Inevitable Disclosure under the Federal Defend Trade Secrets Act

The Defend Trade Secrets Act is almost four years old, and not surprisingly there are now numerous several informative decisions which intersect with employment. The Act explicitly recognizes threatened misappropriation, although some decisions have relied upon state law to interpret this claim. While the Act does not explicitly recognize a claim for inevitable disclosure by a defendant, several courts have concluded that the Act implicitly recognizes inevitable disclosure as a variety of threatened misappropriation. Consequently, the inevitable disclosure doctrine has surfaced under the federal Act where state law recognizes inevitable disclosure, and two such states are Illinois and Minnesota.

In Illinois a court dismissed a claim under the Act with leave to amend where the plaintiff alleged that the defendant former employee would inevitably disclose trade secrets to his new employer. However, the court held that similar employment with a competitor dos not establish that the employee would inevitably disclose the trade secrets. Instead, this former employee could simply refrain from (i) contacting the plaintiff’s customers, and (ii) using plaintiff’s proprietary designs. Industrial Packing Supplies, Inc. v. Channell et al., 2018 WL 2560993 (N. D. Ill. June 4, 2018).

More recently in Illinois, a court granted an employee’s dismissal of his former employer’s misappropriation claim, where the employee lawfully possessed the alleged trade secrets. The court also denied that former employer’s motion for a preliminary injunction to prevent disclosure and use of these trade secrets. In doing so, the court held that mere solicitation of the plaintiff’s customers is not evidence of wrongful use or disclosure. The same was true even if the customers did in fact leave plaintiff and ‘joined forces’ with the defendant former employee. Packaging Corporation of American v. Croner, 2020 U.S.  Dist. Lexis 1845 (N.D. Ill. January 3, 2020).

In Minnesota, two competitors were each in the business of administering prescription drug plans.  When a high ranking executive left plaintiff’s employ for the competitor, the plaintiff moved for a preliminary junction to prevent disclosure and use of its trade secrets. The court initially stated that the degree of competition, similarity of employment, and the new employer’s efforts to prevent disclosure and use were the proper criteria for establishing inevitable disclosure. The court then concluded that there was no inevitable disclosure in this instance and denied a preliminary injunction because

  • there was no evidence that the employee had improperly taken trade secrets; and
  • the subsequent employer affirmatively phased in new projects to that the former employer’s trade secrets would not be used or disclosed.

Prime Therapeutics LLC v. Beatty et al., 354 F. Supp. 3d 957 (D. Minn. 2018).

However, the reader should be aware of a decision under the Act and state law in a Texas federal district court. In this case the plaintiff moved for a temporary restraining order to prevent disclosure and use of its trade secrets by a former employer. The court held that under Texas law if an employee possessing trade secrets obtains employment with a competitor, then there is threatened misappropriation if the employee is in a position to use these trade secrets. The court then granted the temporary restraining order, because irreparable injury is presumed from the threatened misappropriation. TFC Partners, Inc. v. Stratton Amenities, LLC et al., 2019 369152 (S. D. Texas January 30, 2019.)

© 2020 Adrienne B Naumann, Esq. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann.wordpress.com

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