United States: D.C. Court Addresses Inevitable Disclosure Doctrine For The First Time, Leaves Open Possibility For Future Use In Trade Secret Litigation

Addressing the "inevitable disclosure doctrine" for the first time, the U.S. District Court for the District of Columbia's recent decision in Info. Strategies, Inc. v. Dumosch1 left open the possibility of the doctrine's use in establishing trade secret misappropriation claims.  A shorthand method of proof, the inevitable disclosure doctrine creates an inference that a former employee will inevitably disclose trade secrets while working in similar employment with a competitor.  Although the Info. Strategies court did not fully adopt the doctrine, the court suggested a degree of lenience at the pleading stage, specifically stating that "[the plaintiff employer] may not even have to allege the misappropriation of a specific trade secret" in its complaint.  

The Case

Information Strategies, Inc. (InfoStrat) provides consulting services to public entities and private companies, a significant portion of which is dedicated to consultation regarding certain customer relationship management (CRM) software.  For five years, InfoStrat employed the defendant employee, who gained knowledge of CRM customization while on the job.  The former employee executed a Non-Disclosure/Non-Compete Agreement (the Agreement) with InfoStrat, which prohibited him from providing comparable services to any InfoStrat competitor in the Washington, D.C. metropolitan area.  It further required that he refrain from disclosing any technical knowledge, inventions, or trade secrets belonging to the company during his employment and at all times afterwards. 

In December of 2012, the employee resigned from InfoStrat and took a job with a consulting firm. InfoStrat alleged that prior to his resignation, it negotiated to work with the consulting firm on a project for the Veterans Administration (VA), whereby modified CRM software would be integrated with other VA information technology systems.  InfoStrat modified the software for the VA in the past, and alleged that a VA employee suggested to the consultant that it hire InfoStrat to assist in the project.  This never ended up happening. 

In a meeting with the consulting firm a month after the employee resigned, InfoStrat was informed that it would not be hired for the project.   At the same meeting, the employee allegedly made clear that he was working on CRM matters for the consulting firm, and that he specifically worked on the VA project that InfoStrat lost.  InfoStrat further alleged that the employee disclosed proprietary information, including InfoStrat's coding template, the architecture it used for specific projects, and the specialized manner in which InfoStrat utilized its employees. 

InfoStrat filed suit against the employee, asserting claims of breach of contract and misappropriation of trade secrets which alleged that he was hired by the consulting firm for his knowledge of CRM customization and to work on the VA project.  This, InfoStrat alleged, allowed the new employer to sidestep contracting with InfoStrat.  InfoStrat filed the lawsuit in federal court based on diversity of citizenship.  The employee filed a motion to dismiss for lack of subject matter jurisdiction on the grounds that the amount in controversy was less than $75,000.  In the context of this question over whether InfoStrat could recover the jurisdictional amount of damages, the court addressed inevitable disclosure.

The Decision

The court initially noted the employee's high burden of demonstrating "to a legal certainty that the claim is really for less than the jurisdictional amount."  It first addressed whether InfoStrat satisfied its amount in controversy by virtue of its claim for breach of contract, and found that it did, noting the potential value of the employee's labor to InfoStrat and its potential loss of business in the Washington, D.C. area as a result of his defection to a competitor.  

The court then turned to InfoStrat's misappropriation of trade secrets claim and the value of the potentially disclosed trade secrets.  The employee argued that InfoStrat failed to allege the disclosure of any trade secrets.  The court disputed this, pointing to InfoStrat's allegations regarding its coding template, its architectures for specific projects, and the specialized manner in which InfoStrat utilized its employees. 

Not stopping there, the court than specifically confronted the employee's argument that InfoStrat never alleged misappropriation of a specific trade secret.   Perhaps opening a door for future reliance, the court stated that "the inevitable disclosure doctrine allows a plaintiff to prove trade secret misappropriation by demonstrating that defendant's new employment will inevitably lead them to rely on plaintiff's trade secrets."  It noted that while the doctrine had been adopted by a number of other states, it was unaware of any District of Columbia courts addressing it, and held that it therefore "[could not] say as a matter of legal certainty that the inevitable disclosure doctrine would not apply in this case."  And because it could not rule out the application of inevitable disclosure, it "[could not] conclude that a hypothetical failure to allege the disclosure of a specific trade secret is relevant." 

Takeaways from the Decision 

While Info. Strategies, Inc. v. Dumosch falls short of outright adoption of the doctrine, the fact the court was not persuaded by the defendant's argument that the claim failed for want of alleging specific trade secrets is not insignificant: the court certainly could have, but did not, elect to follow a number of jurisdictions that explicitly have declined to adopt inevitable disclosure.2 Thus, the decision conceivably opens the door, at least at the pleading stage, for an inevitable disclosure claim to survive discovery.  

While inevitable disclosure is a useful shortcut, employers are best served by collecting as much evidence as possible whenever an employee has potentially stolen proprietary information.  Such an employee's company computer or electronic storage devices should be preserved for forensic examination, which can provide the employee's digital footprint as he or she departed for a competitor.   The departing employee's emails should also be preserved.  And, suspicious activity or statements should be brought to the attention of the employer's counsel so that such information can be incorporated into any resulting complaints, affidavits, or discovery requests.  Nothing is more inevitable than direct proof.

Footnotes

1. 2014 U.S. Dist. LEXIS 16174 (D.D.C. Feb. 10, 2014).

2. See, e.g., Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 125 Cal. Rptr. 2d 277 (2002); Holton v. Physician Oncology Services, 2013 Ga. LEXIS 414 (May 6, 2013);  LeJeune v. Coin Acceptors, Inc, 849 A.2d 451, 471 (Md. 2004).

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