Reproduced by permission. 192004 Colorado Bar Association,33 The Colorado Lawyr 17 (October 2004). All rights reserved.

PRIVACY AND INFORMATION SECURITY

The Inevitable Disclosure Doctrine:Safeguarding the Privacy of Trade Secrets

Most employers have trade secrts: in-formtion that is sect and valuable andgives the employer an advantage overcompetitors who do not have that inor-

mation. Cert employees, includi ex-ecutives, salespeople, and techca stanecessary have access to trade secrets

which is not a problem if they rema loy-al to their curent employer. However, anemployee may leave to work for a com-petitor, perhaps for a substatial increasein pay because of the inormation and ex-perte leared whie workig for the pre-vious employer. There may not be a non-compete agment in place to prevent anemployee frm workig for a competitorin a substatialy simar position.

Even if an employee wante to preervethe former employer s trade secrets, itmay not be realistic to think he or shecould comparentae and avoid beinginuenced by the former employer's valu-able trade secret inormation when per-formg simar duties for a competitor. Insuch citaces, the former employermay have a remedy ifit ca establish theelements of the inevitable diclosure doc-tre (alo referrd to in th arcle as thedocteThs arcle defies the inevitable dis-

closure docte and dicusses the semi-nal cae applyi the doce. It outlespublic policies that both favor the doc-trne s application and support its rejec-tion. The arcle al provides exaples ofcaes applyig and rejec the doctein other jursdictons. Fialy, the arclerecommends measures employers mighttake to safeguard the privacy oftheirtrade secets. Many of these steps shouldhelp prevent the need to rely on, and liti-gate, the inevitable diclosur doce.

Overview of InevitableDisclosure Doctrine

The inevitable disclosure docte is judicially created doctrne that permts

by Jessica Lee

cour to issue an injuncton prohibitigan employee from worki for a competi-tor of hi or her former employer.1 It is a

tol that alows cour to restrai an em-ployee from working for a competitoreven in the absence of a noncompeteagreement or any evidence of actualwrngdoing. For the docte to be usedthe court must find that the employeecould not help but diclose hi or her for-mer employer's trade secets in perform-

ing the new job-in other word, the di-closure would be "inevitable." To wi theinjunction, the former employer mustshow, at a mium, that the former em-ployee had accs to the employer's tradesecrets and that his or her new job withthe competitor renders disclosure or useof those trade secrts inevitable.

Because the inevitable disclosure doc-tre prevents theatened miappropria-tion of the former employer's trade sectsit arguably fids support in the UniormTrde Sects Ac ("UTSA"),3 which Colo-

rado has adopted. The UTSA allowscourts to enjoin actual and threatenedmiappropriation of trde sets. Never-theless, Colorado courts have not yetadopted or reject the inevitable diclo-sur doce in any publied opinon.

The docte effectvely imposes a non-compete restriction on the employeewhere the employer did not negotiate forone. Noncompete ageements have beendisfavored historically throughout theUnite State. Th is beus such age-ments restrict employees' mobilty andprevent them frm marketi their mostvaluable knowledge and ski to employ-ers, who have an interest in obta ta-ente labor. Neverteles, mos state lawsincludig Colorado , permt noncompeteageements for the protecton of trde se-crets, reasoning that employers shouldnot be dicouraged frm puruig teo-logica, medca, and other advance in-much as socety as a whole would conti-ue to benefit frm such advance.

Most cour view the inevitable disclo-sure doce as merely a mean of dem-onstratig theatened misappropriation

which the UTA addres. Oter courhowever, have described the inevitabledisclosure doctrine as creating a third

tye of misappropriation-in addition toactual and threatened misappropria-tion-and thus not expressly justied bythe UTA 6

Because there are so may competinginterests at stake, cour that have ad-dressed the inevitable diclosure doceare al over the map in term of whetherto apply the doce at al and, if so, un-der what ciumtace. Colorado courhave not yet arculate a tet for apply-ing the inevitable diclosure doce.

Seminal Case: PepsiCo, Inc.v. Redmond

The Seventh Circut Cour was one ofthe first circuit courts to uphold an in-junction based on the inevitable disclo-

Jessica Lee, Denver, is an employmentand litigation partner in the firm ofGibson, Dunn Crutcher LLP-(303)298-5700 jleefbsondunn.com.

The Colorado lawyer / October 2004 / Vol. 33, No. 1 0 / 17

Inevitable Disclosure Doctrine October

sure doce. PepsiCo, Inc v. Redrrndwhich was decided in 1995 and is theleading case applying this doctrine, in-volved a rivalry between PepsiCo andQuer Oats for the sport dr market.Defendant Redmond began workig forPepsiCo in 1984. When he joined the com-pany, he signed a confdentiality agree-

ment but he did not sign a noncompeteageement.

Afer ten years at PepsiCo, Redmondbee general manager of the businessunt covering Calforna that accQunted

for 20 percent of PepsiCo s profit for theUnite State.1 Redmond' s high positionin the company gave hi accs to inideinformation, including: (1) PepsiCo s na-tional and regional marketig and fian-cial strategies for the upcoming year; (2)the company's plan for spec makets;and (3) PepsiCo s plan of attack for in-cring its sha in the sport dr mar-ket.

In 1994, without informing PepsiCoRedmond began negotiating for employ-ment with the sports drink division ofQuaker Oats. Redmond ultimately ac-cepte ajob offer frm Quaker Oats to become Vice President-Field Operations of

the company's sport dr diviion. How-ever, Reond inormed hi PepsiCo su-pervors that he had accpte an offer tobecome Quaker s Chief Operating Off-cer. Shorty therer, PepsiCo fied a di-versity suit agt Redmond and Qu-er Oats, seekig to enjoin his employmentat Quaker Oats.

