Locating inevitable disclosure's place in trade secret analysis.

• Author: Saulino, Jennifer L.

INTRODUCTION

For ten years, William Redmond, Jr., worked for PepsiCo, the maker of the sports drink All-Sport. (1) Redmond's status as General Manager gave him access to trade secrets. (2) PepsiCo protected those trade secrets by contract, and, as is typical, PepsiCo required Redmond to sign a confidentiality agreement covering all "confidential information relating to the business of [PepsiCo]." (3) This confidentiality agreement, like most of its kind, protected the company from the danger that an employee who knew secret information would change jobs and disclose that information.

In late 1994, Redmond accepted a position with Quaker's Gatorade division, a major competitor of PepsiCo's All-Sport. Redmond's new position held sufficient similarities to his position at PepsiCo that PepsiCo had reason to fear he might use the secret information he held. PepsiCo filed suit seeking a temporary injunction to prevent Redmond from assuming his duties at Quaker and to prevent him from disclosing trade secrets. PepsiCo's argument, which became the defining element of the case and caused the case to become a pivotal component of current trade secret law, was that Redmond would "inevitably disclose" PepsiCo trade secrets in his new job at Quaker. (4) PepsiCo argued that it found itself "in the position of a coach, one of whose players [had] left, playbook in hand, to join the opposing team before the big game." (5) The Seventh Circuit agreed and enjoined Redmond from working for Gatorade for six months. (6)

One basic principle of trade secrets law is that employees owe a duty to employers not to disclose information that qualifies as a trade secret. Ordinarily, an employer may recover damages from, or secure an injunction against, the misappropriation or disclosure of trade secrets. (7) An employee's general knowledge, on the other hand, is not considered a trade secret. (8) Inevitable disclosure lies between these two extremes. As this Note defines it, and as its history supports, inevitable disclosure means that the employee's general knowledge and the employer's trade secrets cannot be separated so that it would be "virtually impossible" (9) for the employee to do his or her new job without using the former employer's secrets. (10)

As companies become more technologically based and employees more mobile, the concept of inevitable disclosure likely will apply increasingly to trade secret disputes between employers and former employees. (11) More and more, trade secrets are not concrete formulas that a court could simply tell an employee not to disclose. Companies depend increasingly on ideas in such areas as technology or marketing, as in PepsiCo. Even if a court granted an injunction against disclosure of newer trade secrets, the employee would disclose inadvertently just by doing his job.

PepsiCo was not the first case to invoke an argument of inevitable disclosure of trade secrets. (12) Yet, recognition of inevitable disclosure by the Seventh Circuit gave the argument a legitimacy that sparked a sharp increase in its use. Courts and commentators grappling with increasingly difficult trade secret disclosure issues latched onto the theory of inevitable disclosure as a panacea to the problem of how to handle complicated cases of trade secrets held in former employees' heads. (13)

Unfortunately neither the PepsiCo court, nor any court following PepsiCo, has defined the doctrine of inevitable disclosure. (14) Courts analyze trade secrets cases by a standard, uniform method. The doctrine of inevitable disclosure, however, emerged as judges looked for ways to correct inequities that did not fit into the trade secrets mold. The birth of the inevitable disclosure doctrine was a solution to a problem of equity. The PepsiCo court gave legitimacy and importance to the doctrine as a part of trade secrets law but failed to give courts a defined standard from which to build. (15) If trade secrets law is to continue to maintain its relative uniformity across the states, inevitable disclosure needs formal definition as a doctrine. (16)

This Note argues that inevitable disclosure should become a standard part of trade secrets analysis. Part I argues that courts should use inevitable disclosure to fill the gap in standard trade secrets analysis between the highly protected status of trade secret and the unprotected status of employee general knowledge. Part I concludes with a blueprint for inevitable disclosure analysis that conforms with trade secrets law in general. Part II argues that the definition outlined in Part I is consonant with the historical development of inevitable disclosure and trade secrets law. Part II demonstrates that the inevitable disclosure doctrine developed as equity filled in where trade secrets law created a gap. Part II then illustrates that the PepsiCo Court's failure to provide a doctrinal framework for inevitable disclosure cases has generated inconsistent judicial applications, demonstrating the need for a uniform standard. This Note concludes that courts should consider inevitable disclosure in a uniform fashion as a part of standard trade secret analysis.

