Inevitable Disclosure Need Not Be Inevitable

In Bimbo, the Court of Appeals upheld an injunction issued under Pennsylvania's Uniform Trade Secrets Act (“UTSA”) against a former senior executive of Bimbo who was leaving to join its chief rival, Hostess Brands, to do pretty much what he had been doing at Bimbo. Even though the executive did not have a contractual non-competition agreement, the injunction against his working for a competitor was proper, the court ruled, because the UTSA permits courts to enjoin the “threatened” misappropriation of trade secrets, and the evidence showed that the former executive's employment at the competitor was “likely to result in the disclosure” of Bimbo's trade secrets, which he had acquired while there employed.

The court found it “somewhat paradoxical[]” to grant an injunction under the “ inevitable disclosure doctrine” based on a finding that there was a “likely disclosure” of trade secrets. Id. at *7 (emphasis in original). It ruled, therefore, that a non-competition injunction could issue if there were a “substantial threat” of trade secret disclosure. Id. at *10. But the UTSA, in Pennsylvania and the other 45 states to have adopted it, already provides a remedy for an actual or “threatened” misappropriation of trade secrets. This makes the court standard uninformative and difficult to apply in future cases. It turns out, though, that “inevitable” actually is the correct standard, and the perceived paradox does not actually exist.

What Is 'Inevitable' Disclosure?

According to the American Heritage Dictionary, the word “inevitable” sometimes means “impossible to avoid or prevent” and is, by that definition, a synonym to “certain.” But by its second definition, “inevitable” also means “invariably occurring or appearing: predictable.” Thus, while it might be inevitable that the spouses of a bigamist will emotionally erupt upon confronting one another, an eruption does not always happen. It is predictable from the circumstances and what we know about human behavior, even though its occurrence is not ' as lawyers are wont to say ' certain beyond peradventure.

From its inception, the doctrine of inevitable disclosure was intended to apply when, due to the behavior of a departing executive, the illicit disclosure of trade secrets or other confidential information was predictable. Permitting an injunction on the grounds of its being “inevitable” meant, in that sense, that the victimized employer did not have to wait until it was too late, but that anticipated future misappropriation could be stopped without showing that the harm had already occurred. It also spared the court from having to declare the defendant to be a thief who was intending to misappropriate her former employer's trade secrets, and rather focused the evidence on how the defendant's prior behavior rendered predictable her future misconduct.

Focusing on the degree of certainty, as was intimated by the Bimbo decision, actually obscures the underlying fact-pattern that is common to virtually all “inevitable disclosure” cases. This result is regrettable because the facts of Bimbo are actually a paradigm for when a non-competition injunction is warranted, even absent a non-competition agreement, whether under the “doctrine” of inevitable disclosure or under the UTSA provision allowing courts to enjoin “threatened misappropriation.”

Factors in Inevitable Disclosure Cases

Access of Highly Sensitive Information

In virtually every inevitable-disclosure case, the departing employee had special access to highly sensitive confidential information, and the information at risk of misappropriation was typically of exceptional importance. If information is not secret or of competitive value, it would not even be a trade secret. This situation was well illustrated in Bimbo, where the departing executive, Botticella, was one of only a select group who had access to, among other things, Bimbo's “code book,” which contained the formulas and process parameters for the baking of Bimbo's products. He was one of only seven people who possessed all the knowledge necessary to replicate a particular economically significant product-line, Thomas' English Muffins, whose renowned “nooks and cranies” had never been emulated by Bimbo's competitors. In addition, Botticella regularly attended high-level meetings with other top executives to discuss the company's national business strategy. Id. at *1.

The defendant's lawyers had attempted to limit the court's focus to only technical trade secrets. But business strategies, marketing plans, and customer preference have economic value in not being known to competitors and, if kept secret, are as much protectable trade secrets as is the secret formula for Coca-Cola or for Thomas' nooks and crannies. The Bimbo court properly rejected the position that the threatened misappropriation of only technical trade secrets could justify an anti-competition injunction under the inevitable-disclosure doctrine. This was not particularly essential to the case outcome because Botticella had obtained access not only to non-technical information (like promotional strategies and cost-saving strategies), but to technical information (like the “code book”) as well. The court's clear affirmation that both types of secrets are protectable, in a proper case, under the inevitable-disclosure doctrine is, therefore, particularly welcome.