In the Ilois ditrct cour, PepsiCo ar-

gued that Reond would inevitably dis-close the trade sects he acquied whieemployed at PepsiCo, inasmuch as hisnew position gave him substatial inputon the marketig of Quaker Oats's sportdrnk prouct. The defendants arguedthat Redmond would be responsible forimplementig Quaker Oats' prexitigbusiness plans; therefore, any specialknowledge of PepsiCo s strategies wouldbe irelevant. The defendants alo notethat Reond had signed a confdential-ty agreement that prohibited the disclo-sure of any trade secrets or confdentialinformation. Nonetheless, the court

agreed with PepsiCo and enjoined Red-mond from working at Quaker Oats.The defendants appealed.

The Seventh Circuit Cour reviewedthe Ilois Trde Sects Act and relevantcae law. The cour concluded that

a plaintiff may prove a claim of tradesecret misappropriation by demon-stratig that defendant's new employ-

ment wi inevitably lead hi to rely onthe plaitis trade secets.

The cour found that Reond would in-evitably diclose or miappropriate trdesecets, ageeing with Pepsico that "Red-mond caot help but rely" on PepsiCotrade sects whie worki for Quaker.Thus, "PepsiCo fids itselfin the positionof a coach, one of whose players has leftplaybook in hand, to join the opposingteam before the big game."20

The cour alo found evidence tht Re-mond and Quaker intended to use Pepsi-

s trade secrets, includig Redmond'lack offortghtness and Quaker Oats'unnatural interest" in hiring PepsiCo

employee.21 Therefore, an injuncton wasappropriate to prote PepsiCo s trade se-crts.

The PepsiCo decision was signficantbecause the pares had not executed anoncompete agreement. Although courprior to PepsiCo had applied the in-evitable disclosure docte to enjoin anemployee frm workig for a competitor,they rarly did so in the absence of an ex-press noncompete ageement.

Competing Policy InterestsThe inevitable disclosure doctne ap-

plied in PepsiCo implicates stakly com-petig public policy interests. There areseveral factrs supportg application ofthe docte. Fist, employers have aninteret in incentivizi and prote in-novations developed thugh substatialinvestments of tie and capita. Secondsocety has an interest in protectg trdesects so that businesses wi purue fu-ther inovations and the public wil con-tinue to benefit from advances in medi-cie teology and other fields.24 Thsociety also has an interest in promotigand mata stdar of commercalethcs and fair dealng. Fially, both theUTA and Restatement of Unfair Compe-titin permt cour to re thatenedmiappropriation of trade sect inorma-tion.

There alo ar policy justications thatfavor rejecton of the inevitable disclosurdocne. Fit, employees have an inter-est in marketing their most valuableskis, knowledge, and experience.26 Sec

ond, employers have an interet in obta-in taente labor and us spec exprience and talents avaiable in the work-force. Third, society has an interest fosteri competition to encour fuerinovation and reduce the costs of gooand servces in the maketplace. Fialy,

18/ The Colorado Lawyer / October 2004 / Vol. 33, No. 1 0

a long-stdig public policy agt non-compete agreements exists in the lawwhich favors rejecon of the doce because it crate an afr-the-fact covenantnot to compete to which the pares neverageed.

Colorado courts will have to grapplewith these public policy factrs in decid-ing whether to apply or reject the doc-tre. Therefore, Colorado employers whowant to invoke the proteons of the doc-tre to prote their trade secets shouldaddrss each of those factrs in an appropriate maner.

Division Among the CourtsIn light of the competing interests at

ste, it is not surri tht thos courthat confonted the issue are divided whether to apply the inevitable diclosurdoctre at al and, if so, under what ci-cutace. Employers who wih to avaithemselves of the doce wi want to rely heaviy on caes that have endorsed thedoce where pares seekig to avoidits application wi rely on caes that haverejecd or lited the doce. A dicus-sion of both categories of caes follows.

Courts Applying the DoctrneFollowig the lead of the Seventh Cir-

cut in PepsiCo 26 several state, includigIowa, Pennylvana, and Nort Carliaapparently have embrace the inevitabledisclosure docte. Following are exa-ples of some of the caes that endorsed thedoce.

Iowa: In Barilla America, Inc. v.Wriht 29 the defendant was a plant man-ager at Barilla s production facilty in

Ames, Iowa. Wright did not sign a conf-dentiality agreement or a noncompeteagreement when he joined the company,even though it was company policy to re-quire such documents prior to employ-ment.so Whe' employed atBara, he wasexposed to an extensive amount of thecompany's proprietary information, in-cludig detailed techncal and fiancial

inormation.31 Five month afr he staed workig for Barla, Wright tenderedhis resignation and accpte ajob as producton maner for AI, one of Baramain competitors.32 He retaed a num-ber of confidential documents, photo-grphs, and notes when he left Bara.

Bara sued Wright and AIC and re-quested a preliar injuncton to pre-vent Wright from workig for AIC. Bar-ila argued that it was entitled to an in-juncton becuse Wright would inevitably

Inevitable Disclosure Doctrine October

disclose its trade secrets to his new em-ployer.54 The distrct cour ackowledgedthat the inevitable disclosure doctrine

"has been used as a vehicle for showingthat an injuncton is necsar to preventthe miappropriation of trade secets."35

Because Iowa s trade secrets act author-ized cour to enjoin actal or theatenedmiappropriation, the Barilla cour con-

cluded tht the doce was ' us one wayof showing a threatened disclosure."36

(Emphais add.Acc to the Barila cour, to invokethe inevtable disclosur doce

an employer must prove not only thatthe employee had access to or knowl-edge of trade secrets and that the du-ties of his or her next job overlap withthe duties of his or her previous job, butthat he or she would be able to remem-ber the trde sect inormtion in a us-able form.

