United States: Defend Trade Secrets Act: Recent Developments Raise Questions About Inadvertent Disclosure

The Defend Trade Secrets Act ("DTSA"), signed into law last year by President Obama, revolutionized intellectual property law by creating a new civil cause of action permitting trade secret owners to sue for misappropriation in federal court under federal law.  Prior to the DTSA, trade secret owners had to rely on state law to remedy misappropriation or to enjoin former employees without non-compete agreements from going to work for a competitor simply because of the confidential information they learned or had access to during the course of their employment. 

One of the primary goals of the DTSA was to establish a uniform law of trade secret misappropriation.  The DTSA expressly did not, however, preempt existing state law, which is anything but uniform on whether the inevitable disclosure doctrine can be used to obtain an injunction to prevent employees from changing jobs in the absence of concrete evidence of actual or threatened use of stolen trade secrets.  Early draft versions of the DTSA were criticized precisely because the language could have been read to endorse the inevitable disclosure doctrine, which some jurisdictions have rejected or where it has not been officially recognized including Maryland, Virginia, California, Georgia, and the District of Columbia. 

In LeJeune v. Coin Acceptors, Inc., 31 Md. 288 (2004), a case of first impression, the Court of Appeals of Maryland rejected the inevitable disclosure doctrine as a basis for granting a preliminary injunction under Maryland's Uniform Trade Secrets Act ("MUTSA"), and that remains the law in Maryland today.  To avoid conflict with state law that promotes at-will employment – especially in industries that thrive on innovation and a mobile workforce – the final version of the DTSA was changed.  It authorizes a court to grant an injunction to prevent actual or threatened misappropriation provided that it does not "prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows." 

It appeared that the problem was solved.  Or was it?  There is only one reported decision in the federal courts in Maryland in a misappropriation case brought under both the MUTSA and the DTSA, but the district court did not have occasion to address whether the inevitable disclosure doctrine would apply in deciding the plaintiff's motion for a temporary restraining order and preliminary injunction.  Recent decisions from other federal courts, however, are starting to raise questions about the proper interpretation of the plain language of the DTSA and its explicit rejection of the inevitable disclosure doctrine.

In Fres-co Systems USA, Inc. v. Hawkins, et al., 2017 WL 2376568 (3d Cir. June 1, 2017), the U.S. Court of Appeals for the Third Circuit applied what, for all intents and purposes, appears to be the inevitable disclosure doctrine in deciding an appeal of the district court's grant of a preliminary injunction in favor of a former employer against its former employee of sixteen years.  The injunction barred him from disclosing Fres-co's confidential information and from soliciting twelve clients whom he had serviced while at Fres-co.  Although the Third Circuit did not mention the doctrine by name, it concluded that the district court was within its discretion to find that the plaintiff satisfied the likelihood of irreparable harm element of a preliminary injunction because its former employee "would likely use his confidential knowledge [obtained during his former employment]" to his former employer's detriment in his new job with a direct competitor.  In reaching this conclusion, the Third Circuit emphasized the "substantial overlap" between what the former employee had done at Fres-co and what he planned to do for its director competitor – he would be working in "the same role, the same industry, the same geographic region."  In other words, the Third Circuit agreed with Fres-co's argument that its former employee would be unable to perform his new job duties without inevitably using or disclosing Fres-co's trade secrets without any specific proof that he would do so.  Because the Third Circuit did not distinguish between the plaintiff's claims under the DTSA and the Pennsylvania Uniform Trade Secrets Act, it would appear that the mere threat of misappropriation based on a former employee's knowledge acquired on the job is sufficient under both statutes to warrant granting a preliminary injunction against the former employee.

Federal district courts in Missouri and New York likewise have recognized the inevitable disclosure doctrine in cases brought under both the DTSA and the applicable state trade secret acts.  In Panera LLC v. Nettles, Case No. 4:16-cv-1181, 2016 WL 4124114 (E.D. Mo. Aug. 3, 2016), the district court applied the inevitable disclosure doctrine, which has not been formally adopted in Missouri, to grant the plaintiff's motion for a temporary restraining order against its former employee, who was "likely to draw upon, as a matter of course, his experience and knowledge with regard to Panera's confidential systems and business strategy" at his new job.  The district court in Free Country Ltd. v. Drennen, et al., Case No. 1:16-cv-8746, 2016 WL 7635516 (S.D.N.Y. Dec. 30, 2016), noted that the plaintiff "theoretically" could lodge an inevitable disclosure claim against its former employee "based on information still in [his] head." 

These decisions leave open the question of what would happen in those jurisdictions where, prior to the enactment of the DTSA, to get an injunction, it was not enough for a trade secret owner to simply show that a defendant's new employment would inevitably lead him or her to rely on those trade secrets in order to carry out his or new job duties.  At this early stage, it remains to be seen whether a split among the federal circuit courts of appeal worthy of Supreme Court consideration will develop as more cases progress through the appeals process.  In the meantime, trade secret owners and their challengers need to play close attention to developing case law and how it will affect the fate of the inevitable disclosure doctrine in jurisdictions throughout the Mid-Atlantic, the Southeast, and beyond.

This article originally appeared at Law360.com. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.