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The Second District Court of Appeal ended years of speculation about whether the trade secret doctrine of “inevitable disclosure” — used to keep ex-employees from the clutches of competitors — would ever fly in California. In a November 1999 decision, the court upheld inevitable disclosure, despite the doctrine’s conflict with the state’s public policy favoring employee mobility. But inevitable disclosure’s day in the sun proved to be short lived. Within a few months, a unanimous California Supreme Court voted to depublish Electro Optical Industries Inc. v. White, 76 Cal.App.4th 653, depriving the decision of any precedential value. “Although depublishing is not supposed to have any particular meaning,” says Howrey Simon Arnold & White partner Edwin Wheeler, “the Electro Optical depublishing was widely interpreted as an indicator that this decision was not a wise one.” That’s not to say inevitable disclosure is dead in California. Indeed, it continues to be the subject of much conjecture among IP and employment lawyers as the courts grapple with how to weigh a company’s right to protect its trade secrets against an individual’s right to work. “These cases are sexy,” says Gary Weiss, an intellectual property partner at Orrick, Herrington & Sutcliffe who specializes in trade secrets. “Who isn’t interested in industrial espionage and the rights of employees to change jobs?” Already the law in several states, inevitable disclosure holds that employees exposed to company trade secrets will sooner or later divulge them to a new employer, regardless of their best intentions. Under the doctrine, an employer may prohibit former employees from working for direct competitors. The oft-cited PepsiCo Inc. v. Redmond, 54 F.3d 1262, is considered by most to be the guiding case in inevitable disclosure. In 1995, the 7th U.S. Circuit Court of Appeals prevented a PepsiCo general manager from accepting a comparable position with Quaker Oat Co.’s Gatorade division because he had knowledge of PepsiCo’s strategic marketing plans and beverage pricing. Unless he had an “uncanny ability to compartmentalize information,” the court concluded he would not be able to avoid using his knowledge of PepsiCo’s trade secrets. But in California, the doctrine of inevitable disclosure runs into an iceberg in the form of Business and Professions Code �16600. The statute provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” So how can a state that forbids companies from imposing non-compete covenants embrace a doctrine used to prohibit competitive employment? The Electro Optical opinion, authored by Justice Kenneth Yegan, didn’t even broach the subject, resulting in what John Fox, head of Fenwick & West’s labor and employment group, calls an “unsatisfying” decision. “It didn’t help us understand how these two competing [issues can] work together,” he says. He is confident, however, “with the right set of facts at the right time,” there will be a definitive decision in California. But Karin Kramer, an intellectual property partner at Keker & Van Nest, says, “I don’t think there’s any indication that California will be adopting the doctrine anytime too soon.” Kramer, no fan of inevitable disclosure, says she believes the doctrine should be used only in the most extreme cases: “It should definitely not be something we should rush to embrace in every trade secrets case.” And she’s certain many judges feel the same way. “A lot of the courts just see it as a backdoor to non-compete covenants,” she says. Others aren’t so pessimistic. Gilmore Diekmann Jr., an employment partner at Seyfarth Shaw, says he believes the doctrine will eventually be adopted “in some form to be determined by the courts. Then the big question will be, did the courts go too far?” At that point, the Legislature may be forced to step in, he says. Orrick’s Weiss points out that numerous California trial courts have already issued injunctions based on the inevitable disclosure doctrine. “There are a whole series of unpublished decisions out there,” he says. Weiss, who has represented clients on both sides of the issue, takes a middle-of-the-road approach regarding the doctrine’s adoption. “I see it on a case-by-case basis,” he says. “It should be applied very narrowly and carefully. You can’t be greedy.”

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