August 26, 2005 12:29 PM PDT
Legal argument could hamper high-tech job-changers
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Lee disclosing trade secrets, according to an attorney who has followed the case.
There's a simple logic behind the principle of inevitable disclosure, said Lee Paterson, an attorney with the law firm Winston & Strawn: Despite promises to avoid using proprietary information from a past employer, that may be impossible in practice. "People can't do frontal lobotomies of themselves," he said. "You can't shut off part of your brain."
Companies often have invoked the doctrine in cases where the employee did not sign agreements not to compete or not to disclose confidential information, said Dick Leasia, partner in the law firm Thelen Reid & Priest. To make the case, employers have relied on the assumption that courts will protect their trade secrets. "It became a species of unfair competition or theft of trade secrets," he said.
A beverage industry brouhaha a decade ago became a landmark case in the area of inevitable disclosure. After Quaker Oats, maker of Gatorade, hired an executive away from PepsiCo, PepsiCo sued to keep him from assuming his new duties. In December 1994, a federal district court barred the executive, William Redmond, from taking his new job at Quaker through May, 1995. An appeals court upheld the decision, saying the Quaker job "would initially cause him to disclose trade secrets."
In its ruling, the appeals court suggested the concept of inevitable disclosure does not apply to all cases of employees jumping ship to a competitor. A solid case for the unavoidable misuse of secrets must be made, the court ruled. It said PepsiCo presented "substantial evidence" that William Redmond had "extensive and intimate knowledge" about PepsiCo's strategic goals for 1995.
"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," the court said.
Theoretically, the inevitable disclosure doctrine could prevent someone from ever taking a new job in their chosen area of expertise. Paterson gave the hypothetical case of a person who knows the secret formula for Coca-Cola seeking to join another drink company. "You might very well get a ruling from the judge that you can't go to work for a competitor in the beverage industry," he said.
In practice, though, trade secrets tend to get stale over time, and employment bans are limited, Taylor said. "I've never seen anything (lasting) past two years," he said.
To Taylor, growing numbers of inevitable disclosure suits are a response to the twin trends of workers switching employers more frequently and the shift to a more "knowledge"-based economy. He says employers increasingly are asking employees at all levels to sign noncompete and confidentiality agreements, and he links rising inevitable disclosure litigation to the growing number of patents filed. Both, he said, illustrate companies aggressively protecting their intellectual property.
Businesses that employ the inevitable disclosure doctrine aren't likely to get a friendly welcome in California courts, however. In 2002, a California appeals court explicitly rejected the concept: "We hold this doctrine is contrary to California law and policy because it creates an after-the-fact covenant not to compete, restricting employee mobility."
The ruling, in a case involving Schlage Lock Company and a former Schlage employee who joined competitor Kwikset, cited a California law that frowns on noncompete agreements, and said "California public policy strongly favors employee mobility."
Paterson, for one, predicts that courts throughout the country will follow California's lead over time when it comes to inevitable disclosure suits. As society becomes more economically mobile, judges themselves are moving from job to job in the course of their careers and will be sympathetic to workers doing the same, he argued. "The rights of the employee are going to trump the rights of the employer," he said.
Taylor isn't so sure. "The judges who understand business realities understand that inevitably there will be opportunities for information to be disclosed to competitors," he said.
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