Alex Harrell 2013-08-27 03:14:59
ON MAY 2, 2013, GOV. RICK PERRY SIGNED INTO LAW S.B. 953, A BILL ADOPTING A TEXAS VERSION OF THE UNIFORM TRADE SECRETS ACT (TUTSA).1 In many respects, TUTSA is a step in the right direction. Among other things, it aligns Texas with the 46 other states that have already adopted some incarnation of the Uniform Trade Secrets Act.2 But inasmuch as it represents an advancement in the law, TUTSA also leaves unanswered a pivotal question raised by its enactment: Does the inevitable disclosure doctrine now apply in Texas? If so, the result is a major departure from existing Texas law that will loom large in future cases.3 The inevitable disclosure doctrine is essentially a theory of relief that has been used by employers “as a vehicle for demonstrating that an injunction is necessary to prevent the misappropriation of trade secrets” by a former employee.4 Under the doctrine, “a former employer is entitled to enjoin even anticipated employment or other business activity that would result in inevitable disclosure in order to protect the former employer’s confidential and proprietary information from disclosure.”5 Thus, the doctrine enables an employer to prohibit a former employee from working for a competitor, even where the employee has not signed a non-compete agreement and there is no showing that he has acted other than in the utmost good faith.6 But “[i]n Texas, to resign from one’s employment and go into business in competition with one’s former employer is, under ordinary circumstances, a constitutional right.”7 If an employer wishes to restrain an employee from quitting to open a competing business or work for a competitor, the employer “may seek to accomplish that goal through a noncompetition agreement”8 that complies with the Covenants not to Compete Act (the “Act”).9 Proponents of the inevitable disclosure doctrine may therefore find it difficult to persuade Texas courts that the doctrine should be applied in TUTSA cases. THE INEVITABLE DISCLOSURE DOCTRINE Though the origins of the theory date back much further, 10 the leading case discussing the inevitable disclosure doctrine is PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995).11 The PepsiCo defendant, William Redmond, worked for PepsiCo’s North American division from 1984 to 1994, eventually becoming general manager of PepsiCo’s business unit covering the state of California. 12 His high-level position allowed Redmond access to inside information and trade secrets.13 Like other PepsiCo management employees, Redmond signed a confidentiality agreement, in which he agreed not to “disclose at any time, to anyone other than officers or employees of [PepsiCo], or make use of, confidential information relating to the business of [PepsiCo] ... .”14 In 1994, Quaker Oats Company began recruiting Redmond for its Gatorade division.15 After a few months of negotiations,16 Quaker offered Redmond a senior executive position with Gatorade, which Redmond accepted.17 Shortly thereafter, Redmond notified PepsiCo that he was resigning and accepting Quaker’s offer.18 PepsiCo quickly filed a lawsuit seeking “to enjoin Redmond from assuming his duties at Quaker and to prevent him from disclosing trade secrets or confidential information to [Quaker].”19 At the temporary injunction hearing, PepsiCo offered evidence of a number of trade secrets to which Redmond had been privy.20 PepsiCo argued that Redmond would “inevitably disclose [its trade secret] information to Quaker in his new position” and “could give Quaker an unfair advantage” over PepsiCo.21 The trial court issued an order enjoining Redmond from assuming his position at Quaker for six months and permanently restraining him from using or disclosing any PepsiCo trade secrets or confidential information.22 On appeal, the 7th Circuit affirmed noting that under the Illinois Trade Secrets Act (ITSA),23 a “court may enjoin the ‘actual or threatened misappropriation’ of a trade secret.”24 The court acknowledged the competing interests at stake in all trade secret litigation: “Trade secret law serves to protect ‘standards of commercial morality’ and ‘encourage[ ] invention and innovation’ while maintaining ‘the public interest in having free and open competition in the manufacture and sale of unpatented goods.’ ” 25 But “the same law should not prevent workers from pursuing their livelihoods when they leave their current positions.”26 The court also recognized that “[t]his tension is particularly exacerbated when a plaintiff sues to prevent not the actual misappropriation of trade secrets but the mere threat that it will occur.”27 In deciding where the line on “threatened misappropriation” should be drawn, the court analyzed two prior trade secrets cases.28 In the first case, Teradyne, Inc. v. Clear Commc’ns Corp., the court found that “ ‘ threatened misappropriation can be enjoined under Illinois law’ where there is a ‘high degree of probability of inevitable and immediate ... use of ... trade secrets.’ ” 29 In the other case, AMP Inc. v. Fleischhacker, the 7th Circuit “emphasized that the mere fact that a person assumed a similar position at a competitor does not, without more, make it ‘inevitable that he will use or disclose ... trade secret information’ so as to ‘demonstrate irreparable injury.’ ”30 The PepsiCo court read ITSA, Teradyne, and AMP as “lead[ing] to the same conclusion: 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.”31 The court observed that “PepsiCo presented substantial evidence at the preliminary injunction hearing that Redmond possessed extensive and intimate knowledge about” PepsiCo’s trade secrets.32 The court also emphasized that PepsiCo sought an injunction to keep its “particularized plans and processes”—not Redmond’s “general skills and knowledge”— from falling into Quaker’s hands.33 The danger, according to the court, was that Quaker, “unfairly armed” by Redmond with knowledge of PepsiCo’s plans, would be able to anticipate PepsiCo’s “distribution, packaging, pricing, and marketing moves.”34 The court upheld the preliminary injunction, finding that “the demonstrated inevitability that Redmond would rely on [PepsiCo] trade secrets in his new job at Quaker” coupled “with the district court’s reluctance to believe that Redmond would refrain from disclosing these secrets in his new position (or that Quaker would ensure Redmond did not disclose them)” supported the district court’s order.35 THE RUGEN “PROBABLE USE” DOCTRINE While no Texas court has endorsed the inevitable disclosure doctrine,36 in Rugen v. Interactive Business Systems, the Dallas Court of Appeals adopted a modified rule allowing for a temporary injunction restraining a defendant from using his former employer’s confidential information where: (1) the defendant is in possession of confidential information; and (2) it is probable that he will use the confidential information for his or his new employer’s benefit, or to the detriment of his former employer.37 Applying this test, the Rugen court upheld a temporary injunction restraining the defendant from “calling on, soliciting, or transacting business with” the plaintiff’s customers since he had been provided access to the plaintiff’s confidential customer information while still employed by the plaintiff.38 Although Texas appellate courts continue to apply the Rugen doctrine,39 there is substantial reason to question whether it is good law. The Rugen court reasoned that an injunction barring a defendant from “calling on, soliciting, or transacting business” with his former employer’s customers is “not analogous to [a] non-competition agreement, nor does it enjoin competition.”40 Since Rugen, however, courts have repeatedly found that non-solicitation agreements are tantamount to covenants not to compete and are therefore subject to the strictures of the Covenants not to Compete Act.41 Thus, the Rugen court’s ultimate conclusion was based largely on a premise that is inconsistent with more recent case law. Setting aside the question of whether the case was wrongly decided,42 it is important to note the limited reach of the Rugen doctrine. Under Rugen, a temporary injunction barring a defendant from actually using his former employer’s trade secrets is proper, provided that the plaintiff submits proof that the defendant actually possesses the trade secrets and it is probable that he will use them.43 But an order restraining a person from competing with his former employer or working for a competitor is outside the bounds of the injunction approved in Rugen.44 Regardless, trade secrets plaintiffs continue to cite Rugen when seeking injunctions that would restrain a former employee from competing or working for a competitor.45 Such efforts to transform Rugen into something more akin to the inevitable disclosure doctrine have thus far been unsuccessful.46 Indeed, the Dallas Court of Appeals, post-Rugen, dissolved a temporary injunction in a trade secrets case because it did “not focus on protecting any specific information” but rather “barr[ed] appellants from trying to develop or pursue any acquisitions or other opportunities, rather than only those opportunities appellants learned about through confidential information while employed at [their former employer].”47 The court concluded that the injunction was therefore overly broad and “essentially created a non-compete restriction.”48 THE INEVITABLE DISCLOSURE DOCTRINE VS. THE COVENANTS NOT TO COMPETE ACT Like the Illinois statute examined in PepsiCo, injunctive relief is available under TUTSA for “actual or threatened” misappropriation.49 And while the case law is by no means uniform,50 courts in other states have applied the inevitable disclosure doctrine, at least in part, because the applicable version of the Uniform Trade Secrets Act permits an injunction to prevent “threatened” misappropriation. 