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Employers face a dilemma — your successful endeavors generate valuable proprietary information, yet that information must be shared with any number of executives, technical workers and other trusted employees who use it on a daily basis. While these employees may develop, use and maximize the value of this information, they also represent a risk of unauthorized disclosure. Trade secrets are only valuable as long as they are, in fact, secrets. Once information falls into the hands of your competitor, its worth may be drastically diminished, if not destroyed, and years of research and development may be lost. In such situations, monetary damages are rarely “an adequate remedy when the competitor has obtained the secrets. The cat is out of the bag and there is no way of knowing to what extent their use has caused damage or loss.” National Starch and Chemical Corp. v. Parker Chemical Corp., 219 N.J. Super. 158, (N.J. Super. A.D. 1987) (internal quotations omitted). To address this problem, many companies require key employees to sign nondisclosure or “confidentiality” agreements as well as restrictive covenants precluding a post-employment affiliation with a competitor for some period of time. But, all too often, employers fail to protect their proprietary information with such covenants, and key employees frequently defect to perceived greener pastures at a competitor. While common law principles of fiduciary duty may, in theory, enable you to protect the confidentiality of your proprietary information, particularly in the form of discrete documents, this remedy is of little practical help when your former employee has a vast amount of proprietary know-how in his head and is now working in a similar position for your arch rival. In such circumstances, only an injunction against working for the competitor will put your mind at rest. Fortunately, the doctrine of “inevitable disclosure” allows courts to do just that — enjoin an individual’s prospective employment with a competitor in the absence of a restrictive covenant. EVOLUTION OF INEVITABLE DISCLOSURE In its earliest incarnations, the doctrine of inevitable disclosure recognized that, in some cases, even when an employee has no present intent to use or disclose trade secrets, such information may, of practical necessity, be used or disclosed nonetheless. Put simply, when one of your key people takes a highly similar job with a competitor, that employee may not be able to perform his duties without using or disclosing some portion of your confidential information that remains in his head. Since its original formulation, the doctrine of inevitable disclosure has been adopted in an increasing number of jurisdictions. However, what you must demonstrate to obtain an injunction varies widely. At common law, an employee is subject to a duty to keep his employer’s proprietary information confidential. This obligation continues after the employee moves on to another position. The duty not to use or disclose confidential information also applies to the worker’s subsequent employers as well. Public policy favors protecting trade secrets, since this fosters innovation and prevents unfair competition. For almost a decade, courts have enjoined unauthorized use or disclosure of trade secrets by former employees and their subsequent employers. See, e.g. Eastman Kodak v. Power Film Products, Inc., 179 N.Y.S. 325 (N.Y. App. Div. 1919). Various theories have been advanced to support this result: unfair competition; breach of confidentiality; misappropriation of proprietary property rights; and breach of express, implied or constructive duties arising from the employment relationship. In so doing, courts acknowledged that ideas themselves can have independent economic value. More recently, the Uniform Trade Secrets Act codified many of these common law principles. The UTSA defines a trade secret as information that derives economic value from not being generally known, and which is the subject of reasonable efforts to maintain its secrecy. The UTSA allows employers to enjoin “actual or threatened” misappropriation. Courts have applied the doctrine of inevitable disclosure to demonstrate “threatened” misappropriation under the UTSA. The doctrine of inevitable disclosure grew out of a fundamental tension between competing public policies. On one hand, employers must be able to share their trade secrets with employees freely so that such information may be developed and used, confident that these secrets will not escape with a departing employee into the hands of a competitor. On the other hand, countervailing notions of personal freedom and open market competition militate toward allowing employees free mobility in their careers. Injunctions are, of course, extreme remedies. As a result, injunctive relief will not be granted when disclosure of trade secrets is merely “possible” or when a departing employee is only “tempted” to breach his duty of confidentiality. See E.I. duPont de Nemours & Co. v. American Potash & Chemical Corp., 200 A.2d 428, 432 (Chan. Ct. Del. 1964). Only when there is a strong showing that trade secrets are at risk will a court find that the employer’s interest in confidentiality outweighs the public policy of promoting employee