The testiony before the cour faied toshow that Wright retained any of thetrade secet inormation to which he wasexpsed whie workig for Bara. Never-theless, the missing physical evidence oftrade seet inormation tht Wright tokwhen he left Bara convinced the courthat a legitiate that of disclosure ex-isted. The cour found that the missingphysical evidence "weigh(ed) againstWright' s credibilty and in favor of a ne-farous intent"38 and tht there were "sim-ply to may indications tht Wright mayuse this inormation to fuher his posi-tion at AIC."39 Therefore, the cour en-joined Wright from workig for AIC orany other competitor of Barilla for ap-proxiately one year.4O

Pennslvania In a 2000 cae HymanCos. v. Erwin Pearl, Inc 41 a Pennylvanaditrct cour considered whether to enteran injunction prohibiting an attorney,Brozost, from representi the plaitiscompetitor in lease negotiations. Aferworkig as the plaitis general counelfor several years 42 Brozost had becomeemployed by the defendant companies.There, he performed the same job dutiesand responsibilties for them that he hadperformed for the plaiti as its generalcounsel. 43 Accordig to the plaintiff thelease negotiations would requie hi in-evitably to use or disclose the plaitiffstrade set inormtion.

The cour found that Brozost had "ac-quied signcat and detailed informa-tion regarg (the plaitis) operationsin the. . . years he was employed."44 Al-

though most of th inormation was "gen-era knowled," the cour found that Bro

zos alo had acqui "spec knowled. . . with respe to the lease negotiationswhich he had undertaken on (the plai-

tis) behal" tht was "properly clasiedas confdential and proprieta inorma-tion.

The cour alo found that Brozost oweda fiduciar duty to the plaiti and had aduty not to use or disclose its confdentialand proprieta inormation to the plai-ti' s diadvanta.46 The cour note that

even in the absence of a restrictivecovenat, a former employer ca enjointhe competitive use of confdential in-formation obtained as a result of thetrust and confdence of a former em-ployment.

Accrdly, the cour issued a permentinjuncton preventi Brozost frm representing the defendants in competingtranactons with the plaitiff and fromdisclosing the plaintiffs trade secret in-

formation.In a 2004 cae Doebler's Pennslvania

Hybri Inc v. Doebler Seeds, LLC 49 theTh Cirt Cour predict that Penn-sylvana would apply the inevitable dis-closur docte based on a state superiorcour cae Air Pruc Chemical Incv. Johnson.5o In Air Products Chemi-cal Inc the Pennlvana Supeor Courrestrained an employee from disclosingconfdential inormtion to a new employ-er and parcipatig in cert aspec his new job because of the risk of disclo-sure. 51 The Doebler court therefore up-held, under Pennylvana law, an injunc-tion preventig the appellants from com-peti with their former employer, despitethe fact they had not signed noncompeteageements, becuse they used their for-mer employer's "own confidential infor-mation to compete."52

North Carolina: In Merck Co. v.

Lyon 53 a federal cour in Nort Carliaenjoined a former employee frm workigon a specic product made by the plai-

tis competitor. The cour held thatNorth Carolina would enjoin threat-ened misappropriation based upon aninevitable diclosure theory where theinjunction is limited to protecting

specificaly defined trade secrets, butthe trade secret wi have to be clearlyidentied and of signcat value.

Accordig to the cour, an employer couldprove a "likelioo of diclosur" by show-ing: (1) the degree of simlarty betweenthe employee s former and curent posi-tion; (2) the value of the inormation; (3)the degee of competition between the for-mer and new employer; (4) the new em-

20/ The Colorado lawyer / October 2004/ Vol. 33 , No. 1 0

pI oyer s effort to safeguard the formeremployer's trade secrets; and (5) the for-mer employee s lack of forthrightnessboth in hi or her actvities before accpt-ing the job and in his testimony.55 Afrreviewig these factrs, the Merck courconcluded tht the defendat was liely tomisappropriate his former employertrade sects and, thus, an injuncton wasappropriate. 56

Courts Rfdecting orLimiting the Doctrne

Lower courts in California, FloridaMichga, New York, and VIra have ei-ther rejecd or severely lite the appli-cation of the inevitable disclosure doc-trine. However, the supreme courts ineach of these state have yet to decde theissue.

California: The leading Californiacae on the inevitable diclosur docemay be a 1999 cae Bayer Corp. v. RoheMolecular Systems.57 In that cae, Betze-los quit his job as a marketig managerfor Bayer and accpte a simar positionwith a competitor, Roche. ThereuponBayer intitute legal acton and request-ed a preliminary injunction against

Roe.In rug on the injuncton, the distrct

cour state that it was ''lely that Bayerwill prove all the elements of its trade-secrets cae but one: actu or threateneduse or disclosure."58 (Emphais add.:f th gap, Bayer tred to invoke the in-evitable disclosure doctrine by arguingthat the diclosur of its trde sects wasunavoidable, because Betzelos inevitablywould use them in his new job withRoe.59

The cour dicussed the PepsiCodecision and note that the docte "al-lows plainti employers to demonstratethatened miappropriation without evi-dence of an employee s intent to diclosetrade sects.''6

Nevertheless, the court flatly rejectedadoption of the inevitable diclosure doc-tre. Ind, the cour held tht "Calor-nia trade-secrets law does not recognzethe theory of inevitable diclosur."61 Such

a theory the cour reasoned, would be in-consistent with the state' s strong publicpolicy in favor of employee mobilty andagait covenants that restrct such mo-bilty62 The inevitable diclosur doceessentialy creates an afr-the-fact non-compete agment. Therefore, in Calor-nia, a trde-sects plaiti must show an

actual use of trade secrets or an actualthat ofmiappropriation.63 Bayer couldnot make this requisite showing, so its

2004 Inevitable Disclosure Doctrine

motion for a preliar injuncton wasdenied.

