The inevitable disclosure doctrine (“IDD”) allows courts to issue temporary or permanent injunctive relief to prevent an employee from working at a competitor under circumstances where the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer’s trade secrets. When followed by the courts, the IDD can be used to impose non-competition obligations on employees who never signed a contractual covenant not to compete. The IDD is a controversial doctrine that raises public policy and practical concerns. While Minnesota courts have followed the IDD in limited circumstances, treatment of the doctrine across the country has been inconsistent.
What Is the “Inevitable Disclosure Doctrine” Under Trade Secrets Law?
Courts typically consider the following factors in applying the inevitable disclosure doctrine: (1) competition between employers; (2) scope of the employee’s new job; (3) lack of candor concerning the employee’s new position; (4) identification of the at-risk trade secrets; (5) whether misappropriation already occurred; (6) employer policies regarding trade secrets (both former and current employers); (7) whether the employee signed a non-disclosure and/or non-competition agreement; and (8) isolation of the new employee. See, e.g., PepsiCo, Inc. v. Redmond, 54 F. 3d. 1262 (7th Cir. 1995); Maxxim Medical, Inc. v. Michelson, 51 F. Supp. 2d 773, 786 (S.D. Tex. 1999), rev’d on other grounds, 182 F.3d 915 (5th Cir. 1999). The analysis of IDD cases is fact-specific and courts may also consider other factors, such as public policy, when determining whether to issue an injunction.
Criticism of the Inevitable Disclosure Doctrine
The majority of courts that have addressed the IDD have endorsed it. See William Lynch Schaller, Trade Secret Inevitable Disclosure: Substantive, Procedural & Practical Implications of an Evolving Doctrine (Part I), 86 Pat. & Trademark Off. Soc’y 336, 345 (2004). Some courts, however, have resisted the doctrine. For example, California courts have rejected application of the IDD on grounds of public policy. See Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1462-63 (2002) (“The chief ill in the covenant not to compete imposed by the inevitable disclosure doctrine is its after-the-fact nature: The covenant is imposed after the employment contract is made and therefore alters the employment relationship without the employee’s consent.”). Courts in Florida, Louisiana, Maryland, Michigan, and Virginia have also rejected the doctrine. See, e.g., Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp.2d 1326 (S.D. Fla. 2001); Standard Brands, Inc. v. Zumpe, 264 F. Supp. 254 (E.D.La. 1967); LeJeune v. Coin Acceptors, Inc., 381 Md. 288 (Md. 2004); CMI Int’l Inc. v. Intermet Int’l Corp., 649 N.W.2d 808 (Mich. Ct. App. 2002); Leach v. Ford Motor Co., 299 F. Supp. 2d 763 (E.D. Mich. 2004); Degussa Admixtures, Inc. v. Burnett, 471 F.Supp.2d 848, 856 (W.D. Mich., 2007); Government Tech. Servs., Inc. v. IntelliSysTech. Corp., 51 Va. Cir. 55 (Va. Cir. Ct. Oct. 20, 1999).
Application of the Inevitable Disclosure Doctrine in Minnesota
Although application of the IDD is far from uniform in the United States, some Minnesota courts have followed the doctrine. In one of the earliest Minnesota cases to discuss the IDD theory, Surgidev v. Eye Tech. Inc., 648 F. Supp. 661, 695 (D. Minn. 1986), aff’d, 828 F.2d 452 (8th Cir. 1987), the Minnesota federal district court found that a trade secret cause of action could be sustained where “there is a high degree of probability of inevitable disclosure.” Subsequently, Surgidev has been cited with approval by state and federal courts applying Minnesota law.
For example, in IBM Corp. v. Seagate Tech. Inc., 941 F.Supp. 98 (D. Minn. 1992), the plaintiff was seeking a preliminary injunction against a former employee who was now employed in a similar position with a competitor. The court cited Surgidev but ultimately denied the motion, concluding that IBM has failed to show that there is “a high degree of probability of inevitable disclosure.” The court held that a preliminary injunction could only issue when there was actual misappropriation of a trade secret or threatened misappropriation of a trade secret. According to the court, a “substantial threat of impending injury . . . [must] exist” before an injunction will issue. “Merely possessing trade secrets and holding a comparable position with a competitor does not justify an injunction. A claim of trade secret misappropriation should not act as an ex post facto covenant not to compete.”
In La Calhene, Inc. v. Spolyar, 938 F. Supp. 523 (W.D. Wis. 1996) (applying Minnesota law), the plaintiff sought a preliminary injunction against its former chief operating officer and president of its sales and marketing division on the grounds that he breached the non-competition and confidentiality provisions of his employment contract and misappropriated trade secrets. The court concluded that the plaintiff did not show that the defendant actually misappropriated any of its trade secrets; that is, put them to use. The court observed, however, that a plaintiff does not need to make this showing in order to obtain a preliminary injunction. According to the court, it is sufficient to show the threat of misappropriation. The Minnesota Uniform Trade Secrets Act, Minn. Stat. § 325C.02, provides that a court may enjoin an actual or threatened misappropriation. The court concluded that the threat of misappropriation in this case was “very real” because defendant’s position with his former employer gave him such intimate knowledge of its research, product development, finances, marketing strategies and pricing information that “it is all but inevitable that he will utilize that knowledge during his work” with his new employer.
