Bench & Bar of Minnesota

Expecting Inevitable Disclosure

Increasing emphasis on intellectual property disputes, coupled with increasing employee mobility, has spawned an increase in trade secrets litigation. Minnesota courts have yet to adopt a bright line rule to determine when disclosure of trade secrets is inevitable, but a number of factors can be identified that will likely be considered.

By Thomas Propson and Livia Babcock

The protection of confidential business information, the Restatement tells us, “dates at least to Roman law, which afforded relief against a person who induced another’s employee to divulge secrets relating to the master’s commercial affairs.”1 As early as 1918, in Int’l News Svc. v. Assoc. Press,2 the United States Supreme Court recognized the common law tort of “misappropriation.” This common law of trade secrets was codified in the Uniform Trade Secrets Act. Minnesota has adopted the act, which is codified at Minnesota Statutes sections 325C.01-.08.

Although the concept of protecting intangible business assets is not new, there has been an explosion of trade secret litigation in recent years. A primary subject of debate is whether an employer can restrain a former employee merely by showing that it is “inevitable” that the employee will disclose the employer’s trade secrets in their new job. Minnesota courts have informally adopted this “inevitable disclosure” doctrine, but they have yet to articulate a clear, bright-line standard for identifying cases where they will restrain an employee from competing.

Leading Precedents

Other courts have considered this issue. In a leading inevitable disclosure case, PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995), the 7th Circuit restrained an employee under inevitable disclosure analysis. Redmond, a former PepsiCo employee whose relatively high position had afforded him knowledge of inside information, left the company to join Quaker Oats as a vice president of sales. Given the fierce competition in the sports-drink market between All Sport, a PepsiCo product, and Gatorade, a Quaker product, PepsiCo was worried about the information that Redmond would disclose to Quaker. The 7th Circuit acknowledged that the case was not a traditional misappropriation case and noted PepsiCo’s argument “that Redmond cannot help but rely on [PepsiCo] trade secrets as he helps plot Gatorade and Snapple’s new course.” The court then “couple[d] the demonstrated inevitability that Redmond would rely on [PepsiCo’s] trade secrets in his new job at Quaker with the district court’s reluctance to believe that Redmond would refrain from disclosing these secrets in his new position (or that Quaker would ensure Redmond did not disclose them)” and affirmed the district court’s finding that PepsiCo “demonstrated a likelihood of success on its statutory claim of trade secret misappropriation.” As the PepsiCo court analogized, “[Pepsi] finds itself in the position of a coach, one of whose players has left, playbook in hand, to join the opposing team before the big game.”

Following Minnesota’s adoption of the Uniform Act, the United States District Court for the District of Minnesota applied similar analysis. In Surgidev Corp. v. Eye Technology, Inc., 648 F. Supp. 661 (D. Minn. 1986), the court noted, “The fourth element of the trade secret cause of action requires proof that there is an intention on the part of the defendants to use or disclose the putative trade secrets, or alternatively, that under the circumstances of the case, there is a high degree of probability of inevitable disclosure.”3 (emphasis added) Fifteen years later, the court confirmed that to obtain injunctive relief under the act, “the movant must show there is a high degree of probability of inevitable disclosure.”4 Minnesota state courts recently recognized the inevitable disclosure doctrine as well.5

Factors Considered

Thus, the question is not whether Minnesota courts recognize the inevitable disclosure doctrine, but when it will be applied. Although Minnesota courts have yet to articulate an exhaustive list of factors to consider in applying the inevitable disclosure doctrine, PepsiCo and other authorities demonstrate that the following factors will be considered:

1. Competition between employers. Courts are more likely to apply the inevitable disclosure doctrine where the new and former employers directly compete. Competition for employees is fierce and personal knowledge of what works in marketing or product development is invaluable to an employer.

2. Scope of the employee’s new job. An employee with the same duties and responsibilities at a subsequent place of employment is a prime candidate for the application of the inevitable disclosure doctrine.

3. Lack of candor concerning the employee’s new position. The PepsiCo court placed great emphasis on the lack of candor that Redmond and Quaker exhibited in their dealings with PepsiCo in the events prompting the litigation and with the trial court in initial disclosures. Although this has led some courts and commentators to suggest that bad faith conduct may be a required element for inevitable disclosure, most courts, including Minnesota, appear to treat the factor as one of many.

4. Identification of the at-risk trade secrets. The more specific a plaintiff is in identifying the trade secrets at risk, the more likely protection will be afforded by the inevitable disclosure doctrine. Counsel for Redmond in the PepsiCo case highlighted the importance of plaintiffs identifying their trade secrets with specificity: “The more impressive the trade secrets and the more concrete and specific the trial presentation, the easier it is for the finder of fact to appreciate the risk of disclosure and the grave injury that could result to the plaintiff if the secrets fall into the hands of a business rival.” Minnesota decisions have highlighted this factor.6

5. Whether misappropriation already occurred. An employee who improperly acquires, discloses, or uses a trade secret of a former employer erodes their credibility in claiming that they will not disclose secrets in the future. Thus, a showing of actual misappropriation enhances the likelihood that a court will find inevitable disclosure.

6. Employer policies regarding trade secrets. The trade secret policies of both the former and current employer are relevant to inevitable disclosure analysis. The policies of the former employer demonstrate the importance the employer places on maintaining confidentiality and sustaining its competitive advantages. The new employer’s policies are also important. If the new employer asks the employee to acknowledge that they will not disclose trade secrets, the court may be less likely to find that disclosure is inevitable.

7. Isolation of the new employee. In some circumstances, it may be possible to isolate the new employee such that there will not be an opportunity for the employee to reveal the confidential information.

In short, the continued emphasis on intellectual property rights and the increased mobility of employees promises no end to the flood of trade secret disputes. The “inevitable disclosure” doctrine is already in place in Minnesota. All that remains is the development of a multifactor test to determine when the doctrine will be applied.

Notes
1 Restatement (Third) of Unfair Competition §39 cmt. a (1993).

2 Int’l News Svc. v. Assoc. Press, 248 U.S. 215 (1918).

3 Surgidev Corp. v. Eye Technology, Inc., 648 F. Supp. 661, 695 (D. Minn. 1986); aff’d, 828 F.2d 452 8th Cir. 1987).

4 NewLeaf Designs, LLC v. BestBins Corp., 168 F.Supp.2d 1039, 1043 (D. Minn. 2001).

5 See e.g., ReliaStar Life Ins. Co. v. KMG Am. Corp., A05-2079, 2006 Minn. App. LEXIS 1018 (Minn. App. Sept. 5, 2005) (stating that actual or threatened misappropriation of trade secrets may be enjoined if moving party demonstrates “high degree of probability of inevitable disclosure”); United Prods. Corp. of Am., Inc. v. Cederstrom, A05-1688, 2006 Minn. App. LEXIS 594 (Minn. App. June 6, 2006).

6 See e.g. Schwan’s v. Home Run Inn, Inc., 05-2763, 2005 U.S. Dist. LEXIS 32879 (D. Minn. Dec. 9, 2005) (finding no inevitable disclosure claim where employer did not specifically identify confidential or proprietary materials).

The authors acknowledge with thanks the contributions of Jamie Sather, an associate with their firm, in preparation of this article.

THOMAS PROPSON is a partner in Meagher & Geer’s commercial litigation, product liability, employment, and intellectual property practice groups.

LIVIA BABCOCK is an associate in the commercial litigation group at Meagher & Geer in Minneapolis.