Managing the Risk of Trade Secret Loss Due to Job Mobility in an Innovation Economy with the Theory of Inevitable Disclosure
77 Pages Posted: 2 Mar 2012 Last revised: 31 Oct 2012
Date Written: March 1, 2012
Employment relationships in the internet and technology sectors are highly dynamic with change and churn as the norm. Employees are now knowledge workers: highly educated, mobile, often with multiple cultural links, possibly exceeding other company assets in their comparable institutional value. These employees create the intangible intellectual property that now constitutes more than three-fourths of the assets in knowledge businesses whose main value derives from innovation, know-how, brand and reputation.
This article focuses on the ever-more valuable trade secrets and how job mobility impacts trade secret protection. Employers have few options when confronting the loss of key employees who are closely associated with those trade secrets. This article examines the controversial theory of inevitable disclosure - that use or disclosure of the former employer’s trade secrets is inevitable and therefore actionable, despite the fact that there is no evidence of actual misappropriation. Some states have adopted this theory, while others steadfastly refuse to, and this has created notable differences in employment patterns, job mobility, innovation and more. Courts consider this theory on motions for equitable relief but the outcomes are usually anything but equitable. To the extent courts adopt this theory, departing employees become unemployed and unemployable, the new employers are negatively impacted, and further the effects to the general public are felt in the rate of innovation, and in regional development such as where it is that jobs are created. Remedies and procedural issues are of critical importance too, because these cases predictably involve a series of pre-trial motions including requests for temporary restraining orders and preliminary injunctions. Further challenges immediately arise related to jurisdiction, forum, venue and conflict of laws since trade secret law is the only form of intellectual property still largely governed by states and the differences are pronounced, important, often outcome-determinative.
The authors present a series of representative inevitable disclosure cases as a means to highlight the differences and tangle of relative equities. To the extent courts expand trade secret protections to broadly adopt the inevitable disclosure doctrine at the pre-trial stage before a full trial on the merits, courts hazard overprotecting employers to the detriment of departing employees, innovation and the general public. The authors propose alternative approaches to protect against trades secret loss including use of forfeiture for competition agreements along with improved employee incentive and retention strategies. We further suggest that this is part of the creative destruction process and employers should consider the possibility that these departing employees may actually be leads to new opportunities and sectors that are worthy of consideration.
Keywords: Inevitable Disclosure, Trade Secret, Non-Compete, Non-Disclosure, Non-Solicitation, Garden Leave, Forfeiture, Esop, Employer, Employee, Tech, Intellectual Property, Innovation, Competitive, Mobility, Hp, Hurd, Facebook, Zuckerberg, Papermaster, Google, Apple, Silicon, 128, Start-Up, Botticella
JEL Classification: L86, M13, M51, M52, O31, O32, K00, K12, K31, K20, K30, J00, J33, J38, J24, J60, J68
Suggested Citation: Suggested Citation