In LEXIS-NEXIS v. Beer, 41 F. Supp. 2d 950 (D. Minn. 1999), the Minnesota federal district court rejected an employer’s attempt to use the inevitable disclosure doctrine to prevent a former employee from working for a competitor altogether. The court held that regardless of whether the employer could prove the existence of a trade secret, it failed to show how the employee “would inevitably disclose the information” to his new employer if he continued to work there. The court noted there was little evidence that the employee still possessed any confidential information, apart from what he might retain in his memory. On this point, the court noted that the employee “did not have the kind of intimate familiarity with corporate policies and strategies that might support a finding of inevitable disclosure under prior cases.” The court, citing IBM Corp. v. Seagate Tech. Inc., concluded that if it were to issue the sweeping injunction requested by the plaintiff, the former employer would obtain, through the back door of trade secret law, the kind of unreasonable restriction it could not obtain via its original non-compete agreement.
In NewLeaf Designs, LLC v. BestBins Corp., 168 F. Supp. 2d 1039, 1043 (D. Minn. 2001), the Minnesota federal district court held that to obtain injunctive relief using the inevitable disclosure doctrine under the Minnesota Uniform Trade Secrets Act, “the movant must show there is a high degree of probability of inevitable disclosure.”
In Leucadia Inc. v. Intermas Nets USA, Inc., No. 02-4146 ADM/AJB, 2003 U.S. Dist. Lexis 2334 (D. Minn. 2003), the Minnesota federal district court held that to prove inevitable disclosure, the former employer would have to establish that the employee acquired certain information at the former employer “that he cannot help but use in his position” at his new employer.
In ReliaStar Life Ins. Co. v. KMG Am. Corp., No. A05-2079, 2006 Minn. App. LEXIS 1018 (Minn. Ct. App. Sep. 5, 2005), the Minnesota Court of Appeals affirmed the denial of the plaintiff’s motion for a temporary injunction, because an injunction should only be granted in clear cases, free from doubt, to prevent irreparable injury. The court held that threatened misappropriation of trade secrets may be enjoined if the moving party demonstrates a “high degree of probability of inevitable disclosure.”
In Schwan’s v. Home Run Inn, Inc., No. 05-2763, 2005 U.S. Dist. LEXIS 32879 (D. Minn. Dec. 9, 2005), the court held that there could be no claim for inevitable disclosure of trade secrets where the employer did not specifically identify its confidential or proprietary materials. Id. at *17 (“Finally, because the Court is left to speculate as to the confidential or proprietary nature of the information that [defendants] allegedly have, the Court finds no merit to Schwan’s assertions of inevitable disclosure.”).
In United Prod. Corp. of America, Inc. v. Cederstrom, No. A05-1688, 2006 WL 1529478, at *5 (Minn. Ct. App. Jun. 6, 2006), the court held that “Minnesota courts do not grant injunctive relief solely because a former employer presumes that disclosure and solicitation are inevitable.”
As should be evident from a review of the above court decisions, Minnesota federal and state courts have recognized the potential viability of the inevitable disclosure doctrine, although in practice the doctrine has been limited to cases where the employee has intimate knowledge or familiarity of the plaintiff’s business practices and/or corporate policies and strategies and a substantial threat of impending injury exists.
Because Minnesota courts have applied the inevitable disclosure doctrine only under limited circumstances, employers should take strong measures to protect their trade secrets:
- First, employers should be proactive by limiting employee access to trade secrets and confidential information on a “need to know” basis.
- Second, employers should take a variety of physical and digital security measures to protect their trade secrets (e.g., locks, restricting physical access to trade secrets, security cameras, prohibiting visitors from accessing areas where trade secrets exist, computer firewalls and password protection, etc.).
- Third, at a bare minimum, employers should require all employees with access to trade secrets to sign a non-disclosure or confidentiality agreement.
- Fourth, for employees who must have access to trade secrets, employers should strongly consider entering into a narrowly tailored non-competition agreement that prohibits the employee from working for a competitor for a reasonable period of time (e.g., 12 – 24 months). The existence of a non-compete agreement provides the employer with contractual remedies to protect its trade secrets and also makes it more likely that the courts will apply the inevitable disclosure doctrine.
If your business needs assistance developing a trade secrets protection plan, or you are an executive or professional defending a lawsuit alleging “inevitable disclosure” of trade secrets, contact one of the Minnesota trade secrets law attorneys of Trepanier MacGillis Battina P.A.
About the Author:
Minnesota trade secrets attorney Craig W. Trepanier regularly represents Minnesota businesses and employees in their employment law matters, including disputes over protection of proprietary and confidential information and misappropriation of trade secrets. Craig may be reached at 612.455.0502 or firstname.lastname@example.org. Trepanier MacGillis Battina P.A. is a Minnesota trade secrets law firm located in Minneapolis, Minnesota.
Additional Information about Trade Secrets:
Minnesota Trade Secrets Law
Guidelines for Executives to Follow When Departing Their Employer
Minnesota Trade Secrets Law
Minnesota Trade Secrets Attorney
Federal Patent Law Preempts Minnesota Trade Secrets Law
Seventh Circuit Expands Protection of Confidential Information
Additional Information about Employment Law:
Minnesota Employment Law
Minnesota Employment Agreement