51 A reasonable argument could thus be made that the Texas Legislature intended to adopt the inevitable disclosure doctrine by including “threatened misappropriation” as a basis for injunctive relief under TUTSA. Because the statute leaves the question unanswered, it will be up to the courts to discern the Legislature’s intent.52 In deciding whether the inevitable disclosure doctrine applies in TUTSA cases, courts will undoubtedly consider the strong public policy in this state that “[e]very contract, combination, or conspiracy in restraint of trade or commerce is unlawful.”53 This policy protects every Texan’s “right to earn a living ...[,]” a right which the Texas Supreme Court recognized long ago is “a property right within the meaning of our Constitution ... .”54 It also “promote[s] economic competition in trade and commerce ...” and “provide[s] the benefits of that competition to consumers in the state.”55 Texas’s public policy disfavoring restraints on trade, however, is not absolute. The Covenants not to Compete Act carves out an exception to the general rule. But the Act “is just that—an exception— with the rule favoring robust competition.”56 The inevitable disclosure doctrine, if adopted, would establish a second exception allowing an individual to be restrained from practicing his chosen trade if doing so would unavoidably compromise his former employer’s trade secrets. For two decades, Texas courts have wrangled over the requirements a non-compete agreement must meet to be enforceable under the Act.57 There has been substantial disagreement even within the Texas Supreme Court regarding the appropriate standards to apply in non-compete cases.58 It is well-established, however, that a covenant not to compete is enforceable under the Act only if it is supported by adequate consideration; an employer may not “spring a non-compete covenant on an existing employee and enforce such a covenant absent new consideration ... .”59 Opponents of the inevitable disclosure doctrine will likely contend that the doctrine undermines the Act in that it enables an employer to spring a covenant not to compete on an employee after the employment relationship is terminated and without having to provide the employee any new consideration. If the inevitable disclosure doctrine is to be applied in TUTSA cases, another important question should also be considered: Is an injunction that restrains competition based on a trade secrets theory—rather than on the existence of a covenant not to compete—subject to any of the constraints in the Act? The Act provides that all covenants must “contain[ ] limitations as to time, geo- graphical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the [employer].”60 The prevailing view among the courts is that restrictive covenants in a non-compete agreement are “reasonable” where they “bear[ ] some relation to the activities of the employee.”61 A court applying the inevitable disclosure doctrine could ostensibly enjoin a defendant, for example, from working for a competitor in a geographic region where the defendant has never worked.62 This sort of restriction, if included in a non-compete agreement, would almost certainly be held unenforceable under the Act.63 Defendants will no doubt assert that the Legislature could not have intended to enact a new law that enables circumvention of an existing one. Trade secrets plaintiffs, however, could respond that this seeming inconsistency is easily resolved simply by applying inevitable disclosure but incorporating in the injunction reasonable limitations as to the time, geographical area, and scope of activities to be restrained. The inevitable disclosure debate also implicates another fundamental public policy long recognized by the Texas Supreme Court: the freedom of contract.64 “ ‘ As a rule, parties have the right to contract as they see fit as long as their agreement does not violate the law or public policy.’ ” 65 Generally speaking, Texas courts do “ ‘not lightly interfere with this freedom of contract.’ ” 66 Where an employer and employee have negotiated a simple agreement contemplating that the employee will provide personal services in exchange for compensation, Texas courts may be loath to enter an injunction that effectively adds a covenant not to compete that was never even a part of the parties’ negotiations. The inevitable disclosure doctrine was rejected in California principally for these same reasons.67 California has enacted its own version of the Uniform Trade Secrets Act68 that likewise allows for injunctive relief where “threatened misappropriation” is shown.69 But California has declined to apply the inevitable disclosure doctrine because, according to the California courts, it results in an impermissible ex post facto non-compete agreement: The chief ill in the covenant not to compete imposed by the inevitable disclosure doctrine is its after-the-fact nature: The covenant is imposed after the employment contract is made and therefore alters the employment relationship without the employee’s consent. When ... a confidentiality agreement is in place, the inevitable disclosure doctrine in effect converts the confidentiality agreement into such a covenant not to compete. ... [A] court should not allow a plaintiff to use inevitable disclosure as an after-the-fact noncompete