VOL. 131 | NO. 75 | Thursday, April 14, 2016
Trade Secrets and the Inevitable Disclosure Doctrine
By ROBERT E. CRADDOCK JR. & GRAHAM MATHERNE
ROBERT E. CRADDOCK JR. & GRAHAM MATHERNE
Trade secrets are some of a company’s most valuable assets. They’re like a good employee – you don’t want either to walk out the door.
But what if a longtime employee who has knowledge of your trade secrets leaves your company to work for a competitor? You wind up with an inevitable ‘pit in your stomach’ because down deep you know he or she is going to share your trade secrets with that competitor.
Yet all is not lost because under the Tennessee Uniform Trade Secrets Act, you can seek an injunction to prevent a former employee’s “actual or threatened misappropriation” of your trade secrets.
In this area of “threatened misappropriation” of trade secrets, the legal doctrine of “inevitable disclosure” has developed. In general, that doctrine recognizes that disclosure of trade secrets may be inevitable. Thus, it provides grounds for injunctive relief against your former employee if:
• He or she possesses “extensive and intimate knowledge” of information that would qualify as trade secrets.
• His or her position with your competitor is so similar that he or she likely would rely on your secrets to perform his or her duties in this new position.
• His or her actions or those of the new employer regarding departure from your employment indicate bad faith or lack of candor so that a willingness to misuse your trade secrets can be inferred.
Each of these factors, however, are extremely fact-specific and can result in protracted and expensive litigation. Whether the information is a true trade secret will be hotly contested. Whether the former employee had intimate knowledge of your trade secrets will be at issue. And whether the former employee acted in bad faith in leaving your employment will be disputed.
Many of the cases addressing the inevitable disclosure doctrine involve instances where a former employee was not under a covenant not to compete. Inherently, the absence of a non-compete covenant undercuts the importance of any information which a former employee may have and whether that information is truly a trade secret. This situation almost always gives rise to the following question: If the information was so unique, confidential and valuable, why didn’t you have the individual with knowledge of that information under a non-compete agreement?
The inevitable disclosure doctrine can be argued when trade secret misappropriation is threatened. But due to the fact-specific nature of the doctrine, total reliance on the doctrine is unreliable. Courts addressing whether to enjoin the former employee based on the inevitable disclosure doctrine have issued a broad range of judicial opinions.
Thus, best practice is always to put all employees who have access to trade secret information under a well-tailored and enforceable non-compete agreement. That way, you can feel more confident that inevitable disclosure of your trade secrets won’t occur because he or she likely won’t be working for your competitor.
Bob Craddock is the partner in charge of the Memphis office of Wyatt, Tarrant & Combs LLP. Graham Matherne is a partner with Wyatt, Tarrant & Combs LLP.