The most important thing that anyone should take away from this is if you have something you want to protect ... you should have a noncompete in place," she said.
The noncompete agreement involved in the case decided by the high court last week predated the 2011 statutory change. And the cancer center seeking to stop a former executive from working for a competitor used an alternative theorythe inevitable disclosure doctrineto attempt to stop him from taking the job.
As detailed in the court opinion, Michael Holton was hired in August 2009 as an executive at Physician Oncology Services, which provides radiation therapy services to cancer patients. He was responsible for overseeing the operations of seven facilities then operating in the Atlanta area. As part of the hiring process, Holton signed a contract in which he agreed not to work for a competitor within a 25-mile radius of the seven locations within one year of leaving or disclose the company's confidential information within two years of leaving.
Following his company's 2011 merger with Vantage Oncology, Holton's responsibilities changed, and in October 2011 Vantage terminated Holton without cause. A month later, Holton took a job as chief executive officer of Radiation Oncology Services of America, a competitor that had four operating centers within the territory covered by Holton's agreement. Vantage immediately sued Holton, and Fulton County Superior Court Judge Kelly Lee granted a temporary injunction prohibiting Holton from working at the new company through October 2012. She also ruled that he could never disclose Vantage's trade secrets, and through October 2013, he couldn't disclose confidential information that didn't qualify as a trade secret. Lee ruled that Vantage might be able to prevail against Holton even in the absence of an employment agreement because the company might be able to prove Holton would inevitably disclose Vantage's confidential information and trade secrets.
Holton appealed, arguing that both his noncompete and his confidentiality agreement were invalid. The Supreme Court said the argument as to the noncompete's validity was moot, because the part of the injunction that relied on that document expired last October.
The high court also held that Holton couldn't argue on appeal that his confidentiality agreement was too broad because he had waited until the appeal to raise that argument.
Holton was successful in challenging the injunction to the extent it was based on the presumption that he would inevitably disclose the company's secrets, Holton arguing there was no evidence he had any Vantage documents or recalled any of its trade secrets.
Writing for the unanimous court, Chief Justice Carol Hunstein said the court hadn't adopted the inevitable disclosure doctrine in a 1998 case, as some had assumed. She noted that the decision hadn't mentioned the doctrine or any cases applying it. And she said other states varied in the extent to which they allowed use of the doctrine.
Without explaining its reasoning, the court rejected the use of inevitable disclosure as a stand-alone claim. "Because it appears the trial court did not reach Vantage'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," Hunstein added, "we decline to address today whether the inevitable disclosure doctrine may be applied to support a claim for the threatened misappropriation of trade secrets."
Greenberg Traurig partner Michael King argued the case for Holton at the Supreme Court. His law partner and co-counsel, David Long-Daniels, said that if the case had gone the other way, an employer could always stop an executive's move, regardless of what he had agreed to, by providing him with a trade secret.
"The court struck the right balance between the employee's need for professional mobility, the employer's need to protect the trade secrets and, frankly, the new employer's need to access talent," said Long-Daniels.
But McKenna Long & Aldridge partner R. Daniel Beale, who argued the case for the former employer that brought the lawsuit, said that although many thought the inevitable disclosure doctrine was viable prior to last week's decision, it hadn't been used often in practice. And he said that under the court's ruling a trial judge still might grant an injunction based on inevitable disclosure under a threatened misappropriation theory.
"It may be that while they closed one door, you could get to the same place through a different door," said Beale. "So I think it remains to be seen how significant it is."
Birg, who once wrote an article arguing that the high court had implicitly endorsed the "inevitable disclosure doctrine" in the 1998 decision, said last week's ruling merely takes away one arrow in the quiver of employers trying to stop former employees from stealing their secrets. The ruling changes little as a practical matter, she said: Both inevitable disclosure claims and threatened misappropriation claims require proof that the employee had access to a trade secret, the primary difference being inevitable disclosure was a judicially created doctrine, while threatened misappropriation is based in statute.
But Birg said the decision leaves open a huge question: "When do you have threatened misappropriation, and what are the standards?" The 2011 statutory changes made it easier to draft a non-compete agreement that will be upheld by courts, Birg explained, making it less likely an employer will have to resort to such a theory. "Now we've got a very clear set of rules, she said, "so you don't have to have that backup plan."
The case is Holton v. Physician Oncology Services, No. S13A0012.
This article originally appeared in the Daily Report.