mobility. There are times, however, when even employees who sincerely intend not to use or reveal their former employer’s trade secrets still represent a threat. This is the case when a worker leaves a job for a new position so similar that, in simply performing his duties, the employee would necessarily have to use or disclose his former employer’s confidential information to get the job done. In such cases, as a practical matter, the very nature of the new employment relationship renders some use or disclosure of the trade secrets “inevitable.” When this is true, courts may enjoin the worker from taking the new position altogether for some period of time (e.g. until the industry advances and the secrets he possesses become generally known). For example, in E.I. duPont de Nemours & Co. v. American Potash & Chemical Corp., 200 A.2d 428 (Del. Ch. 1964), the case credited with establishing the doctrine of inevitable disclosure, the Delaware Chancery Court found that the similarity in positions at two competing chemical companies presented a threat of disclosure. The defendant (Hirsch) had been instrumental in devising a method for manufacturing titanium dioxide. When American Potash, a potential competitor, sought to develop its own method for developing titanium dioxide, it recruited Hirsch. DuPont obtained a preliminary injunction preventing Hirsch from working on the titanium production process for American Potash. American Potash moved for dismissal of DuPont’s suit, arguing that there was no evidence that Hirsch intended to disclose DuPont’s trade secrets. The court noted that Hirsch possessed “highly valuable know-how” that belonged to DuPont which “would substantially reduce, or avoid altogether, the time lapse and attendant costs” inherent in developing a titanium production process. Citing the fact that Hirsch was the second most knowledgeable person at DuPont about the process, the court found that “it is impossible to say that all of [DuPont's] trade secrets … are susceptible of consciously being so isolated by Hirsch.” Based on this finding, the court “conclude[d] that the facts warrant[ed] a finding of a threat of wrongful use or disclosure absent any direct evidence as to the employee’s intention.” Since DuPont, the doctrine has gained acceptance. It is, however, still viewed with substantial suspicion since the requested injunctive relief, in effect, imposes a de facto noncompetition agreement. See Whyte v. Schlage Lock Co., 125 Cal.Rptr.2d 277, (Cal. Ct. App. 2002). (One court has tersely observed that the doctrine “treads an exceedingly narrow path through judicially disfavored territory.” Earthweb, Inc. v. Schlack, 71 F.Supp.2d 299 (S.D.N.Y. 1999)). As a result, the standard for determining precisely what factual circumstances imply “inevitable” disclosure varies widely. Under DuPont, the employee’s good faith intentions with regard to protecting his former employer’s trade secrets are largely irrelevant. Rather, DuPont suggests that what is most important is the similarity between the new and old jobs, and the employee’s mission at each job. Where the employee must use the protected information already in his head to do his new job efficiently and effectively, that would suggest injunctive relief is necessary since some inadvertent use or disclosure will ineluctably follow. A line of cases follows this original rationale, relying principally on the employee’s knowledge of trade secrets and the similarity in the employee’s old and new positions for a finding of inevitable disclosure. Some have expressly confirmed that an employee’s subjective intentions are completely irrelevant. Marcam Corp. v. Orchard, 885 F.Supp. 294 (D. Mass. 1995), for example, involved two companies in head-to-head competition for development and licensing of computer software. The employee in question was vice president of development, responsible for budget management and the production of new programs. He also conducted sales and marketing presentations to customers. As a result, the employee “was privy to information pertaining to all aspects of the development and marketing of [software]” that “ Marcam has spent years and millions of dollars to develop.” After three and a half years of employment, the employee resigned in order to accept a software development position with the competitor. The court found that “even if the employee thinks he is keeping his original employer’s secrets, he will, as an employee of the second company, inevitably, even if inadvertently, be influenced by the knowledge he has of all aspects of his prior employer’s development efforts.” In issuing an injunction preventing the employee from taking the new position, the court held that “the harm to the plaintiff cannot be avoided simply by the former employee’s intention not to disclose confidential information or even by his scrupulous efforts to avoid disclosure … [i]t is difficult to conceive how all of the information stored in [the employee's] memory can be set aside as he applies himself to a competitor’s business and products.” Id. But not all courts approach the question of what proof infers inevitable use or disclosure in the same way. Some require a showing of bad faith or wrong conduct on the part of the employee. Others consider such evidence of bad faith