agreement to enjoin an employee from working for the employer of his or her choice. ... As a result of the inevitable disclosure doctrine, the employer obtains the benefit of a contractual provision it did not pay for, while the employee is bound by a court-imposed contract provision with no opportunity to negotiate terms or consideration.70 In California, “threatened” misappropriation cannot be inferred from the fact that an employee began working for a direct competitor of his employer immediately after terminating his employment, even where it appears the employee will perform duties for the competitor that are the same or similar to his job duties to his former employer.71 Neither can an individual be enjoined from competing with his former employer simply because he had access to and acquired his former employer’s trade secret information.72 Rather, a plaintiff may only obtain an injunction against a former employee by submitting “evidence beyond its former employee’s knowledge of trade secrets and subsequent change of employers.”73 To prove “threatened” misappropriation, a California plaintiff must show “a threat by a defendant to misuse trade secrets, manifested by words or conduct, where the evidence indicates imminent use.”74 Only after the plaintiff has shown that its former employee “violate[d] the tradesecrets law in a nontrivial way” may it obtain an injunction restraining the employee from competition.75 There are significant distinctions, however, between the laws and public policies of Texas and California, and therefore the California approach may not be transferable. Most notably, California views covenants not to compete with a gimlet eye.76 Whereas in Texas “[t]he hallmark of enforcement is whether or not the covenant is reasonable[,]” 77 California law “generally prohibits covenants not to compete, and California public policy strongly favors employee mobility.”78 California courts have determined that non-compete agreements are enforceable in limited circumstances “if necessary to protect the employer’s trade secrets”79 but it is evident that California has struck a balance between the interests of employers and employees that is not entirely congruent with Texas public policy. Thus, California’s rejection of inevitable disclosure may not inform the analysis of Texas courts. CONCLUSION Ultimately, each state must find its own answer on inevitable disclosure that is consistent with its laws and prevailing public policies. To that end, Texas courts have so far not been warm to the inevitable disclosure doctrine. But the enactment of TUTSA, with its allowance for injunctive relief in the face of “threatened misappropriation,” breathes new life into the inevitable disclosure debate and may portend a shift in judicial thinking. Trade secrets plaintiffs can—and no doubt will—argue that by enacting TUTSA, the Legislature signaled its recognition that “there are times when an employment contract is not a feasible alternative with regard to the protection of intellectual capital of a trading enterprise.”80 In such instances, shouldn’t “an employer ... have judicial recourse to enjoin the potential theft of its intellectual property”?81 Regardless, inevitable disclosure adherents may still encounter resistance from Texas courts. The Covenants not to Compete Act already provides employers with a means for protecting against the possibility that an employee with access to trade secret information might later use that information to compete in the market.82 And opponents of inevitable disclosure have ample basis for arguing that the doctrine is antithetical not only to the Act but also to long-standing public policies in this state favoring robust competition and freedom of contract. In the end, the Legislature’s decision to leave this issue open will likely lead to more litigation until the courts reach a consensus and either expressly adopt or reject the inevitable disclosure doctrine in TUTSA cases. And so, for the time being, the only thing that seems “inevitable” is uncertainty. NOTES 1. See http://www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=83R&Bill=SB953 (legislative history of S.B. 953). 2. Joseph F. Cleveland Jr. and J. Heath Coffman, Should Texas Adopt the Uniform Trade Secrets Act?, State Bar of Texas Litigation Section: News for the Bar, p. 17 (Spring 2013). 3. TUTSA will apply only to claims alleging that a trade secret was misappropriated on or after the effective date of the bill, or Sept. 1, 2013. S.B. 953 at § 3. Prior Texas law on trade secret misappropriation will continue to control claims relating to any alleged misappropriation occurring before Sept. 1, 2013, and to any acts of continuing misappropriation that began prior to Sept. 1, 2013. Id. 4. Interbake Foods, L.L.C. v. Tomasiello, 461 F.Supp.2d 943, 970 (N.D. Iowa 2006). 5. Orthovita, Inc. v Erbe, 2008 U.S. Dist. LEXIS 11088, *29 (E.D. Penn. 2008) (emphasis original) (citations omitted). 