A state-by-state analysis of inevitable disclosure: a need for uniformity and a workable standard.

• Author: Wiesner, Ryan M.

1. INTRODUCTION II. TRADE SECRET LAW AND THE INEVITABLE DISCLOSURE DOCTRINE A. Introduction to Trade Secrets B. Introduction to Inevitable Disclosure III. THE UNIFORM TRADE SECRETS ACT IV. THE PEPSICO DECISION V. THE STATES' APPLICATIONS OF INEVITABLE DISCLOSURE VI. A PROPOSED WORKABLE STANDARD A. The Doctrine in the Presence of an Employment Agreement B. The Doctrine in the Absence of an Employment Agreement C. The Standard as a Whole VII. CONCLUSION I. INTRODUCTION

   Imagine you are a supervisor at a company that participates in a competitive market. Your company's success is attributed to its trade secrets: technological processes; marketing, production, and distribution strategies; etc. that are unknown to your competitors. One day an employee informs you she is leaving your company to work for your competitor. The employee, because of her position, had access to your company's trade secrets; consequently, in the wake of her departure, you are concerned about protecting the trade secrets. What options do you have from stopping your employee from taking the position with your competitor and using or disclosing your trade secrets? Because of inconsistency in the relevant law, the answer is not simple. In many states you could gain an injunction against the employee from working for your competitor if you could show the employee would be unable to perform duties for your competitor without inevitably using or disclosing your company's trade secrets: known as the inevitable disclosure doctrine. Further, in other states no such protection is afforded and your employee is free to work for your competitor. Ultimately, the applicable remedy will differ depending on where the action is commenced.

   It is evident that, after analyzing the states' applications of the doctrine, a uniform standard is needed. The ultimate solution is the adoption of federal statutes regulating trade secret law, much like the Copyright Act, Patent Act, and Lanham Act regulate the other areas of intellectual property. However, this comment will focus specifically on a solution to the states' inconsistent applications of inevitable disclosure by providing (1) an introduction to trade secret law and inevitable disclosure; (2) an introduction to the Uniform Trade Secrets Act and its subsequent enactment by the states; (3) an overview of the Seventh Circuit's application of inevitable disclosure in PepsiCo, Inc. v. Redmond; (4) a state-by-state analysis of the doctrine; and finally (5) a proposed standard for the uniform application of the doctrine.

2. TRADE SECRET LAW AND THE INEVITABLE DISCLOSURE DOCTRINE

   1. Introduction to Trade Secrets

      A trade secret is generally any information that is useful and private. (1) Trade secret subject matter has been defined by three main sources of law. (2) The first definition frequently cited comes from the first Restatement of Torts, providing that "[a] trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." (3) This definition, although widely cited and still used by some states, has been dropped in favor of the Restatement (Third) of Unfair Competition, (4) which states, "[a] trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others." (5) However, as will be discussed later, the majority of the states adopted the definition presented in the Uniform Trade Secrets Act. Ultimately, a trade secret can be summed up as (1) information (2) that is valuable because of its secrecy and (3) whose owner reasonably tries to maintain that secrecy. (6)

      Additionally, trade secrets are statutorily protected against misappropriation as long as they are not publicly disclosed or independently created. (7) The two general types of misappropriation are acquisition by (1) improper means or (2) disclosure. (8)

      There is no clear definition of "improper means," so determining whether improper means were used to misappropriate a trade secret is highly factual and engulfs a wide range of scenarios. (9) Improper means ranges from an employee copying his employer's confidential information knowing he is leaving the employer, (10) to a person renting an airplane to photograph a competitor's under-construction factory. (11)

      Misappropriation due to disclosure occurs when someone is given access to a trade secret and subsequently uses or discloses the trade secret without consent from the owner. (12) Furthermore, courts will recognize misappropriation due to disclosure in the presence, or absence, of an express contract, i.e. an employment agreement. (13)

      In the event of misappropriation, the general remedy is an injunction. (14) However, courts can also award damages in the form of royalties, lost profits, attorney's fees, and/or punitive damages. (15) Courts will issue injunctions at their discretion by applying the following factors: (1) whether the plaintiff will suffer irreparable harm; (2) whether the plaintiff is likely to be successful on the merits; (3) the balance of equity and harm between the parties; and (4) the interest of the public. (16)

   2. Introduction to Inevitable Disclosure

      In general, the inevitable disclosure doctrine allows courts to enjoin an employee from working for his employer's competitors because of the threat of misappropriation. The employer must show that its employee had access to its trade secrets "and the former employee has such similar responsibilities with the new employer as to make it inevitable that he will use or disclose those trade secrets in the performance of his job duties for the new employer." (17) The idea is that an employee who wants to succeed at his new position will rely on skills and information learned from his former employer, including trade secrets. (18) If an employer shows that its former employee will inevitably disclose its trade secrets to a competitor, the court can grant a preliminary injunction or, in rare circumstances, a permanent injunction against that employee from working for the competitor or from participating in certain kinds of work for the competitor. (19)

      There is a fundamental tension between competing interests when applying the doctrine: the need to protect an employer's confidential, valuable information and the need to support an employee's freedom of mobility. (20) Despite these competing interests, courts have long recognized inevitable disclosure; however, it was not until the Seventh Circuit's decision in PepsiCo, Inc. v. Redmond that the doctrine gained popularity. (21)

3. THE UNIFORM TRADE SECRETS ACT

   Before analyzing the PepsiCo decision, it is important to discuss the predominant source of trade secret law, the Uniform Trade Secrets Act.

   Trade secrets engulf a wide, abstract area of subject matter, extending to any useful information that is kept secret. (22) Consequently, the law of trade secrets, due to its broad subject matter and its common law development, as opposed to statutory development like copyrights and patents, has not been easily bundled into universally applicable principles. (23) As a result, in 1979, the National Conference of Commissioners on Uniform State Laws, acting on the recommendation of the American Bar Association, issued the first of two versions of the Uniform Trade Secrets Act (UTSA). (24) The primary goal was uniformity: stemming from the unsatisfactory development of trade secret law among the states. (25) The lack of development was due in part to the far fewer number of reported judicial opinions regarding trade secret law in agricultural states compared to commercial states and the uncertain standards and remedies promulgated by the common law. (26) Ultimately, the commissioners wanted the UTSA to codify the common law of trade secrets. (27)

   Subsequently, forty-eight U.S. jurisdictions have adopted either the UTSA as drafted in 1979 or as amended in 1985, and apply the following definitions and remedies. (28)

   UTSA section 1(4) provides what is protected as trade secrets:

   '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. (29) Furthermore, section 1(2) provides the relevant types of misappropriation: acquisition by (1) improper means, or (2) disclosure, without express or implied consent, by improper means or under "circumstances giving rise to a duty to maintain its secrecy." (30) If misappropriation is proven, section 2(a) provides injunctive relief for "actual or threatened misappropriation." (31) This section contains important aspects relating to the duration of an injunction, providing that an injunction based on inevitable disclosure will be granted for a reasonable time in lieu of the specific information that is threatened. (32) Section 2(a) is important to the inevitable disclosure doctrine, though, because the term "threatened misappropriation" is considered the origin of the doctrine by many states applying their versions of the UTSA.

   However, the most important section of the UTSA is section 8, which states that "[t]his [A]ct shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this Act among states enacting it." (33) The states, however, have failed to apply their respected versions of the Act in a uniform way, especially inevitable disclosure. To begin the analysis of the states' applications of the doctrine...