or wrongful conduct merely an additional factor in considering whether disclosure of trade secrets is likely or inevitable. For example, in Pepsi Co. v. Redmond, 54 F.3d 1262 (7th Cir. 1995), the 7th U.S. Circuit Court of Appeals based a finding of inevitable disclosure, in part, on the defecting employee’s dishonesty. It applied a number of factors to determine whether disclosure of PepsiCo’s trade secrets was inevitable. First, the court found that the departing employee possessed “extensive and intimate knowledge” of such things as sensitive marketing data that a competitor could use to anticipate PepsiCo’s pricing and distribution strategies. The two jobs were highly similar, such that, unless the employee “possessed an uncanny ability to compartmentalize information,” he would almost certainly use his prior knowledge of PepsiCo’s secrets in performing his new duties. Perhaps the turning point, however, was the court’s disapproval of the employee’s “out and out lies,” and “demonstrated lack of candor” together with “proof of [his] willingness to misuse [PepsiCo's] trade secrets.” Pepsi Co. v. Redmond has been widely followed by other courts since it clearly articulated several factors for evaluating the risk of disclosure and it also analyzed inevitable disclosure under the rubric of the UTSA. As a result, a number of courts have incorporated bad faith as one of several determinative factors. THE UTSA The law governing trade secrets and unfair competition has been traditionally governed by the common law of the individual states. However, The National Conference of Commissioners on Uniform State Laws approved the Uniform Trade Secrets Act in 1979. Forty-three states and the District of Columbia have adopted the UTSA and its injunctive provision. The seven states that have not adopted the UTSA are Massachusetts, New Jersey, New York, North Carolina, Tennessee, Texas and Wyoming. Section 1 of the UTSA defines the term “trade secret.” It provides:
Trade Secret means: information, including a formula, pattern, compilation, program, device, method, technique, or process, that: derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Section 2 of the UTSA allows employers to enjoin “actual or threatened misappropriation.” The definition of misappropriation includes disclosure or use of a trade secret by someone who does not have permission to do so, and who acquired it under circumstances giving rise to a duty to maintain its secrecy — i.e., a former employee. Conversely, under Section 1, “proper means” may be used to obtain and use trade secrets. This includes reverse engineering, independent discovery, observation in public use or information from published materials. Where the UTSA is in force, a number of courts have used inevitable disclosure to satisfy the “threatened misappropriation” requirement of Section 2. One instructive case is Merck & Co., Inc. v. Lyon., 941 F.Supp. 1443 (M.D.N.C. 1996). Here, the general manager for Merck in Canada was in charge of marketing Merck’s “Pepcid AC” product. He subsequently left for a highly similar position at Glaxo Wellcome to market its “Zantac 75″ product, a competing over-the-counter heartburn medication. The District Court for North Carolina held that “threatened misappropriation” for purposes of the UTSA’s injunctive provision could be proved by a showing of inevitable disclosure. Where the information the employee possessed would be of particular value because the second employer lacked specific knowledge regarding its competitor’s cost of goods, marketing launch plans, etc., a threat of misappropriation through inevitable disclosure had been established. Based on this, the court issued a narrow injunction, prohibiting the subject employee from marketing Zantac 75, the product at issue for the second employer. By contrast, at least one court has found that, in the absence of actual wrongful disclosure, mere proof of the employee’s possession of confidential information, coupled with successive jobs at two competitors, was not sufficient to prove inevitable disclosure to satisfy the threatened disclosure requirement of the UTSA. See LeJune v. Coin Acceptors, 381 Md. 288 (Md. 2004). The court held that, because of the strong public policy of encouraging employee mobility, “the theory of inevitable disclosure cannot serve as a basis for granting relief under UTSA.” The doctrine of inevitable disclosure continues to be invoked in circumstances where it appears that an employee is placed in an impossible conflict of interest between protecting the confidentiality of his first employer’s proprietary information and advancing his duty to perform effectively for the second employer. However, the competing public policy — protection of employee freedom and mobility — continues to fuel judicial suspicion. So long as companies fail to secure appropriate confidentiality agreements and restrictive covenants, the doctrine will almost certainly continue to be applied, but the success of its application is highly fact specific. Jeffrey W. Lorell, a partner at Saiber Schlesinger Satz & Goldstein of Newark, N.J., frequently litigates trade secret and restrictive covenant cases. Kenneth Jannette is a law student and summer associate with the firm.

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