Competitive Similitude

Also present in all cases of an “inevitable disclosure” injunction is a clear competitive similitude between the executive's new position and his old one. In Bimbo, Botticella had been a regional vice president for operations; he was going to Hostess Brands to be a regional vice president of operations. Hostess Brands was, with Bimbo, one of the four largest baked-goods companies in the United States. Though not stated in the opinion, but well known to all, the baked-goods industry, like consumer packaged-goods generally, is highly price-sensitive, so that small changes in price or quality can have a dramatic effect on market share. Last, Hostess, like Bimbo, had a full range of product lines, but not English muffins with “nooks and crannies.”

Suspicious Dissembling

The third critical factor that is, with rare exception, present whenever courts issue non-competition injunctions on the basis of “inevitable disclosure” is a pattern of suspicious dissembling by the former executive in the time immediately prior to his departure. This behavior is the telltale sign that the executive is, colloquially speaking, up to no good, and it is what undergirds the suspicion, and sometimes explicit judicial finding that the executive just cannot be trusted with respect to the intellectual property rights of his former employer.

In Bimbo, there was exactly this sort of dissembling, and then some. The former executive, Botticella, accepted a position with the competitor, Hostess Brands, in mid-October but did not disclose this to Bimbo until just shortly before he left in mid-January. When asked why he had continued to work for Bimbo for so long after his decision to leave, Botticella said that he wanted to stay long enough to secure his bonus for the current calendar year.

During that interim period, Botticella continued to have access to all of the company's confidential and proprietary information. In December 2009 (just weeks before he announced his resignation), Botticella met with the company's president and other officers to discuss strategic plans. He conceded that he would have been excluded from that meeting if he had disclosed his intention to work for Hostess.

While Botticella testified that he “no longer felt 'comfortable' being privy to Bimbo's confidential information” following his acceptance of the Hostess offer, he continued to receive it anyway and, apparently, assuaged his discomfort because “he 'blocked it' out of his head.” Id. at *3. What a comfort that must have been to Bimbo. Botticella had also downloaded files on numerous occasions to a “thumb” drive and, in his final days at the company, accessed highly confidential information concerning such things as product launch dates, anticipated plant closures, product strengths and weaknesses, and the cost structure for individual products by brand. When asked in his deposition why he had accessed all this information prior to his departure, he said, apparently with a straight face, that he had done so only to practice his computer skills for his new position at Hostess. Id. at *4.

It was not until Jan. 4, 2010 ' almost three months after he had committed to joining one of Bimbo's chief competitors ' that he informed his supervisor that he was planning to leave, giving two weeks' notice. Even then, however, he gave no indication he was leaving to work for a competitor. On Jan. 12, Hostess announced the retirement of its existing operations vice president and that Mr. Botticella would be replacing him. This was to occur on the Monday following Botticella's last scheduled day at Bimbo, which was to have been Friday, Jan. 15.

On Jan. 13, Bimbo confronted Botticella with the information it had heard about his going to work for Hostess. He then disclosed for the first time that this was why he was leaving. That was on a Wednesday, and Bimbo saw no need for him to finish out the week. Somehow on that same day, sometime before he had been locked out of the company's computer system, Botticella managed to access 12 files in the course of 13 seconds. He was either a very fast reader or intended further to practice his computer skills, or perhaps there was something else he had in mind.

The Law of Employee Loyalty

The doctrine of inevitable disclosure is grounded in the law of employee loyalty. Unlike trade-secrets law, the focus is not so much on protecting the company's intellectual property as it is on protecting the employer from being stabbed in the back. The concern is not so much about disclosure of confidential information to a competitor (though that is a concern) as it is about a trusted employee's using information acquired as a consequence of that trust in competition with his former employer.

On occasion, the doctrine is invoked against an honest employee to enforce a non-competition agreement without a showing that trade secrets have been purloined. In these cases, the first two factors ' access of highly sensitive information and striking competitive similitude ' are predominant. But most often, when the doctrine is invoked by the court as the rationale for a non-competition injunction, it is the perfidy that is center stage.

