The "Inevitable Disclosure" Doctrine and the DTSA

The "inevitable disclosure" doctrine permits the plaintiff in a trade secrets case to establish threatened misappropriation by showing that the defendant's new employment will inevitably lead the defendant to rely on the plaintiff's trade secrets. In the seminal case that articulated this doctrine, the court enjoined the defendant from working for the competitor because "there is a high degree of probability of inevitable and immediate … use of … trade secrets."¹

The doctrine is controversial because it potentially "requires a court to recognize and enforce a de facto noncompetition agreement to which the former employee is bound, even where no express agreement exists."³ Accordingly, "the inevitable disclosure doctrine treads an exceedingly narrow path through judicially disfavored territory."³

One federal court surveyed state trade secret laws in 2019 and concluded that 17 states appear to have adopted the inevitable disclosure doctrine in one form or another: Arkansas, Connecticut, Delaware, Florida, Indiana, Illinois, Iowa, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Texas, Utah and Washington. It concluded that five states appear to have rejected the doctrine: California, Colorado, Louisiana, Maryland and Virginia.⁴ The other 28 states have not yet taken a position on the doctrine.

Since then, a Florida federal court has indicated that Florida has not adopted or declined to adopt the inevitable disclosure doctrine.⁵ And an Oregon federal court has opined that Oregon would be unlikely to adopt the doctrine.⁶

Given this division among the states on the inevitable disclosure doctrine, considerable attention has been focused on whether the federal Defend Trade Secrets Act (DTSA) adopts this doctrine. "[T]here is no judicial consensus on whether DTSA permits application of the inevitable disclosure doctrine" and so "many federal courts look to state law for guidance."⁷ No federal court has yet embraced the inevitable disclosure doctrine under the DTSA where application of that doctrine would contravene that state's trade secret law.

However, the DTSA does limit the scope of injunctive relief that it affords. The DTSA authorizes a court to "grant an injunction to prevent any actual or threatened misappropriation … provided the order 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[.]"⁸ Thus, in an alleged inevitable disclosure situation, the DTSA does not permit a federal court to enjoin the former employee from going to work for a competitor.⁹ But the court could potentially grant narrower relief, such as placing limits on the type of work the former employee may perform for the new employer or the customers the former employee may contact.

One federal court recently concluded, based on this statutory provision and a portion of the legislative history, that the inevitable disclosure doctrine does not apply to claims brought under the DTSA.¹⁰ This conclusion is subject to question.

Limited Relief

The legislative history explains that the DTSA limit on injunctive relief was "included to protect employee mobility, as some members … voiced concern that the injunctive relief authorized under the bill could override state-law limitations that safeguard employee mobility and thus could be a substantial departure from existing law in those states."¹¹ Congress intended the injunctive remedies provided by the DTSA "to coexist with, and not to preempt, influence, or modify applicable State law governing when an injunction should issue in a trade secret misappropriation matter."¹² Thus, it provided that no injunction issued under the DTSA shall "conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business."¹³ Note that the inevitable disclosure doctrine is a method of proving threatened misappropriation in order to obtain judicial relief. However, the DTSA limits the equitable remedies available for either threatened or actual misappropriation.

Likewise, the additional DTSA limitation that injunctive relief "shall be based on evidence of threatened misappropriation and not merely on the information the person knows" is consistent with the inevitable disclosure doctrine. Inevitable disclosure does not turn on what information a former employee knows, but, rather "showing that an employee's new job so closely resembles her old one that it would be impossible to work in that job without disclosing confidential information."¹⁴

In jurisdictions that have adopted the inevitable disclosure doctrine, three factors are considered in determining whether to grant injunctive relief based on threatened misappropriation: 1) whether the employers in question are direct competitors providing the same or very similar services; 2) whether the employee's new position is nearly identical to his old one, such that he could not reasonably be expected to fulfill his new job responsibilities without utilizing the trade secrets of his former employer; and 3) whether the trade secrets at issue are highly valuable to both employers.¹⁵ This three-factor analysis is fully compatible with the DTSA's limitation on when injunctive relief can be granted.

In sum, the drafters of the DTSA were careful not to take a side in the debate between the states over the inevitable disclosure doctrine. The DTSA, by its terms, neither embraces nor rejects "inevitable disclosure" as a means of proving threatened misappropriation. It does, however, preclude courts from imposing a de facto noncompete requirement on a former employee as a remedy for threatened or actual misappropriation of trade secrets.

Notes

¹ See PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995).

² Kinship Partners, Inc. v. Embark Veterinary, Inc., 2022 WL 72123, at *7 (D. Or. 2022).

³ EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299, 310 (S.D.N.Y. 1999).

⁴ Phoseon Technology, Inc. v. Heathcote, 2019 WL 7282497, at *11 (D. Or. 2019).

⁵ Future Metals LLC v. Ruggiero, 2021 WL 5853896, at *17 n.18 (S.D. Fla. 2021).

⁶ Kinship Partners, 2022 WL 72123, at *7.

⁷ Sunbelt Rentals, Inc. v. McAndrews, 552 F. Supp. 3d 319, 331 (D. Conn. 2021).

⁸ 18 U.S.C. § 1836(b)(3)(A)(i)(I) (emphasis added).

⁹ Kinship Partners, 2022 WL 72123, at *7.

¹⁰ IDEXX Laboratories, Inc. v. Bilbrough, 2022 WL 3042966, at *5-6 (D. Me. 2022).

¹¹ S. Rep. No. 114-220 at 9 (2016).

¹² Id.

¹³ 18 U.S.C. § 1836(b)(3)(A)(i)(II).

¹⁴ Amazon.com, Inc. v. Powers, 2012 WL 6726538, at *7 (W.D. Wash. 2012).

¹⁵ See Sunbelt Rentals, 552 F. Supp. 3d at 331.