Flri A federa cour in Florida re-fused to apply the inevitable disclosure

doce in Del Mont Frsh Pruc Ca

Dole Food CO. In ths cae Fu was aSenior Vice-President in charge ofRe-search and Development for Del Monte.He signed a confdentiality agreementwith Del Monte, but never signed a non-compete agment. Afr sin yea servce Fu resigned and went to workfor Dole as Vice-President of Qualty As-surance. Del Monte subsequently suedDole and Fu and moved for a preli-nar injuncton to prevent the defendantsfrom miappropriatig its trde secets.

The Del Monte cour bega its analysisby noti tht the UTSA provides for onlytwo ty of mippropriation: act andthtened. However, the cour obsrvedsome cour had "derived a thd tye-inevitable diclosurmiappropriation."68

Del Monte reuested an injuncton based

on the theories of threatened and in-evitable disclosure. Thus, the cour pro-ceded to analyze the sufciency of thesetheories.

The cour had litte diculty in dipos-ing of the inevitable disclosure doctre.Afr reviewig the caes supportg thetheory the cour note tht Calorna andFlorida (the two states' laws involved inthe cae) had neither adopte the docenor cited PepsiCo with approval.Therefore accrd to the cour tht the-

ory could not be relied on to provide therequested relief. Intead, the cour heldthat

(a)bsent evidence of actual or threat-

ened misappropriation, a cour shouldnot allow a plaintiff to use inevitablediclosure as an afr-the-fact noncom-pete ageement to enjoin an employeefrm worki for the employer ofhi orher choice.

In so holding, the cour interpreted theUTSA to require that a plaintiff provetheatened miappropriation of trade se-crets by some means other than the in-evitable diclosure doce.

The Del Monte cour alo found that no

threatened disclosure had been shown.The plaiti had demonstrated only thatFu posessed company sects. Howev-

, there was no evidence that he took

documents or confdential informationwith him when he left Del Monte " andthere was "no evidence that he made aneffort to take such information."73 Al-

though Fu had extnsive knowledge ofDel Monte' buses operations, the courbelieved Fus tetiony that he couldnot recall this information with preci-sion.74 These factrs led the cour to con-

clude that there was no theat of miap-proprition.

Michian In Leach Ford Motor CaMich cour was asked to isue an in-

juncton to prevent a former Ford execu-tive frm accpti a poition with Fit, arival car manufacturer. The executiveLeach, had ben with Ford for more twenty-five year and was bound by bothconfdentiality and noncompete agree-ments. The lattr did not apply if Leachwas involuntarly terminated from the

company. 77 Althoug there was confctevidence as to whether Lech reigned orwas involuntary termated, Ford con-tended that the inevitable disclosure oftrade secets should prevent Leach fromjoin Fiat, even if he was involuntaytermted.

MADEN & MADENAttorneys & Counselors at Law

JOHN A. CRISWELLARBITRATION AND MEDIATION SERVICES

Practice limited to

Litigation and Dispute Resolution

LABOR AND EMPLOYMENT DISPUTES

- Senior Judge, Colorado Court of Appeals

- 25 years' experience in prosecuting anddefending employment claims

- Hearing Offcer for Denver Civil Serviceand Colorado Judicial Department

- American Arbitration AssociationEmployment Arbitrators Panel

1045 Lincoln Street, Suite 201Denver, Colorado 80203Tel: 303-864-1664Fax: 303-837-1622E-mail: CRISWELL1956 OL.COM

JOHN W. MADEN JOHN W. MADEN

Accepting referrals andrequests for co-counsel

410 17th StreetSuite 530

Denver, Colorado

(303) 436- 1111

The Colorado lawyer / October 2004 / Vol. 33, No. 1 0 / 21

Inevitable Disclosure Doctrine October

The court disagreed with Ford's con-tention. The court noted that the Pepsi-

decionreste in signcant par on the lowercour' s determation that the formeremployee s conduct evidence a lack ofcandor, and proof of his wingness tomisuse trade sects.

There was no such evidence in the Leachcase. Furthermore, the court cited aMichga Cour of Appeal cae tht stat-

, in dicta that the concept of inevitable

diclosur must not compromie the rihtof employees to change jobS. Thereforethe Leach cour refued to apply the in-evitable diclosur doce based on thefacts presented. Instead, the cour en-joined Ford frm makg any statementsclaimig that Leach was precluded frmaccepting employment with any Fordcompetitors.

New York: Decisions from New Yorkcours initially seemed to indicate thatNew York would apply the inevitable di-closure docte. For exaple, in a 1997cae DoubleClick, Inc v. Hendrson 84 theSupreme Cour of New York for New YorkCounty enjoined two executives whoworked for DoubleClick frm launchg a

Jacqueline St" Joan

it SpeiaiAdvoc forCbildren* Parnting Coordinator

. Mediato - Arbitrltor* P'dvate Judge

Experiene .Interdisciplinary .

Affrdable ,.Locm ltldme....c11'I.ell. JoB -IUffle., at Law

..1.$n$uluao tlnmCO Pmr.(mm.at82 fuqa932,fGO

WW.5p""kmvocat.

new business or working for Double-Click' s competitors for a period of sixmonth.85 Among oter th, the Double-Click cour noted: (1) a high probabiltythat the exectives would inevitably dis-close trade secrets; and (2) the "defen-dants' cavaler atttude towar their du-ties to their former employer." 86

However, subsequent decsions have in-dicate tht the inevitable disclosure doc-trine may be applied in New York onlyrarely. In a 1999 case Earth Web, Inc v.Schlack s7 a New York distrct court re-fued to issue a preliar injuncton toprevent an EarWeb employee from ac-ceptig a poition at a competitive compa-ny.83 Ear Web ared inter alia tht the

inevitable dilosur doce provided anindependent basis for issuance of the in-juncton. The cour rejec th arentand, in doing so, establihed a high sta-dard for the futue use of the doce.