When the doctrine of inevitable disclosure is untethered from its conceptual moorings, it leads to erratic results. To say, as the court in Bimbo does, that a non-competition injunction may issue when, in the circumstances of a particular case, there is a substantial threat of trade-secret misappropriation, is true but unilluminating. It is the conclusion of a legal analysis and not the analysis itself. It may allow a dishonest former employee who professes innocence with feigned sincerity to evade restraint because the court finds the likelihood of disclosure to be less than “substantial,” while ensnaring an employee who has acted impeccably in departing from the company, just because the court sees the likelihood of unauthorized disclosure as crossing the threshold of “substantial” based more on intuition than evidence.

Conclusion

The real issue of inevitable disclosure is whether, given the factors specified above, it is predictable from what we know about human nature that a former trusted employee will be competing directly with her former employer using the confidential information she acquired only on account of that trust. A finding of likely unlawful disclosure is predicated on the executive's having already embarked on a course of suspicious conduct that has a trajectory wending toward one identifiable end: using his former employer's trade secrets to advance his performance results for his new boss. The unfair and unauthorized use of competitive information is in that sense inevitable, and with only a touch of poetic license.

Michael Starr is a Partner in Holland & Knight's New York office. He practices in all areas of employment and labor relations law and represents management clients in trial and appellate courts. He has written widely on employment litigation and, in particular, in the area of employee non-competition law. Phone: 212-513-3506. E-mail: [email protected].

There is something in the doctrine of inevitable disclosure that sets the heart to fluttering and the blood to boil. The former for those suing disreputable employees who want to advance themselves by peddling to their new boss their former boss's trade secrets. The latter for those representing honest employees who believe they ought to be able to change jobs without checking their years of accumulated know-how at the door on their way out. Both have legitimate concerns.

The doctrine of inevitable disclosure is a crucial tool to protect companies from perfidious former employees and is no threat to the honest ones ' if properly applied. The Third Circuit's recent decision in Bimbo Bakeries USA, Inc. v. Botticella, 2010 WL 2902729 (July 27, 2010), is a good illustration of this. But by studiously avoiding the word “inevitable” in its formulation of the basic legal principles, and stating that only “substantial likelihood” is required for the former employer to prevail, it muddied the analysis. What really matters in such cases is not the degree of probability, but rather the predictability of unauthorized use of trade secrets based on the pre-termination conduct of the departing employee.

Bimbo Bakeries USA, Inc. v. Botticella

In Bimbo, the Court of Appeals upheld an injunction issued under Pennsylvania's Uniform Trade Secrets Act (“UTSA”) against a former senior executive of Bimbo who was leaving to join its chief rival, Hostess Brands, to do pretty much what he had been doing at Bimbo. Even though the executive did not have a contractual non-competition agreement, the injunction against his working for a competitor was proper, the court ruled, because the UTSA permits courts to enjoin the “threatened” misappropriation of trade secrets, and the evidence showed that the former executive's employment at the competitor was “likely to result in the disclosure” of Bimbo's trade secrets, which he had acquired while there employed.

The court found it “somewhat paradoxical[]” to grant an injunction under the “ inevitable disclosure doctrine” based on a finding that there was a “likely disclosure” of trade secrets. Id. at *7 (emphasis in original). It ruled, therefore, that a non-competition injunction could issue if there were a “substantial threat” of trade secret disclosure. Id. at *10. But the UTSA, in Pennsylvania and the other 45 states to have adopted it, already provides a remedy for an actual or “threatened” misappropriation of trade secrets. This makes the court standard uninformative and difficult to apply in future cases. It turns out, though, that “inevitable” actually is the correct standard, and the perceived paradox does not actually exist.

What Is 'Inevitable' Disclosure?

