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IP LitigationTrade Secrets

Series: Defend Trade Secrets Act | The DTSA and Inevitable Disclosure Meet: Molon Motor and Coil Corp. v. Nidec Motor Corp.

June 19, 2017

IP LitigationTrade Secrets

Series: Defend Trade Secrets Act | The DTSA and Inevitable Disclosure Meet: Molon Motor and Coil Corp. v. Nidec Motor Corp.

June 19, 2017

Back to Fish's Litigation Blog

 

By Caroline Simons, Claire Collins, and Autumn Wu

A recent DTSA decision from the District Court for the Northern District of Illinois tackled the inevitable disclosure doctrine—an area that DTSA aficionados have been keenly watching given the statute’s express disavowal of the doctrine when considering injunctive relief.  (Read our earlier take on this thicket of issues here.)  In Molon Motor and Coil Corp. v. Nidec Motor Corp., No. 16-cv-03545 (N.D. Ill. May 11, 2017), a federal district court for the first time considered the inevitable disclosure doctrine in the context of a DTSA claim and confirmed its viability, at least in the context of pleading continued misappropriation to survive a motion to dismiss.

The Inevitable Disclosure Doctrine

A quick refresher: the inevitable disclosure doctrine allows a plaintiff to “prove a claim of trade secret misappropriation by demonstrating that [the] defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.”[1]  The reasoning is that, once learned, it is difficult for an individual to compartmentalize and selectively suppress information.  If an employee who has knowledge of trade secrets is hired by a competitor to perform a similar job, courts that accept the inevitable disclosure doctrine may consider that sufficient to constitute threatened or actual misappropriation, and enjoin the employee from taking the new job altogether—a de facto non-compete.

The factors a court considers include: (1) the level of competition between the former employer and the new employer; (2) whether the employee’s position with the new employer is comparable to his old one; and (3) the actions that the new employer has taken to prevent the use of trade secrets of the former employer.  The inevitable disclosure doctrine has not been universally adopted, though.  While it has been recognized under state trade secret law in states like Illinois, Delaware, and New Jersey, other jurisdictions—including California, Florida, Michigan, and Maryland—have expressly rejected it, often on the grounds of protecting employee mobility.

Turning to federal law, the DTSA has rejected the use of the inevitable disclosure doctrine to prevent an employee from taking a new position.  While the DTSA statute provides for injunctive relief to prevent actual or threatened misappropriation, the court order must not “prevent a person from entering into an employment relationship . . . based . . . merely on the information the person knows.”[2]  At the same time, the DTSA expressly does not preempt state law remedies.[3]  This raises the question:  How would a court handle a plaintiff’s request to apply the inevitable disclosure doctrine in a case alleging both DTSA and state law trade secret misappropriation, if the case were brought in a jurisdiction that had adopted the doctrine?

Enter Molon Motor

On May 11, 2017, a year to the day since the DTSA went into effect, the district court in N.D. Ill. began to answer that question, using the inevitable disclosure doctrine to deny a motion to dismiss a DTSA claim in Molon Motor.  Molon Motor, a custom gearmotor manufacturer, had sued Nidec under both DTSA and the Illinois Trade Secrets Act (ITSA).  Molon Motor alleged that Manish Desai, the former Head of Quality Control, copied and removed files containing trade secrets before leaving to take a similar position at Nidec, and that Desai continued to use Molon Motor’s trade secrets while working at Nidec.  Nidec filed a motion to dismiss, arguing among other things that the DTSA count should fail because Molon had not pled Nidec’s continued misuse of trade secrets past the effective date of the statute.

The court denied the motion to dismiss, and in what appears to be the first time, applied inevitable disclosure analysis to the DTSA claim.  The court went through the inevitable disclosure test, finding that Molon Motor had adequately pled that: 1) Nidec was a serious competitor; and 2) Desai’s position at Nidec overlapped significantly with his former position at Molon Motor.  The court further held that it was unnecessary to allege at the pleadings stage the specific actions Nidec took to prevent the misappropriation of Molon’s trade secrets.  Having found that trade secret misappropriation had been adequately pled under the inevitable disclosure doctrine, the court then decided the “key question” of “whether the inference of inevitable disclosure reasonable extends to continued use beyond the [DTSA]’s effective date” in the affirmative, keeping the DTSA claim alive.

To be sure, the use of inevitable disclosure by Illinois state and federal courts in the ITSA context is well-established.  However, the application of this doctrine to preserve a DTSA claim here in Molon Motor is still notable, given the express rejection of the doctrine in the DTSA’s own text.  At the same time, though, because the reference to inevitable disclosure only appears in the DTSA’s injunctive relief provision, the doctrine’s success here in the context of adequate pleading can be reconcilable under the statutory text.  It remains to be seen how other courts will tackle this issue.  And an even more interesting question remains:  how will courts treat injunctive relief for claims under DTSA and UTSA in inevitable-disclosure-friendly jurisdictions?  In other words, between the DTSA provision foreclosing the application of inevitable disclosure and the other DTSA provision foreclosing the preemption of state law that would recognize and apply inevitable disclosure, which language wins?  We’ll have to wait and see.

[1] See, e.g., PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995).

[2] 18 U.S.C. § 1836(b)(3)(A)(i)(I).

[3] 18 U.S.C. § 1838.

Related Tags

Trade Secrets
DTSA
ITSA

Blog Authors

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Caroline K. Simons | Principal

Caroline Simons is a Principal in the Boston and New York offices of Fish & Richardson. She works with clients in the areas of white collar defense and government investigations, internal investigations, cybersecurity, and complex civil litigation. Ms. Simons has represented clients facing scrutiny by state and federal prosecutors as well...

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Claire Collins | Associate

Claire Collins is a litigation associate in Fish & Richardson’s Boston office. During law school, Ms. Collins was a legal intern for the Middlesex District Attorney’s Office. She has experience researching and drafting motions and legal memorandums.

Autumn Wu | Summer Associate

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