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IP LitigationTrade Secrets

The inevitable disclosure doctrine in Texas after the Texas Uniform Trade Secrets Act: Alive and kicking or livin’ on a prayer?

February 26, 2014

IP LitigationTrade Secrets

The inevitable disclosure doctrine in Texas after the Texas Uniform Trade Secrets Act: Alive and kicking or livin’ on a prayer?

February 26, 2014

Back to Fish's Litigation Blog

 

The inevitable disclosure doctrine in trade secret law allows employers to seek injunctive relief against former employees when it is probable or inevitable that the employee will unlawfully make use of the employer’s trade secrets. The probability/inevitability of misconduct can be shown by a myriad of facts, including the circumstances surrounding the former employee’s departure and the employee’s position at the new employer. Importantly, under the doctrine, the employer need not show actual misconduct—only the threat of misconduct.  While states have split on their willingness to adopt the inevitable disclosure doctrine, the doctrine has been recognized and applied by some Texas courts,[i] though its adoption remains modest.

The trade secret landscape in Texas may have changed significantly with the adoption of the Texas Uniform Trade Secrets Act, which went into effect on September 1, 2013.  Rather than squash the use the inevitable disclosure concept as a litigation tool, the Act actually appears to endorse the concept.  Indeed, in Section 134A.003, the Act permits the issuance of injunctive relief in connection with threatened misappropriation of trade secrets.

In our view, the inclusion of the words “threatened misappropriation” provides a hook for Texas trade secret litigators to continue seeking injunctions based on the inevitable disclosure doctrine.  Given that Texas is the 47th state to adopt the Uniform Trade Secrets Act, Texas courts will likely look to other states’ interpretation of the UTSA for guidance.  Indeed, the Act arguably requires Texas courts to look to other states for guidance, stating: “[t]his chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among the states enacting it.”

Interestingly, courts from other jurisdictions appear to be just as split on their interpretation of the language “threatened misappropriation” as they are in the application of the inevitable disclosure doctrine itself.  Some jurisdictions have construed “threatened misappropriation” as synonymous with the inevitable disclosure doctrine or, alternatively, that the inevitable disclosure doctrine is one of many ways to show “threatened misappropriation.”[ii]

Other courts have interpreted “threatened misappropriation” as being an entirely different principle than the inevitable disclosure doctrine.[iii]  California is one of those jurisdictions, and California courts have defined “threatened misappropriation” as “a threat by a defendant to use trade secrets, manifested by words or conduct, where the evidence indicates imminent misuse”[iv]—which is obviously broader than the inevitable disclosure standard.

The Texas Uniform Trade Secrets Act replaced the trade secrets common law in Texas, so if inevitable disclosure survives, it must survive through the “threatened misappropriation” language.  And though it is difficult to predict which direction the Texas courts will go, given that some courts in Texas have previously approved of the inevitable disclosure doctrine, it is likely that Texas courts will interpret “threatened misappropriation” as encompassing this idea.  This is even more likely when one considers that Texas courts have cited to the seminal Seventh Circuit PepsiCo[v] case with approval,[vi] which is one of the cases adopting an interpretation of “threatened misappropriation” as including inevitable disclosure.

Interpreting “threatened misappropriation” as encompassing the inevitable disclosure doctrine will provide an employer with more protection of its trade secrets when an employee leaves to work at a competitor. Absent application of the doctrine, an employer may be forced to allow its trade secrets to be used and disclosed before it can take action against a rogue employee.  Under certain facts, an employer should have the ability to stop an employee who has shown—by facts surrounding his/her departure—that he/she cannot be trusted not to use the employer’s trade secrets. The Texas UTSA provides Texas employers with the ability to act proactively.

 

 

 


[i] See, e.g., Conley v. DSC Commc’ns. Corp., No. 05-98-01051, 1999 WL 89955, at *5 (Tex. App.—Dallas, no pet. Feb. 24, 1999) (“We agree that misconduct on the part of an employee in taking or threatening to use a former employer’s confidential information is a factor supporting issuance of a temporary injunction on the probable disclosure theory. However, the absence of that evidence does not bar the trial court from entering a temporary injunction.”) (not designated for publication).

[ii] See, e.g., PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1268 (7th Cir. 1995) (“The question of threatened or inevitable misappropriation in this case lies at the heart of a basic tension in trade secret law.”); Interbake Foods, L.L.C. v. Tomasiello, 461 F. Supp. 2d 943, 973 (N.D. Iowa 2006) (“[T]he inevitable disclosure doctrine is just one way of showing a threatened disclosure in cases where additional evidence showing the existence of a substantial threat of impending injury is unavailable to the movant.”).

[iii] See, e.g., Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 148 F. Supp. 2d 1326, 1335 (S.D. Fla. 2001) (“Courts that have adopted inevitable disclosure apply traditional trade secret misappropriation principles to situations where there has been no actual or threatened misappropriation. In an inevitable disclosure case, a court can issue an injunction to prevent an employee from working for the former employer’s competitor if the employer can demonstrate a real and present danger of disclosure.”).

[iv] FLIR Systems, Inc. v. Parrish, 174 Cal. App. 4th 1270, 1279 (Cal. App. 2 Dist. 2009).

[v] See supra note iii.

[vi] See, e.g., Transperfect Translations, Inc. v. Leslie, 594 F. Supp. 2d 742, 757 (S.D. Tex. 2009); Conley v. DSC Commc’ns. Corp., No. 05-98-01051, 1999 WL 89955, at *4.

 

Article co-authored with former Fish attorney, Stephen E. Fox

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Rex Mann | Associate

Rex Mann is an Associate in the Dallas office of Fish and Richardson. Rex’s practice focuses on intellectual property and business litigation, often serving clients in the technology space, where he focuses on taking the...

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