Earlier this month, a federal court in Pennsylvania issued an injunction against a former employee of Bimbo Bakeries in a trade secret case that once again demonstrates that the “inevitable disclosure” doctrine is alive and well in certain states. Bimbo Bakeries USA, Inc. v. Botticella, Civil Action No. 10-0194 (E.D. Pa. February 9, 2010).

Although the principles of inevitable disclosure have existed for decades in trade secret cases, the “inevitable disclosure” doctrine itself finds its origin in the Seventh Circuit Court of Appeals opinion Pepsico, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). Under that doctrine, a former employee can be enjoined by a court from taking on employment with a competitor of his former employer if such employment would necessarily require the disclosure or use of his former employer’s trade secrets to carry out the duties of the new position. “A plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.” Pepsico, Inc. v. Redmond, 54 F.3d 1262, 1269. Since that significant decision, courts from around the country have been asked to consider the “inevitable disclosure” doctrine, and while two state appellate courts have rejected the doctrine (see Whyte v. Schlage Lock Co., 125 Cal. Rpt. 2d 277, 291 (Ct. App. 2002) and LeJeune v. Coin Acceptors, Inc, 849 A.2d 451, 471 (Md. 2004)), the majority of the courts to consider the doctrine have accepted it to some extent. See e.g. National Starch and Chemical Corp. v. Parker Chemical Corp., 219 N.J. Super. 158, 530 A.2d 31 (N.J. 1987) (applying New Jersey law); Cardinal Freight Carriers, Inc. v. J.B. Hunt Transportation Services, Inc., 987 S.W. 2d 642 (Ark. 1999) (applying Arkansas law); Air Prods. & Chem., Inc. v. Johnson, 442 A.2d 1114, 1120 (Pa. Super. Ct. 1982); Victaulic co. v. Tieman, 499 F.3d 227, 234 (3rd Cir. 2007). Although no state court in North Carolina has yet formally adopted the doctrine, a federal court has found the doctrine not to be inconsistent with North Carolina law and that it would be followed by a North Carolina court with respect to specifically defined trade secrets. See Merck & Co. v. Lyon, 941 F.Supp. 1443, 1460-62 (M.D.N.C. 1996) (granting in part injunction under inevitable disclosure doctrine, finding that North Carolina courts would enjoin threatened misappropriation based on their version of inevitable disclosure); see also Analog Devices, Inc. v. Michalski, 157 N.C.App. 4621, 579 S.E.2d 449 (2003) (finding it unnecessary to consider whether to adopt the doctrine of inevitable disclosure since it would not be applied in the broad fashion sought by the plaintiff).

In Bimbo Bakeries, the court applied the “inevitable disclosure” doctrine in entering a consent injunction against a former employee of Bimbo who allegedly possessed Bimbo’s trade secrets, including proprietary and confidential information concerning Bimbo’s strategies, formulas and process parameters for Bimbo’s products. The former Bimbo employee, who was one of five key executives of Bimbo’s western region operations, had accepted a similar position at Hostess Bakery. The former employee had not entered into a non-compete agreement with Bimbo but had signed a confidentiality agreement. Bimbo filed suit against the former employee for trade secret misappropriation and argued to the federal court that without an injunction, the former employee would inevitably use or disclose the trade secrets in his new position with a competitor. The court agreed and entered a consent injunction, preventing the former employee from assuming his new position with Hostess Bakery. The former Bimbo employee has filed a notice of appeal.

Several points are worth noting from the Bimbo Bakeries court’s decision. First, the court applied the “inevitable disclosure” doctrine but found that the threat of disclosure of a trade secret “need not amount to its inevitability.” Noting that Pennsylvania law provides the right to enjoin “threatened” not just “actual” misappropriation of a trade secret, the court found that a more flexible standard should be employed than “inevitability” in determining whether a substantial risk exists of disclosure or use of the trade secret. Applying the doctrine in that case, the court found “at least a substantial threat that Defendant will disclose Bimbo’s trade secrets in the course of his employment at Hostess.”

