New U.S. District Court Decision from Massachusetts Makes “Inevitable Disclosure” Arguments Effective Only When Noncompetes are Involved

Massachusetts Lawyers Weekly reports on a new decision from the U.S. District Court for the District of Massachusetts by Judge Casper that makes “inevitable disclosure” arguments effective only in cases involving noncompetition agreements. I’m quoted in the text of the article.  (For those of you without a subscription to Massachusetts Lawyers Weekly, I’ll post a copy of the article once I receive reprint permission.) The article does a good job of describing the facts and holding, but for those of you who want to read the decision, it can be found here.

Here’s why I think the case is significant. The “inevitable disclosure” doctrine states that employees who have knowledge of their former employers’ trade secrets can be held liable for the misuse of trade secrets merely by being employed by the former employer’s competitor.  The idea is that the employees would “inevitably disclose” the trade secrets they know from their former employment to the competitor while working for the competitor.  The plaintiff in this case, U.S. Electrical, tried to get the court to preliminarily enjoin its former employees, Schmidt and Colon, from working for a competitor, Munro Distributing, by using this doctrine. U.S. Electrical argued that it was likely to succeed on its trade secret claims against Schmidt and Colon because Schmidt and Colon would disclose U.S. Electrical’s trade secrets to Munro Distributing, not that Schmidt and Colon already had disclosed those secrets.  In refusing to issue an injunction, Judge Casper ruled that District of Massachusetts cases that used the term “inevitable disclosure” did so only after an employer established that the employee breached (or likely had breached) a noncompetition agreement with the employer.  Only then did those cases consider “inevitable disclosure” arguments to establish that a plaintiff would be “irreparably harmed” if the employee continued to work for the competitor.

Most courts that have considered the “inevitable disclosure” doctrine have similarly ruled that a claim for misappropriation of trade secrets cannot be based on “inevitable disclosure”—there must be evidence that the employee actually disclosed trade secrets.  In the District of Massachusetts, though, an employer can get a preliminary injunction by showing: (1) that an employee breached a noncompetition agreement by working for a competitor; and (2) that the employer would be “irreparably harmed” if the employee continued to work for a competitor because the employee would “inevitably disclose” the employer’s trade secrets or confidential information to the competitor.  This case was different.

The key takeaway is that current case law in the District of Massachusetts does not support claims for misappropriation of trade secrets based on the “inevitable disclosure” doctrine.  A plaintiff employer needs to show that an employee breached a noncompetition agreement first and then that the employer would be harmed if the employee continues to work for the competitor because the employee knows trade secrets that he would “inevitably disclose” to the competitor.

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