Claims of Inevitable Disclosure of Trade Secrets

Our Chicago non-compete agreement lawyers have handled many different type of trade secret, non-compete agreement and restrictive covenants lawusits.

Trade secret law should not prevent workers from pursuing their livelihoods when they leave their current positions. The doctrine of inevitable disclosure of trade secrets has been used in certain exceptional circumstances from preventing workers from taking a new position at a competitor of their former employer even in the absence of a restrictive covenant or non-compete agreement between the former employee and the former employer. Some employers also incorporate the doctrine of inevitable disclosure of trade secrets into their restrictive covenants or non-compete agreement. Incorporating the doctrine into a contract however does not ensure its successful use. As with any non-compete restriction the employer must truly have trade secrets that are in danger of being exposed to a competitor and with proof that such disclosure is inevitable.

At the trial court level, in PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1264 (7th Cir. 1995) Pepsi demonstrated that one of its high level managerial and marketing employees would inevitably disclose its secret marketing plans to Quaker Oats and Gatorade if he was permitted to go to work for Gatorade. The Court in outlining the facts noted:

Redmond's relatively high-level position at PCNA gave him access to inside information and trade secrets. Redmond, like other PepsiCo management employees, had signed a confidentiality agreement with PepsiCo. That agreement stated in relevant part that he w[ould] not disclose at any time, to anyone other than officers or employees of [PepsiCo], or make use of, confidential information relating to the business of [PepsiCo] ... obtained while in the employ of [PepsiCo], which shall not be generally known or available to the public or recognized as standard practices. …

PepsiCo also showed that Redmond had intimate knowledge of PCNA “attack plans” for specific markets. Pursuant to these plans, PCNA dedicates extra funds to supporting its brands against other brands in selected markets. To use a hypothetical example, PCNA might budget an additional $500,000 to spend in Chicago at a particular time to help All Sport close its market gap with Gatorade. Testimony and documents demonstrated Redmond's awareness of these plans and his participation in drafting some of them.

The Court in PepsiCo observed that the case presented the tension between trade secret law’s desire to protect commercial morality and encouraging invention and creativity while allowing for the public interest in encouraging free and aggressive competition and employee mobility. This tension, the Court noted, is heightened when the employer seeks to prevent threatened as opposed to actual trade secret misappropriation.

The Court only approved the grant of the injunction restraining hiring by Gatorade because of the very unique facts presented which it summarized as follows:

The danger of misappropriation in the present case is not that Quaker threatens to use PCNA's secrets to create distribution systems or co-opt PCNA's advertising and marketing ideas. Rather, PepsiCo believes that Quaker, unfairly armed with knowledge of PCNA's plans, will be able to anticipate its distribution, packaging, pricing, and marketing moves. Redmond and Quaker even concede that Redmond might be faced with a decision that could be influenced by certain confidential information that he obtained while at PepsiCo. In other words, PepsiCo 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. Quaker and Redmond's protestations that their distribution systems and plans are entirely different from PCNA's are thus not really responsive.

Employees will need to fit into this type of circumstance for application of the doctrine of inevitable disclosure of trade secrets to be applied to prevent their employment. Courts will otherwise likely draw the balance in favor of competition and free mobility of employees. Trade secret policy doesn’t mean that the existence of trade secrets can be used as a weapon to prevent a competitor from recruiting highly qualified employees.

Our experienced Oak Brook, Elmhurst and Naperville restrictive covenant and non-compete attorneys have handled trade secret misappropriation cases and claims involving inevitable disclosure of trade secrets. For a free consultation with one of our Chicago non-compete agreement lawyers call us at our toll-free number 630-333-0333. You can also contact us online.

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