Last week, Judge Timothy S. Hillman of the U.S. District Court of Massachusetts allowed a plaintiff’s motion for a preliminary injunction against three defendants who allegedly stole trade secrets from their former employer, even though there was no evidence that the defendants used that information when they went to a competing company. Judge Hillman also provided useful guidelines for determining when a defendant directly or indirectly solicits another employee to leave the company, and potentially extended the “inevitable disclosure” doctrine beyond a scenario involving the breach of a noncompetition agreement. In particular, the “inevitable disclosure” issue is a hot topic in Massachusetts, one which I’ve written about here and discussed in the legal media. Although the precise terms of the injunction are yet to be determined, Judge Hillman’s reasoning in this decision almost certainly will be used in future cases that address these issues.
The plaintiff, Advanced Micro Devices, Inc. (AMD), designs and makes microprocessors and related computer components. Defendants Robert Feldstein, Manoo Desai, and Nicholas Kociuk were former AMD employees who left AMD and were hired by Nvidia Corp., a company that competes with AMD, at different times. A fourth defendant, Richard Hagen, was a former AMD employee who was working at Nvidia before the others arrived. Feldstein, Desai, and Kociuk had signed agreements with AMD in which they promised not to retain or disclose AMD confidential information. Additionally, Feldstein, Hagen, and Desai all agreed not to directly or indirectly solicit AMD employees to leave AMD during their own employment at AMD and for one or two years thereafter. Nevertheless, before they left AMD, Feldstein, Desai, and Kociuk copied varying large amounts of AMD information from AMD devices to private thumb drives and external hard drives (Kociuk copied over 1 million files). Further, Feldstein and Hagen met with Desai on separate occasions before she left for Nvidia, and Desai then told Kociuk to join her there. In fact, Feldstein met with Desai for lunch when she interviewed at Nvidia, and Hagen also met with Desai for lunch on two occasions while she was applying to work at Nvidia. Indeed, Desai told Kociuk that she spoke with Hagen on the telephone, and that “[e]verything seemed urgent and [Hagen] asked how soon I could give notice. You know [Hagen].” Later, she told Kociuk that “I have stuff to tell you . . . I had a crazy day with both Rick’s calling me. I have a counter offer from AMD.” (Desai was referring to Hagen and an AMD officer when she said “both Rick’s.”) And while she still was an AMD employee but had accepted an offer at Nvidia, Desai told Kociuk, among other things, that she wanted him to come with her, and that he shouldn’t fall for an offer of increased pay or a promotion to stay at AMD. After Kociuk left the company, AMD filed a lawsuit the next business day.
Judge Hillman made three interesting rulings. First, he decided what it means to misappropriate trade secrets under Massachusetts law. He concluded that, even though there was no evidence that Feldstein, Desai, or Kociuk actually used any of AMD’s trade secrets or gave them to Nvidia, so long as AMD could prove “the acquisition, through improper means, of a trade secret with the intent to convert it for use by a party other than the rightful owner,” that was enough. In particular, some of the materials the defendants took were AMD trade secrets, and the circumstantial evidence that they intended to use it at Nvidia was compelling (they took a large amount of information right before leaving to work for a competitor). So Judge Hillman determined that AMD would likely win its trade secret claims.
Second, Judge Hillman clarified what “direct solicitation” and “indirect solicitation” of employees means, at least when those terms are not defined in a contract. Direct solicitation is “traditional solicitation, encompassing any active verbal or written encouragement to leave AMD, even if not intended to harm AMD.” Indirect solicitation is “more context-sensitive.” “Subtle hints and encouragements,” so long as “the solicitor actually intended to induce the solicitee to leave,” are indirect solicitation. Based on these definitions, Judge Hillman ruled that AMD was not likely to win on its breach-of-contract solicitation claim against Feldman because there was little evidence that he solicited Desai beyond merely making positive comments about Nvidia. But Desai’s statement to Kociuk that she wanted him to join her at Nvidia, and Hagen’s statement to Desai asking how quickly she could give notice to AMD that she was leaving, were direct solicitation. On this basis, Judge Hillman ruled that AMD was likely to win on its breach-of-contract solicitation claims against Desai and Hagen, but not on its claim against Feldman.
Finally, Judge Hillman decided as part of his injunction analysis that AMD could be “irreparably harmed” if he did not issue an injunction based on the trade secret claims, even though the employees said that they gave all confidential AMD information to a third-party neutral for forensic examination after the lawsuit began. He ruled this way in part because Feldman, Desai, and Kociuk “must all remember large amounts of confidential AMD information that they learned during their employment.” This is a variation of the “inevitable disclosure” doctrine. This doctrine says that, even if an employee possesses no physical trade secret information in paper or electronic form, if an employee goes to a competing company in breach of a noncompetition agreement, then the threat that the trade secrets or confidential information in the employee’s head will be “inevitably disclosed” while he works at the competitor can threaten “irreparable harm” to the former employer to support an injunction against the employee. Another Massachusetts District Judge recently ruled that this doctrine only applies when a noncompetition agreement has been breached first, but here Judge Hillman seems to suggest that it can apply when there has been trade secret theft, too, even absent a noncompetition agreement. Because he does not provide a lot of analysis on this issue, it is unclear whether Judge Hillman meant to go this far. But if so, he would be extending a somewhat controversial doctrine even further.
At bottom, this decision is sure to be cited and discussed in future cases because the factual scenarios are so common: employees take company information, but there is no evidence that they used it; employees discuss new job opportunities with other employees; and once a lawsuit begins, employees give up all confidential information. On the whole, the decision is good for employers. Yet it will be interesting to see how future courts apply Judge Hillman’s reasoning.