The Earth Web cour dicued the Dou-bleClick decision and noted that the

DoubleClick cae "appear to represent ahigh water mark for the inevitable diclo-sur doce in New York"90 Even so, theDoubleClick holdig "rest(ed) heaviy onevidence of the defendants' overt theat oftrde sects and breches of fiduciar du-

ty" Accordg to the Earth Web cour, incases where there was no evidence of ac-tu misappropriation, cour were beingasked to bind the employee to an im-

plied-in-fact restrctve covenant based onfidig of inevitable diclosure."92

result was inconsistent with New York'sstrong public policY agaist such agree-

ments. Therefore accrd to the Earth-Web cour

, "

the inevitable diclosure doc-

tre treads an exceedigly narow paththugh judicialy difavored terrtory"94

As such, the cour concluded that the doc-trne should be applied rarely if there isno evidence of actal miappropriation bythe employee.

Following Earth Web in a 2003 caseColoniz. com, Inc v. Perlow 95 a New Yorkfederal ditrct cour refued to apply theinevitable disclosure docte. The cournoted that the docte "is disfavored inNew York because of the State's strongpublic policY agait retrctve non-com-petition agreements"96 and, therefore, isto be used "very sparly to grant injunc-tive relief only in circumstances whereother evidence of theft of trade secets ex-ists."97 There was no such evidence in theColonize.com cae, so the cour refued toissue the requested relief. As the courtnoted

, "

mere knowledge of the intrcaciesof a business is simply not enough."98

22 / The Colorado lawyer / Ocober 2004 / Vol. 33, No. 1 0

Virginia: In Government TechnologyServices, Inc. v. Intellsys TechnologyCOrp. 99 a Virgia state cour grante thedefendant' s demurrer on the plaintiffsclai for breach of a confdentialty andnondiclosur agment. In tht cae, theplati ared tht there would be an in-evitable disclosure of confdential infor-mation. l00 In grantig the demurer, thecour held that an alegation of inevitabledisclosure was insufcient to support aclai for brech of confdentialty Indthe plaiti had "to alege diec or indi-rect disclosure of any confdential infor-mation."101 Ths decision implicitly sug-gests that VIra cour may not recog-nize the inevitable diclosur docte.

Protecting Trade SecretsWithout the Doctrine:Practice Tips

Althoug cour in several jurdictonsseemingly have rejected the inevitabledisclosure doctrine, it appears that thedoce has a legtite place in trde se-cret la-w parcuarly because the UTSA(which Colorado has adopte) permts in-junctons to prevent threatened misap-

propriation.l02 Neverteless, given the un-certaity surundig the doce, Colo-rado employers should take protectivemeasures to guard the privacy of theirtrade sect inormtion.

The following tips, suggested by thecae law in th ara, should help employ-ers protect their valuable trade secretsand confdential inormation when a for-mer employee join a competitor. The fitgroup of tips involve agreements withand obligations of; the company's employ-ees. The second group descrbes actionsemployers ca tae to mize the riskof trade secet forfeitu.

Employment Agreements forProtecting Tr Secrets

As noted above, the inevitable disclo-sure doce essentialy crates an afr-the-fact noncompete agment for whichneither the employer nor the employeespecifically bargained. Thus, the surestway to avoid havig to rely on the doceis to enter into a noncompete ageementup front-at the begig of; or at leastdurg, the employment relationship. Al-though it still may become necessar tolitigate the enforceabilty of the noncom-pete ageement, a cour is more likely toenforce a negotiated ageement than toimpose one that was not negotiate at al.

2004 Inevitable Disclosure Doctrine

Followig is a discussion of thee agree-ments employers should consider obta-ing from employees with access to tradesecrets: (1) noncompete ageements; (2)nonsolicitation ageements; and (3) conf-dentialty ageements.

Noncompete Agreements: From theemployer's perspectve, every employeewho wi be given access to trade secetsidealy should sign a noncompete agee-ment before he or she begi worki forthe company. As the Earth Web cour not-

, "

Clealy, a wrttn agment tht con-ta a non-cmpete clause is the be wayof promoti prectbilty dur the em-ployment relationship and afrwar."103

Although noncompete ageements aregeneraly prohibited by Colorado statutethat same statute permts noncompeteageements for the proteon of trde se-crets, as long as the agreements are notbroader than necssar to protect the le-gitimate interests of the employer.104 Inaddition, there are exceptions to the gen-eral rue prohibiting noncompete agee-ments in Colorado if they are contractsfor: (1) the sale or purchase of a busi-ness; 105 (2) recovery of certain trainingand education expenses;l06 and (3) execu-

tive and management personnel, as wellas professional sta to maagement per-sonnel.l07

Nonsolicitation Agreements: Be-cause noncompete agements ar gener-aly prohibited by Colorado statute, anddesite the exception for contrac for theproteon of trde sects, a Colorado em-ployer seekig to prote tre sects aloshould consider havig its employee exe-cute a foced and nawly taored non-solicitation agreement. Such an agree-ment should be simar to the nonsolicita-tion agement enforcd in ManaementRecruiters of Bouldr, Inc v. Miller. IOB

In Miller the Colorado Court of Ap-peals upheld a nonsolicitation provisioninvolving an employee, Miller, who hadworked fora rectment agncy The em-ployee was retrct frm contactg, onbehalf of his new employer, any candi-dates with whom he had contact durthe last yea ofhi employment.109 Due tothe presence oftrade secrets, the courconcluded that the provision was neces-sary to safeguard the plaintiff' s busi-ness. 110 The court also found that theterm were reaonable in their effec andtailored to prevent the miappropriation

of trade secets by Mier."11

Confidentiality (Nondisclosure)Agement Employers concerned abuttheir trade secrets also should have all

employee with accs to them sign a con-fidentialty or nondiclosur, ageement.The agreement should make clear thatthe employee may never use or disclosethe employer's trde sect inormation

anyone, and must return any physicalcopies of such inormtion to the employerimmediately on termation of employ-ment.