According to the American Heritage Dictionary, the word “inevitable” sometimes means “impossible to avoid or prevent” and is, by that definition, a synonym to “certain.” But by its second definition, “inevitable” also means “invariably occurring or appearing: predictable.” Thus, while it might be inevitable that the spouses of a bigamist will emotionally erupt upon confronting one another, an eruption does not always happen. It is predictable from the circumstances and what we know about human behavior, even though its occurrence is not ' as lawyers are wont to say ' certain beyond peradventure.

From its inception, the doctrine of inevitable disclosure was intended to apply when, due to the behavior of a departing executive, the illicit disclosure of trade secrets or other confidential information was predictable. Permitting an injunction on the grounds of its being “inevitable” meant, in that sense, that the victimized employer did not have to wait until it was too late, but that anticipated future misappropriation could be stopped without showing that the harm had already occurred. It also spared the court from having to declare the defendant to be a thief who was intending to misappropriate her former employer's trade secrets, and rather focused the evidence on how the defendant's prior behavior rendered predictable her future misconduct.

Focusing on the degree of certainty, as was intimated by the Bimbo decision, actually obscures the underlying fact-pattern that is common to virtually all “inevitable disclosure” cases. This result is regrettable because the facts of Bimbo are actually a paradigm for when a non-competition injunction is warranted, even absent a non-competition agreement, whether under the “doctrine” of inevitable disclosure or under the UTSA provision allowing courts to enjoin “threatened misappropriation.”

Factors in Inevitable Disclosure Cases

Access of Highly Sensitive Information

In virtually every inevitable-disclosure case, the departing employee had special access to highly sensitive confidential information, and the information at risk of misappropriation was typically of exceptional importance. If information is not secret or of competitive value, it would not even be a trade secret. This situation was well illustrated in Bimbo, where the departing executive, Botticella, was one of only a select group who had access to, among other things, Bimbo's “code book,” which contained the formulas and process parameters for the baking of Bimbo's products. He was one of only seven people who possessed all the knowledge necessary to replicate a particular economically significant product-line, Thomas' English Muffins, whose renowned “nooks and cranies” had never been emulated by Bimbo's competitors. In addition, Botticella regularly attended high-level meetings with other top executives to discuss the company's national business strategy. Id. at *1.

The defendant's lawyers had attempted to limit the court's focus to only technical trade secrets. But business strategies, marketing plans, and customer preference have economic value in not being known to competitors and, if kept secret, are as much protectable trade secrets as is the secret formula for Coca-Cola or for Thomas' nooks and crannies. The Bimbo court properly rejected the position that the threatened misappropriation of only technical trade secrets could justify an anti-competition injunction under the inevitable-disclosure doctrine. This was not particularly essential to the case outcome because Botticella had obtained access not only to non-technical information (like promotional strategies and cost-saving strategies), but to technical information (like the “code book”) as well. The court's clear affirmation that both types of secrets are protectable, in a proper case, under the inevitable-disclosure doctrine is, therefore, particularly welcome.

Competitive Similitude

Also present in all cases of an “inevitable disclosure” injunction is a clear competitive similitude between the executive's new position and his old one. In Bimbo, Botticella had been a regional vice president for operations; he was going to Hostess Brands to be a regional vice president of operations. Hostess Brands was, with Bimbo, one of the four largest baked-goods companies in the United States. Though not stated in the opinion, but well known to all, the baked-goods industry, like consumer packaged-goods generally, is highly price-sensitive, so that small changes in price or quality can have a dramatic effect on market share. Last, Hostess, like Bimbo, had a full range of product lines, but not English muffins with “nooks and crannies.”

Suspicious Dissembling

The third critical factor that is, with rare exception, present whenever courts issue non-competition injunctions on the basis of “inevitable disclosure” is a pattern of suspicious dissembling by the former executive in the time immediately prior to his departure. This behavior is the telltale sign that the executive is, colloquially speaking, up to no good, and it is what undergirds the suspicion, and sometimes explicit judicial finding that the executive just cannot be trusted with respect to the intellectual property rights of his former employer.

In Bimbo, there was exactly this sort of dissembling, and then some. The former executive, Botticella, accepted a position with the competitor, Hostess Brands, in mid-October but did not disclose this to Bimbo until just shortly before he left in mid-January. When asked why he had continued to work for Bimbo for so long after his decision to leave, Botticella said that he wanted to stay long enough to secure his bonus for the current calendar year.