1. INEVITABLE DISCLOSURE'S PLACE IN THE STANDARD TRADE SECRET ANALYSIS

   This Part proposes a definition of the right held by employers that provides clear guidelines for the courts to apply. Furthermore, this definition grants courts ample discretion to fashion remedies appropriate to the facts of the particular case. (17) Section I.A outlines the analysis of a typical trade secret case and identifies the gap to be filled by inevitable disclosure. Section I.B argues that inevitable disclosure should fill this gap and proposes a blueprint for incorporating inevitable disclosure into the trade secret analysis. The blueprint de-couples the determination that disclosure is inevitable from the question of remedy while still recognizing the necessity of an intensive case-specific analysis. This Part ultimately concludes that courts must formally recognize and define the inevitable disclosure doctrine in a uniform fashion to best protect the rights of employers and employees.

   1. A Typical Trade Secrets Case--Identifying the Gap

      The typical trade secrets analysis involves identifying a trade secret, identifying its actual or threatened disclosure, and fashioning a remedy. The remedies for actual and threatened misappropriation (18) differ. With actual disclosure, courts typically award damages. For threatened misappropriation, courts should, ideally, grant an injunction against disclosure or use. This procedure best serves the owner's purposes because the secret remains a secret. The remedy phase is the key to identifying the gap: a secret subject to inevitable disclosure, by definition, cannot be enjoined.

      The first step in the general trade secret analysis is a determination that a trade secret exists. A trade secret is information that is valuable, secret, and the subject of reasonable efforts by the employer to keep it secret: "A trade secret may be broadly defined as any secret process, formula, program or other confidential information that derives commercial value from being kept secret, where the owner of the information has taken reasonable steps to protect that secrecy." (19) Unless a trade secret exists, none of the remaining analysis matters. The definition is broad so that a limitless amount of information could become a "trade secret." (20) The moment information is publicly disclosed, however, it loses its status as a trade secret, no matter how the disclosure occurs. (21) Information disclosed confidentially, however, remains secret for the purposes of trade secrets definition. (22) Causes of action for trade secrets protection can be contractually based or premised in criminal or tort theory. (23)

      The basic elements of that cause of action are described in [section] 757 of the Restatement of Torts:

      One who discloses or uses another's trade secret, without a privilege to do so, is liable to the other if: (a) he discovered the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or (c) he learned the secret from a third person with notice of the facts that it was a secret and that the third person's disclosure of it was otherwise a breach of his duty to the other. (24) Essentially, a person is liable for disclosing a trade secret if he "stole" the secret or was entrusted with it through the course of employment and knew it was a secret. Thus, the former employee can be liable for disclosing a secret to a new employer and the new employer can be liable for "stealing" the secret. (25) This formulation of liability means that often trade secrets cases are brought jointly against the former employee and the employee's new employer.

      The "secret" part of the trade secret is crucial. If the owner of a trade secret does not demonstrate efforts to keep it secret, a trade secret does not exist. Both the common law formulation and the Uniform Trade Secrets Act ("UTSA") contain a requirement of "reasonable measures" to keep the information secret. (26) The case law on this point varies as to how much effort is required to establish a "reasonable measure[]" and what combination of factors will suffice. (27) For instance, courts have imposed requirements such as confidentiality agreements, (28) restricted access, (29) or passwords for computer material. (30) Once the existence of a trade secret is established, misappropriation under the UTSA and common law approaches takes two basic forms: actual or threatened misappropriation. Both actual and threatened misappropriation are considered unlawful. Courts engage in a fact-specific inquiry as to whether the former employee actually disclosed and/or the new employer actually used the secret or whether one of the two has threatened to do so.

      After a finding of trade secret misappropriation, the courts...