Because noncompete ageements be enforc oruy to the exnt necar protect trade secrets under CRS

113(b), there is some rik tht a cour con-siderig the enforceabilty of a noncom-pete ageement may fid it unecessarin light of the confdentialty ageement.However, there is perhaps a grater rik acour would conclude there are no tradesecrets to begi with if the employer didnot have its employee execute confden-tialty agements to prevent their diclo-sure.

Other Ways to SafeguardTr SecretsIn addition to having employees exe-

cute employment agements for the protection of trade secrets, employers cantae a varety of other actons to lit andcontrl the diemition strag, and ex-

posure of confdential inormation, bothwith and outside the organzation. Fol-lowig are some suggestions employerscan follow to mize the risk of losingtheir trde secets. Employers should:

. Grat ac to highy confdential in-formation on a strct "need-toknow"basis

. Give employees who need access tosuch inormtion password or accscodes that other employees do nothave

. Periodically change passwords andreset accss

. Not dissemiate highly confdentialinormtion to any th pares, pos-sibly includig independent contrac-torsl12

. Mark highly confdential docuentsappropriately and never store themon unec back-up diks113

. Consder mata confdential in-formtion in a "sec clte re-late vault that (is) accsible oruy those who kn(o)w the combination"114

. Consider implementi reguar procedur to safeg confdential ma-terial, such as distributing contactlists on a weekly basis, precludingemployees from sharng their listswith coworkers collec the li some point in the futu, and shred-di lits on a reguar basis 115

. Consider holdi trai programfor their employees, emphasizingways to safeg privac of trde se-crt inormtion

. Addrs the importce of safeg-ing the employer s trade secrets intrai and policy maua

. Conduct Internet searches for unau-thorized website postigs by formerand cunt employee

. Pre-approve aricles and presenta-tions given to outsiders, as well asany public anouncements about thecompany

. Although it sounds obvious, refrainfrm givi public tour of their faci-ties, especaly to the company's com-petitors116

. Consider notifyng employees thatunauthorized disclosure of trade se-crts is grunds for imedate term-nation

. Upon termnation, ensure that thedeparg employee retu al conf-dential inormtion and is remided

Achievement: Accomplishing successfully through skil & perseverance

You develop the legal strategy - we provide the medical record foundation

Our proudest achievement - earning your confidence

Consultantsfor MedicalDirection,

Meg Dunlop RN and Jeannie Stenson RNCMD Legal Nurse Consultants 303.693.9991

Visit www.uslegalnurses.com for our complimentary offer

The Colorado lawyer / October 2004/ Vol. 33, No. 10/23

Inevitable Disclosure Doctrine October

of his or her obligations under thevarous agments dicused above.

Employers are not reuied to adopt alor even most of these measures to seektrade secret protection from the cour.Colorado cour do not impose a stadarof perfecton or uneasonable expense.Each case is fact-specific and must beviewed in context. Nevertheless, an em-ployer should tae reasonable steps andmeasurs to prote its trde sects andif it doe so, it may never nee to rely onthe inevitable diclosure doce.

ConclusionThe inevitable disclosure doctrine

would seem to be proper as long as it issomewhat naIwly constred. The caesdiscused in th arcle suggest dierentways the cour have reached th result.Under the stct of these caes, employ-ers have been required to present evi-dence of actual misappropriation orthatened miappropriation of confden-tial inormation or trade secrts.118 Em-ployers alo have ben reui to preentsome evdence oflack of cador by the em-ployee or apparent wigness to miusethe former employer's trade secrets-

other word, a ''nefarous intent."119Some cour have required employers

to demonstrte that the employee not on-ly had acs to trade secets, but that heor she would be able to remember thetrade secret information in a usableform. l20 One commentator has sugestethat employers should show that it is in-evitable the employee wi use a specictrade secret in the course of performngan identied job reponsbilty inerent inthe employee s new position. 121

Employers who seek to avail them-selves of the inevitable diclosure docein Colorado should be mindful of thesefactrs and demonste their presence tothe greatest extnt possible. Conversely,employers and employees seeking toavoid application of the docte shouldshow that these "inevitabilty-plus re-quiments" ar absent and, therefore, theinevitable disclosur doce should notbe applied.Abve al, every employer should avoid

the need to rely on the inevitable disclo-sure doce if possible, by ta meas-ures to protect their trade secrets beforetheir employee defec to competitors. Al-though there is no perfec way for a com-pany to guarantee that its trade secetswi remai private and sec, the tips inth arcle provide a good stag point

for proteg trde sects at the sour.In addition, they buid a solid foundationto support a claim for injunctive reliefbased on the inevitable disclosure doc-tre, should an employee decide to 'jointhe oppo te before the big gae."122

NOTES

1. See, e.g., Del Monte Frsh Produce Co. Dole Foo , 148 F.Supp.2d 1326, 1335 (S.Fla. 2001) (In an inevtable diosure cas

, "

cour ca issue an injuncton to prvent an em-ployee frm worki for the fonner employer'scompetitor if the employer ca demonsate areal and preent dager of diclos.

2. PepsiCo, Inc 54 F.3d 1262 (7th Cir 1995).

3. See Unionn Trade Sets Ac ("UK)

2(a) (1990) ("(a)ctal or thatened miappropriation may be enjoined"

4. Notably, Colorado ha adopted the UTA,includig the proon authorizig injunctverelief to "prevent or restrai actal or threat-ened miappropriation of a trade secrt. (Em-phais mkd.) CRS 74-103. Under th Colo-rado UTSA, "trade secrets" are "the whole orany porton or pha of any scentic or te-ca inonntion, desgn, prss, prour, for-mula, improement, confdential busess or fi-nancial inonnation lig of naes, addrs-es, or telephone numbers, or other inonntionrelati to any buses or profession which issecret and of value. To be a 'trade secret,' theowner thereof must have taken measures toprevent the secet frm bemig avaiable topersns other th those selec by the ownerto have access thereto for limted purposes.CRS 74-102(4).