Second, while the court recited several bases for its finding of this “substantial threat” of disclosure, perhaps the most significant related to the former employee’s conduct and actions following his acceptance of an offer from Hostess. The court appeared to rely heavily on the fact that the former employee allegedly had not disclosed to Bimbo his plans to begin employment with Hostess while employed by Bimbo and receiving its trade secrets and had downloaded Bimbo Bakeries’ confidential information from his work laptop computer on to an external storage device prior to his departure from Bimbo. The court found this strong evidence which undermined his denials of future disclosure or use of the trade secrets. “Defendant’s handling of Bimbo’s trade secrets after accepting the Hostess position undermines his trustworthiness with regard to those trade secrets.” Bimbo Bakeries, Inc. v. Botticella, Civil Action No. 10-0194 at * 29. The court found that the evidence regarding the former employee’s conduct evidenced an intention on that former employee’s part to use Bimbo’s trade secrets at Hostess, and if the case was close, which it appeared not to be, for this court, convincingly tipped in favor of an injunction.

“Defendant’s knowledge of Bimbo’s trade secrets, combined with evidence of an intention to use them at Hostess, creates a realistic expectation that Defendant will draw on and will use his knowledge of Bimbo’s trade secrets in performing his job at Hostess. Based upon the totality of the evidence, we are satisfied that there is a substantial likelihood that Defendant will not be able to perform his duties at Hostess and will not perform those duties without disclosing, whether intentionally or inadvertently, Bimbo’s trade secrets.” Bimbo Bakeries, Inc. v. Botticella, Civil Action No. 10-0194 at * 29.

In trade secret cases, the actions of departing employees can be a key factor in a court’s determination of the risk of future disclosure or use. All the denials of use cannot overcome findings of deceptive conduct by the employee when leaving for a competitor. For example, in the Pepsico case, the Seventh Circuit noted that the ex-employee’s “lack of forthrightness on some occasions, and out and out lies on others, in the period between the time he accepted the position with [his new employer] and when he informed [his then employer] that he had accepted that position leads the court to conclude that [the defendant] could not be trusted to act with the necessary sensitivity and good faith under the circumstances in which the only practical verification that he was not using plaintiff’s secrets would be [the defendant’s] word to that effect”. PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1270.

Similarly, the United States District Court of South Carolina, in a “classic inevitable disclosure scenario”, relied on the fact that a departing employee had taken his former employer’s documents, and had acted in bad faith in spoliating evidence of his conduct, in enjoining that former employer from taking on duties in his new position with a competitor. Nucor Corp. v. Bell, 2:06-cv-02972-DCN (2008). As the court noted:

“There are also circumstances demonstrating defendants’ unwillingness or inability to safeguard Nucor’s purported trade secrets. Bell took Nucor documents after he knew he was going to work for SeverCorr and plaintiff has shown a possibility of succeeding to the extent its trade secrets claim relies on those events. Thus, plaintiff has some evidence that Bell already misappropriated its trade secrets. More importantly, the court has already concluded in connection with the motion for sanctions that Bell acted in bad faith by throwing away the SanDisk thumb-drive containing documents with Nucor’s potential trade secrets. . . . The presence of spoliation supports a finding that the circumstances as a whole warrant application of the inevitable disclosure doctrine.”

Based in part on the former employee’s bad faith conduct, the court, in a case of first impression in South Carolina, applied the inevitable disclosure doctrine and found that the former employer’s new employment would inevitably require him to disclose the purported trade secrets.

Time and time again in trade secret cases, the denials of actual or threatened misappropriation are belied by the conduct of the departing employee. The old adage rings true here: actions speak much louder than words.

Parker Poe Adams & Bernstein LLP was counsel to Nucor Corp. in the Bell matter, which marked the first time a court in South Carolina accepted the inevitable disclosure doctrine in a trade secret case after having found that the defendants spoliated evidence.