The Scope Of 'Inevitable Disclosure' In Trade Secrets

Originally published by Law360, November 4, 2013

Can an employer enjoin an employee from moving to a competitor by claiming that the confidential nature of his or her position will result in the "inevitable disclosure" of trade secrets to the competitor, without proof of any wrongdoing by the employee? The U.S. District Court for the Southern District of New York recently has answered by ruling that an employer cannot validly assert a claim seeking to enjoin its employee from moving to a competitor solely based upon the hypothesis that there would be "inevitable disclosure" of the former's trade secrets, without any proof of any wrongdoing or improper disclosure by the employee or the employee's breach of a noncompete agreement. Janus et Cie v. Andrew Kahnke, No. R-CIV-7201-WHP (S.D.N.Y. Aug. 29, 2013).

In so ruling, Judge William H. Pauley III limited the parameters of the so-called "inevitable disclosure" of trade secrets doctrine under New York law. In New York, the doctrine has been considered only in connection with motions for preliminary injunctions (temporary relief) to block a former employee's move to a competitor, where it is alleged that the former employee improperly disclosed trade secrets or committed some other wrongdoing.

After alleging the employee's wrongdoing, the plaintiff relies on the inevitable disclosure doctrine to show irreparable injury (a predicate for injunctive relief), claiming that because the employee's job responsibilities with the new employer are so similar to those s/he had at the former employer, it is inevitable that the employee will disclose and use the former employer's trade secrets in his/her new position.

New York has a strong public policy against restrictive covenants not to compete and thus firmly rejects the inevitable disclosure doctrine — except in the limited above-listed circumstance — because New York recognizes that application of the doctrine effectively results in the formation of a noncompete agreement where none was bargained for.

The key question in Janus et Cie v. Kahnke was whether an injunction or even a claim could lie if there was an allegation of "inevitable disclosure" but no allegation of any wrongdoing.

In Janus, a California corporation sued to prevent the defendant from working with what they claimed was a direct competitor in New York, Dedon Inc. As the inevitable disclosure doctrine has been rejected in California, the plaintiff sought application of New York law.

In its complaint, the plaintiff asserted inevitable disclosure as a naked, stand-alone cause of action, rather than attempting to use the doctrine to show irreparable harm in support of a motion for a preliminary injunction, where separate allegations of actual wrongdoing also were present.

As Judge Pauley noted:

Janus now brings this action for inevitable disclosure of trade secrets, seeking a permanent injunction barring [the employee] from disclosing any of Janus' trade secrets or confidential information and from working for [the alleged competitor] in any area where Janus and [the alleged competitor] are direct competitors. Janus does not allege that [the employee] breached the non-disclosure agreement. Nor does Janus assert any facts indicating that [the employee] actually misappropriated or disclosed...