Inevitable disclosure through an Internet lens: is the doctrine's demise truly inevitable?

• Author: Phillips, Joseph F.

INTRODUCTION

Modern trade secret law is, at a very basic level, a study in balance. At its core lies the onerous task of assuring that vital business information remains confidential, while simultaneously preventing the strong public policy of employee mobility from growing dangerously close to extinction. Nowhere is this conflicting dichotomy more evident than in the enigmatic doctrine of "inevitable disclosure." This judicially crafted doctrine prevents a departing employee with knowledge of secret company information from finding similar employment elsewhere, under the theory that such employment would "inevitably" lead to the disclosure of his former employer's trade secrets. Application of the doctrine--which varies greatly from state to state often manifests itself in one of two ways: (1) An equitable tool used to interpret the reasonableness and validity of non-compete clauses in employment contracts; and (2) A means of preventing an employee from accepting similar employment in the same field, even in the absence of a covenant not to compete.

In the specific context of the Internet industry, this Note focuses on the latter of these two inevitable disclosure formulations, and argues that, if restrictively applied, the doctrine remains viable as an equitable tool in the law of trade secrets. Part I gives a brief history of trade secret law in the United States, discussing the elements of trade secrets generally and illustrating policy considerations that underlie the body of law as a whole. Part II discusses the inevitable disclosure doctrine generally, provides an in-depth look at the modern-day conception of inevitable disclosure as the Seventh Circuit Court of Appeals enunciated in PepsiCo, Inc. v. Redmond, (1) and examines the abundance of scholarly criticisms of the doctrine. Part III looks at inevitable disclosure in the context of the Internet industry, investigates industry-specific applications of the doctrine, and provides a proposal for applying the inevitable disclosure doctrine within the ambit of the Internet field. Finally, this Note concludes that the doctrine is workable, if applied in a very specific manner.

1. GENERAL PRINCIPLES OF TRADE SECRET PROTECTION

   1. The Evolution of Trade Secret Law

      The origins of trade secret law can be traced back as far as the early nineteenth century, when English industrialists became increasingly concerned with the misdeeds of their employees in various business contexts--misdeeds which resulted in the disclosure of vital information intentionally shielded from the public. (2) Using English decisions as the framework for their own trade secret jurisprudence, American courts began to recognize the profound importance of safeguarding such information as early as 1837, (3) thus beginning the steady and deliberate common law evolution of trade secret protection. (4)

      The American Law Institute's publication of the Restatement (First) of Torts crystallized American trade secret law into a single, comprehensive set of guidelines in 1939. (5) Section 757 of the Restatement and its accompanying comments attempted to synthesize the amalgam of trade secret case law by offering a general definition of what constituted a trade secret, (6) explaining the level of secrecy required to qualify for trade secret protection, (7) determining in which situations the receipt of classified information could be viewed as an impropriety, (8) and suggesting remedies for trade secret misappropriation. (9) Though lauded for the degree of uniformity it injected into the structure of trade secret law, the First Restatement was unable to effect a truly comprehensive model on which courts could confidently rely for guidance in the modern business world; specifically, it neglected to give protection to information whose value was short-lived, it provided a definition of a trade secret that lacked the substance necessary to aid the legal community, and it created a shroud of ambiguity that resulted in widely disparate holdings in misappropriation cases. (10)

      In response to the confusion born from the failings of the First Restatement, the National Conference of Commissioners on Uniform State Law in 1979 passed the Uniform Trade Secrets Act (UTSA), an archetypal trade secret statute created to fill in the holes that Section 757 created. Since its passage, forty-three states nationwide (and the District of Columbia) have adopted the UTSA in various forms, (11) and lawmakers and judges alike view the UTSA as the prevailing authority in the field.

   2. Trade Secret Law Under the UTSA

      1. Establishing the Existence of a Trade Secret

      The first step involved in acquiring trade secret protection under the UTSA is establishing that such a secret exists. A logical approach, then, is to look at the UTSA's definition of a trade secret, a definition that evinces a higher degree of objectivity and expansiveness than the one the First Restatement supplied. As the UTSA defines:

      "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (12) A careful reading of this definition suggests three main criteria that must be met before information can be termed a trade secret under the UTSA. (13) First, the information must have some economic value, giving its holder a tangible business benefit. (14) Its character must be important enough such that a competitor "would materially benefit from knowing the information and would have to spend time and money to create the same information independently." (15) Second, the information must be incapable of being easily discovered by lawful means. (16) In other words, if a competitor can simply look at a publicly accessible company product and understand the information sought to be protected, such information is not a trade secret, and any publication of the information would necessarily eliminate its secret classification. (17) Finally, the company seeking to protect the information must take reasonable steps to assure its secrecy. (18) This objective requirement does not require that the owner of confidential information have exclusive knowledge of the secret; employees and other important individuals may have access to the information without undoing its protected status as a secret. (19) Rather, if a company employs a legitimate secrecy policy and makes reasonable efforts actually to enforce the policy, then it has satisfied the secrecy requirement of the UTSA--"[o]nly reasonable efforts, not all conceivable efforts, are required." (20)

      The UTSA thus provides a more concrete standard through which the trade secret status of business information can be judged. More importantly in terms of its overall impact, however, is its relevance in the area of trade secret misappropriation.

      2. Trade Secret Misappropriation

      Once a trade secret is in play, the dispositive question becomes whether misappropriation has occurred. Under the UTSA, a trade secret is misappropriated if it is (1) acquired by "improper means," or (2) disclosed or used by an individual who either used improper means to acquire it or knew that he was under a duty to protect its secrecy. (21) Misappropriation occurs in one of three ways: acquisition by improper means, breach of a duty of confidentiality, or unlawful use of a competitor's trade secret. (22)

      Many actions fail under the umbrella of "improper means," including "theft, bribery, misrepresentation [and] espionage through electronic or other means." (23) The prototypical example of such an improper means scenario took place in E.I. duPont deNemours & Co. v. Christopher, (24) a Fifth Circuit Court of Appeals decision that held that photographs of the plaintiffs unfinished production facility taken by defendant's airplane--done for the unitary purpose of gaining the plaintiffs trade secrets--constituted an improper acquisition of trade secrets, even though the defendant's actions were lawful. (25) Thus, to be guilty of misappropriation of trade secrets through improper means, one's actions need not be illegal, but simply contrary to accepted norms of business conduct.

      A more typical example of trade secret misappropriation involves a breach of a duty of confidentiality, where a party lawfully acquires information, but is under a duty not to disclose. (26) This occurs most often in the context of an employer-employee relationship, typically involving a duty that--because of non-disclosure clauses in the employee's contract--lasts beyond the life of the employment relationship. (27) Again, it is not necessary that the employee gain physical control of the document that details the trade secret; he merely needs to improperly use knowledge that he gained from his former employer to be guilty of misappropriation. (28)

      Improper "use" of a trade secret, the third general way in which misappropriation occurs, is commonly found in an organization that hires a competitor's employee who has left his former employer with a valuable trade secret at his disposal. The steps a company takes after the discovery of such information are what may constitute improper use. Obviously, making exact duplicates of the products or processes the secret describes constitutes improper use, but the scope of the rule extends well beyond that action alone. (29) Slightly modifying a rival's trade secret (30) or even using the general principles set forth in the trade secret to produce a novel product (31) would each fall under the auspices of trade secret "use," and would dictate a finding of misappropriation.

      3. Remedies Under the UTSA

      Remedies under the UTSA are generally...