The Inevitable Disclosure Doctrine and the DTSA
A recent decision in the Northern District of Illinois has given life to the inevitable disclosure doctrine under the Defend Trade Secrets Act (DTSA). Inevitable disclosure is a common law doctrine by which a court can prevent a former employee from working for a competitor of his or her former employer, where doing so would require the employee to depend upon his or her former employer’s trade secret information.[1] Inevitable disclosure was considered to be left out of the DTSA because of the specific language in the statute limiting a court’s injunction power. The language indicates that any injunction granted under the statute to prevent trade secret misappropriation may not “prevent a person from entering into an employment relationship,” and that any conditions placed on employment must be based on “evidence of threatened misappropriation and not merely on the information the person knows.”[2] However, Molon Motor & Coil Corporation v. Nidec Motor Corporation suggests that the inevitable disclosure doctrine may still be useful for trade secret plaintiffs bringing claims under the DTSA.[3]
In Molon, Molon sued Nidec, alleging misappropriation of trade secret information under the DTSA after Molon’s head of quality control, Manish Desai, left Molon to work for Nidec.[4] But before leaving, he allegedly copied dozens of Molon’s engineering, design, and quality control files onto a personal Kingston portable data drive.[5] After making these data transfers to his own thumb drive, Desai then moved to a new job at Merkle-Korff (Nidec’s predecessor), taking up responsibilities similar to those he had at Molon.[6] Nidec’s dismissal motion primarily argues that Molon has failed to state a plausible claim because Desai’s actions, even as alleged, do not constitute “misappropriation” under either the Illinois Trade Secrets Act or the Defend Trade Secrets Act of 2016.[7] Nidec contended that there was no grounds for inferring that it accessed or used any of the information Desai pulled.[8]
In response, Molon argued that it did not need to give specifics regarding Nidec’s access or use of misappropriated information because the disclosure and use can be inferred under the inevitable disclosure doctrine.[9] The court noted that in evaluating whether the facts justified this circumstantial-evidence based inference, the following factors should be considered: (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 the position he held with the former employer; and (3) the actions the new employer has taken to prevent the former employee from using or disclosing trade secrets of the former employer.[10]
The court found that Molon satisfied each of the first two factors and that the record was silent to the third factor, which was normal at this stage in the proceedings.[11] In conclusion, the court denied Nidec’s request for dismissal and issued an acceleration on the status hearing to discuss the discovery plan on the trade secrets claim.[12]
So, what does this mean? To begin, it is important to note that this decision based on the inevitable disclosure doctrine came on a motion to dismiss and not a motion for an injunction.[13] However, there is still significance to this decision for a few reasons. First, while the inevitable disclosure doctrine “appears” to not apply in an injunction setting, this court makes clear that the plaintiff may still sue under the DTSA using the inevitable disclosure doctrine. In turn, this makes surviving a motion to dismiss under the DTSA easier and appears to allow a plaintiff to maintain this federal claim with less initial evidence.
Second, this can be invaluable to a plaintiff at the early stages of a trade secret misappropriation claim under the DTSA. Surviving a motion to dismiss can greatly increase your chances of success on a trade secrets claim because getting to the discovery stage can lead to a vast amount of evidence acquired that can then be used to support state and federal claims. Since the DTSA requires “evidence of threatened misappropriation and not merely on the information the person knows” for an injunction, getting past the dismissal stage can allow for the acquisition of that evidence needed for the injunction. As well, evidence to support one of the three damage remedies under the DTSA and evidence of actual misappropriation will be easier to obtain during the discovery stage, something that is already challenging to get in a trade secrets action.
Of course, the inevitable disclosure doctrine will need to be recognized in the jurisdiction that the claim is being brought since it is a common law doctrine. However, this has certainly opened the door to the applicability of the inevitable disclosure doctrine in the context of preliminary injunctions when dealing with the DTSA. As a result, other plaintiffs will be inclined to use the inevitable disclosure doctrine in their DTSA claims moving forward to try and get to the discovery stage, especially when their initial cases may have merit but contain more speculation than actual evidence.
Footnotes