During that interim period, Botticella continued to have access to all of the company's confidential and proprietary information. In December 2009 (just weeks before he announced his resignation), Botticella met with the company's president and other officers to discuss strategic plans. He conceded that he would have been excluded from that meeting if he had disclosed his intention to work for Hostess.

While Botticella testified that he “no longer felt 'comfortable' being privy to Bimbo's confidential information” following his acceptance of the Hostess offer, he continued to receive it anyway and, apparently, assuaged his discomfort because “he 'blocked it' out of his head.” Id. at *3. What a comfort that must have been to Bimbo. Botticella had also downloaded files on numerous occasions to a “thumb” drive and, in his final days at the company, accessed highly confidential information concerning such things as product launch dates, anticipated plant closures, product strengths and weaknesses, and the cost structure for individual products by brand. When asked in his deposition why he had accessed all this information prior to his departure, he said, apparently with a straight face, that he had done so only to practice his computer skills for his new position at Hostess. Id. at *4.

It was not until Jan. 4, 2010 ' almost three months after he had committed to joining one of Bimbo's chief competitors ' that he informed his supervisor that he was planning to leave, giving two weeks' notice. Even then, however, he gave no indication he was leaving to work for a competitor. On Jan. 12, Hostess announced the retirement of its existing operations vice president and that Mr. Botticella would be replacing him. This was to occur on the Monday following Botticella's last scheduled day at Bimbo, which was to have been Friday, Jan. 15.

On Jan. 13, Bimbo confronted Botticella with the information it had heard about his going to work for Hostess. He then disclosed for the first time that this was why he was leaving. That was on a Wednesday, and Bimbo saw no need for him to finish out the week. Somehow on that same day, sometime before he had been locked out of the company's computer system, Botticella managed to access 12 files in the course of 13 seconds. He was either a very fast reader or intended further to practice his computer skills, or perhaps there was something else he had in mind.

The Law of Employee Loyalty

The doctrine of inevitable disclosure is grounded in the law of employee loyalty. Unlike trade-secrets law, the focus is not so much on protecting the company's intellectual property as it is on protecting the employer from being stabbed in the back. The concern is not so much about disclosure of confidential information to a competitor (though that is a concern) as it is about a trusted employee's using information acquired as a consequence of that trust in competition with his former employer.

On occasion, the doctrine is invoked against an honest employee to enforce a non-competition agreement without a showing that trade secrets have been purloined. In these cases, the first two factors ' access of highly sensitive information and striking competitive similitude ' are predominant. But most often, when the doctrine is invoked by the court as the rationale for a non-competition injunction, it is the perfidy that is center stage.

When the doctrine of inevitable disclosure is untethered from its conceptual moorings, it leads to erratic results. To say, as the court in Bimbo does, that a non-competition injunction may issue when, in the circumstances of a particular case, there is a substantial threat of trade-secret misappropriation, is true but unilluminating. It is the conclusion of a legal analysis and not the analysis itself. It may allow a dishonest former employee who professes innocence with feigned sincerity to evade restraint because the court finds the likelihood of disclosure to be less than “substantial,” while ensnaring an employee who has acted impeccably in departing from the company, just because the court sees the likelihood of unauthorized disclosure as crossing the threshold of “substantial” based more on intuition than evidence.

Conclusion

The real issue of inevitable disclosure is whether, given the factors specified above, it is predictable from what we know about human nature that a former trusted employee will be competing directly with her former employer using the confidential information she acquired only on account of that trust. A finding of likely unlawful disclosure is predicated on the executive's having already embarked on a course of suspicious conduct that has a trajectory wending toward one identifiable end: using his former employer's trade secrets to advance his performance results for his new boss. The unfair and unauthorized use of competitive information is in that sense inevitable, and with only a touch of poetic license.

Michael Starr is a Partner in Holland & Knight's New York office. He practices in all areas of employment and labor relations law and represents management clients in trial and appellate courts. He has written widely on employment litigation and, in particular, in the area of employee non-competition law. Phone: 212-513-3506. E-mail: [email protected].