5. See, e.g., BarillaAm., Inc v. Wriht No. 4-

02-CV-90267, 2002 US. Dit. LE 12773 at*25 (S.D.Iowa July 5, 2002).

6. See Del Monte Frsh Pruce Co. , supranote 1 at 1335.

7. PepsiCo, Inc, supra note 2.8. Interestingly, PepsiCo, Inc. and Quaker

Oats merged. in 2001. Accordg to a PepsiCostatement

, "

Quaker s powerful Gatoradebrand, the world's number one sport drwi make PepsiCo the clea leader in the Unit-ed States in non-carbonated beverages. Seehttp://ww.pepsico.comlinvestors/annual-report2000/quaker.shtInl.

9. PepsiCo, Inc, supra, note 2 at 1264.1OId.11. Id. at 1265.12. Id.13. Id. at 1264.

14. Id. at 1265.

15. Id. at 1266.16. Id.17. Id. at 1272.18. Id. at 1269.19. Id. at 1270.20. Id.21. Id. at 1271.

22. See, e. , Eastman Kodak Co. v. PowersFilmPr 189AD. 556 (N.Y.1919).

24/ The Colorado lawyer / October 2004 / Vol. 33, No. 10

23. See, e.g., Colonize.com v. Perlow No. 03-CV-466 2003 US. Dist. LEXS 20021 , at *9,*13, *15 (N. Y. Oct. 23, 2003) ("A covenantnot to compete in an employment settg wibe specificaly enforceable only to the extntthat it is alo necessar to prote employer'slegitite intere, not ha to the geeralpublic and not uneasonably burdensome tothe employee.

).

(Intern quotatins omittd.

24. See BarilaAm, Inc, supra note 5 at *33(S.D.Iowa July 5, 2002) ("Te public interes inproteg valuable trade sects is embodiedand arculate in the Iowa legislatu's pas-sage of the Iowa Trade Secrets Act. . . . TheCour therefore fids tht the public interest isserved by enjoin the diclosur of trade se-crts.

").

(Intern citans and quotans omit-ted.

25. See UTSA 2(a) (1990) (" (a)ctual orthreatened misappropriation may be en-

joined"

);

Resttement (Tird) of Unfair Compe-tition 44 (1995) ("injunctive relief may beawared to preent a contiui or thateedappropriation of another's trade set"

26. See, e.g., Colonize.com, supra, note 23 at

*13 ("Rstrctons agt the use by a fonneremployee ofhi acculate exprience, skiappreciation of intangibles and judgment inhi new employment would effecvely bar frm al employment and ar beyond legali-its and would have to be decar void.

);

CMIInt'l , Inc. v. Intermet Int'l Corp. 649 N.W.2d808 813 CMch.CtApp. 2002) (''Een asumgthat the concept of 'tateed misappropria-tion' of trade secets encompasses a concept ofinevitable disclosure, that concept must notcompromise the right of employees to changejobs.

);

Bayer Corp. v. Roche Molecular Sys., 72F.Supp.2d 1111, 1118 (N. Cal. 1999) (notigthat courts were reluctant to apply the in-evitable diclosure doce "buse of strngpublic policies in favor of employe mobilty"

27. See, e.g., Colonize.com, supra note 23 at

*13 , *15 (the doctrie is disfavored in NewYork because of state s strong public policyagait restrctve noncompete agments);Bayer Corp., supra note 26 at 1119 ("Calor-nia public policy favors mobilty and free-dom. );Lafourche Speech Lange Servs. v.Juckett, 652 So.2d 679, 680 (La.App. 1st Cir.1995) (noncompete agrements not favore inLouiiaa and generaly "deemed to be agtpublic policy

28. PepsiCo, Inc, supra note 2.29. BarillaAm., Inc, supra note 5.30. Id. at *6.31. Id. at *6-8.32. Id. at *3, *9.33. Id. at *10-11.34. Id. at *21.35. Id.36. Id. at *25.37. Id. at *28.38. Id. at *31.39. Id. at *33.40. Id. at *35.41. Hyman Cos., 119 F.Supp.2d 499 (E.D.Pa.

2000).

.iA..:m...ofumtS ano. DeuCUesAvalale

..ASfred..A'pnCationP

.r4f...S5,o..D:pli...DeChSC'..verm

4iFuU;PrJQfA.Ctf..ve.raeAWUabJetoQQalFiJ&kNewletr

Inevitable Disclosure Doctrine October

42. Id. at 501.43. Id. at 502.44Id. at504n.45. Id.46. Id. at 505.47. Id. at504.48. Id. at 505.49. Dobler Seeds IL 88 FedAppx. 520 (3d

Ci Feb. 12 2004).50. Id. at 522 n. citing Air Products &

Chemicals, Inc 442 A2d 1114 (Pa.Super.Ct.1982).

51. Air Products Chemicals, Inc., supranote 50 at 1124-25.

52. Doebler Seeds, LLC, supra note 49 at

522-23.53. Merc Co. 941 F.Supp. l44 (M.D.N.

1996).54. Id. at 1460.

55. See id. (citing PepsiCo, Inc, supra note 2at 1267).

56. See id at 1460.

57. Bayer Corp., supra note 26.

58. Id. at 1117.59. Id.60. Id. at 1118.

61. Id. at 1120.62. See Cal. Bus. & Prf. Code 16600 (ren-

derig noncompete agrments in the contextof an employment relationship void).

63. Bayer Corp., supra note 26 at 1120.

64. Id. at 1121.

65. Del Mont Frsh Pruc Ca, supra, note

66. Id. at 1328.67. Id. at 1335.68. Id.69. PepsiCo, Inc, supra note 2.70. Del Monte Frsh Pruc supra, note

1 at 1336-37.71.Id. at 1337.72. Id.73. Id. at 1339.

74. Id. See also, e.g., BarillaAm., Inc, supra,note 5 at *28 ("(Ajn employer must prove notonly tht the employee had access to or !mowl-edge of trde sects and tht the duties oflror her next job overlap with the duties oflr orprevious job, but tht he or she would be ableto remember the trade sect inormation in usable form.

").

75. The Del Monte Frsh Prduce Co. dec-sion supra note 1, taes a miority view in an-alyzg the inevitable disclosu dQGe as a"t ty" of misappropriation in addition toactal and thatened. Oter cour view theinevitable disclosure doctrine as simply amea of establig thtened miapprpri-ation. The Del Monte decision ha been criti-

cied as miconsg Florida law, which, un-lie Calorna, does not render void noncom-pete agreements in the employment contextand, thus, doe not have the strong public poli-cy against covenants that restrct employeemobilty See Scer, "Tade Secet InevitableDiclosur: Substative, Predural and Prac-tical Implications of an Evolvig DoctrieJPS 336, 345 (May 2004).

76. Leach, 299 F.Supp.2d 763 (E. Mich.2004).

77. Id. at 764.78. Id. at 775.79. PepsiCo, Inc , supra, note 2.80. Leach, supra note 76.

81. See id., citing CMI Int' , Inc, supra note26 at 813.

82. Leach, supra, note 76 at 775.

83. Id. at 777.84. DoubleClick, Inc., No. 116914/97 , 1997Y. Misc. LES 577 (Sup.Ct. Y.Co. Nov. 7,

1997).85. Id. at *23.86. Id. at *16-17.87. EarthWeb, Inc., 71 F.Supp.2d 299

(S.D.N.Y. 1999).88. Id. at 303, 317.89. DoubleClick, Inc, supra, note 84.

90. Earth Web, Inc, supra note 87 at 310.

91. Id.92. Id.93. See id.94. Id.95. Colonize.com, Inc, supra, note 23.

96. Id. at *15.97. Id.98. Id. at *16.99. Gov t Tech. Servs. , Inc. 51 Va.Cir. 55

(Va.CiCt. Oct. 20, 1999).100. See id. at 55.lOUd.102. CRS 74-103.103. Earth Web, supra note 87 at 311.104. CRS 113(2)(b).105. CRS 113(2)(a).106. CRS 113(2)().107. CRS 113(2Xd). Management per-

sonnel ar thos employee who ar "i ch"of the busess and who actin an unpervmaer. Atml Corp. v. Vitesse SemiconductorCorp., 30 P.3d 789, 794 (ColoApp. 2001); see al-Sf! Mgmt. Recruiters of Boulder, Inc. v. Miler762 P.2d 763 , 765 (ColoApp. 1988) ("accountexective " who was priy an "iormationgatherer " was not a manager or executive).Prfessional employees and professional stato maagement have ben defied narwly toinclude "such persns as lega, eneerig, sci-entific and medical personnel together with

junor professional assistats. Boulder Med.Ctr v. Moore, 651 P.2d 464 (Colo. App. 1982).

108. Miller, supra note 107.

109. Id. at 766.110. Id.

111. Id.112. See Colora Supply Co. v. Stewart, 797

P.2d 1303, 1306 (ColoApp. 1990).113. See Storae Tech. Corp. v. Cisco Sys., Inc

Civ. No. 00-2253 (JNE/JGL), 2003 U.S. Dist.LE 17347 (D.Mi. 2003) at *20-22.114. In re Bass 113 S. 3d 735 , 742 (Tex.

2003).115. See Netork Telecomms, Inc v. Boor-Cre-

peau 790 P.2d 901, 903 (ColoApp. 1990) (tralcour err in forelosing employer's opport-nity to present evidence showig tht its cus-tomer li were entitled to trade set prote-tion).

116. See Hildreth Mfg. LLC v. Semco, Inc, 7852d774, 786 (Ohio App. 2003) (inormtion

did not constitute trade secets and thus notentitled to proteon beus inormation "notsubjec to reasnable effort to maita its se-crec).

117. See Netork Teleomms, Inc, supra note115 at 902 (notig tht "effort to maita secrec ar those tht ar reasonable under thecice and do not reui tht extmeand unduly expnsive proedures be taen toprote trade sets"

118. See, e.g., Colonize.com, supra note 23 at

*16 ("New York cour have used the docevery spargly to grant inunctve relief only incicutaces where other evidence of theft oftrade secrets exists.

);

see also, e. , Bridge-stone/Firestone, Inc. v. Lokhart 5 F.Supp.667 682 (S.D.Ind. 1998).

119. Barilla Am., Inc. , supra note 5 at *31.See also, e. , Leach, supra note 76 at 775 (noevidence of employee s lack of candor or wil-ingness to mius trde sets); H&R Block E.Tax Servs. v. Enchura 122 F.Supp.2d 10671076 (WD.Mo. 2000) ("To prevail under thistheory, employers must demonstrate in-evitabilty exits with fact indicatig tht thenatu of the sets at issue and the natue ofthe employee s pas and futue work jus aninference that the employee canot help butconsider set inormation.

120. See Barilla Am., Inc. , supra note 5 at

*28.121. See Shi, 'The Inevitable Diclosur

Doctrie-A Necessar and Precise Tool forTrade Secet Law" 11 Business Thrts J. No.at 1 (Winter 2004).

122. PepsiCo, Inc , supra, note 2 at 1270.

26/ The Colorado Lawyer / October 2004 / Vol. 33, No. 1 0