6. See, e.g., Moore v. Comm. Aircraft Interiors, LLC, 278 P.3d 197, 202 (Wash Ct. App. 2012) (noting that the inevitable disclosure doctrine is applicable without regard to whether there is any evidence of affirmative misconduct by the employee); LeJeune v. Coin Acceptors, Inc., 849 A.2d 451, 468 (Md. 2004) (observing that the inevitable disclosure doctrine is “based on the original employer’s claim that a former employee who is permitted to work for a competitor will—even if acting in the utmost good faith—inevitably be required to use or disclose the former employer’s trade secrets in order to perform the new job”). 7. Abetter Trucking Co., Inc. v. Arizpe, 113 S.W.3d 503, 510 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (citing Ledel v. Bill Hames Shows, Inc., 367 S.W.2d 182, 184 (Tex. Civ. App.—Fort Worth 1963, no writ)). 8. Id. 9. Tex. Bus. & Com. Code §§ 15.50-.52. 10. See Eastman Kodak Co. v. Powers Film Prods., Inc., 179 N.Y.S. 325, 330 (N.Y. App. Div. 1919) (noting that a former employee’s rendition of services along the special lines of training provided by his former employer would almost necessarily impart the former employer’s trade secrets). 11. See LeJeune, 849 A.2d at 469 (observing that PepsiCo is “the most notable case involving ‘inevitable disclosure’”); Whyte v. Schlage Lock Co., 125 Cal. Rptr. 2d 277, 290 (Cal. Ct. App. 2002) (describing PepsiCo as “the leading case on inevitable disclosure”); Del Monte Fresh Produce Co. v. Dole Food Co., 148 F.Supp.2d 1326, 1336 (S.D. Fla. 2001) (noting that PepsiCo is “the principal case on inevitable disclosure”); Ryan M. Wiesner, A State-by-State Analysis of Inevitable Disclosure: A Need for Uniformity and a Workable Standards, 16 Marq. Intell. Prop. L. Rev. 211, 216 (2012) (“The Seventh Circuit’s decision in PepsiCo, Inc. v. Redmond is considered the prominent case discussing inevitable disclosure after adoption of the UTSA.”). 12. PepsiCo, 54 F.3d at 1264. 13. Id. 14. Id. 15. Id. The Quaker Oats executive leading the charge to obtain Redmond’s services was also a former PepsiCo employee. Id. 16. Redmond kept these negotiations secret from PepsiCo. Id. 17. Id. On the same day Redmond accepted the Quaker offer, he falsely represented to PepsiCo that he had received an offer from Quaker but had not yet accepted. Id. Redmond also misrepresented his situation to at least two other PepsiCo executives. Id. 18. Id. 19. Id. at 1265. The court granted the TRO “but dissolved the order sua sponte two days later, after determining that PepsiCo had failed to meet its burden of establishing that it would suffer irreparable harm” and finding that “the likelihood that Redmond would improperly reveal any confidential information did not ‘rise above mere speculation.’” Id. 20. Id. at 1265-66. These trade secrets included PepsiCo’s strategic plan, its annual operating plan, and certain trade secrets regarding innovations in its selling and delivery systems. Id. 21. Id. at 1266. 22. Id. at 1267. “The court, which completely adopted PepsiCo’s position, found that Redmond’s new job posed a clear threat of misappropriation of trade secrets and confidential information that could be enjoined under Illinois statutory and common law.” Id. 23. ITSA, adopted in 1988, represents Illinois’s adaptation of the Uniform Trade Secrets Act. 765 ILCS 1065/1, et seq.; United States Gypsum Co. v. LaFarge N. Am., Inc., 508 F.Supp.2d 601, 623 (N.D. Ill. 2007) (noting that there is “substantial variance” between ITSA and UTSA but acknowledging that ITSA is “patterned after” UTSA). 24. PepsiCo, 54 F.3d at 1267 (citing, inter alia, 765 ILCS 1065/3(a)). 25. Id. at 1268 (quoting 2 Melvin F. Jager, Trade Secrets Law § IL.01 IL-, IL-12 (Clark Boardman Callaghan, rev. ed. 1994)). 26. Id. (citation omitted). 27. Id. 28. Id. (citing Teradyne, Inc. v. Clear Commc’ns Corp., 707 F.Supp. 353 (N.D. Ill. 1989) and AMP Inc. v. Fleischhacker, 823 F.2d 1199 (7th Cir. 1987)). 29. Teradyne, 707 F.Supp. at 356. The Teradyne court determined, however, that “the defendants’ claimed acts, working for [plaintiff], knowing its business, leaving its business, hiring employees from [plaintiff] and entering the same field (though in a market not yet serviced by [plaintiff]) do not state a claim of threatened misappropriation.” Id. at 357. Rather, the plaintiff had merely alleged “that defendants could misuse plaintiff’s trade secrets, and plaintiff[ ] fear[s] they will.” The court held that “[t]his is not enough” to support injunctive relief; “[i]t may be that little more is needed, but falling a little short is still falling short.” Id. 30. PepsiCo, 54 F.3d at 1269 (quoting AMP, 823 F.2d at 827). 31. Id. (citing 1 Jager, Trade Secrets Law at § 7.02[a] at 7-20 (noting claims where “the allegation is based on the fact that the disclosure of trade secrets in the new employment is inevitable, whether or not the former employee acts consciously or unconsciously)). 32. Id. Based on that evidence, the district court had concluded “that unless Redmond possessed an uncanny ability to compartmentalize information, he would necessarily be making decisions about Gatorade and Snapple by relying on his knowledge of [PepsiCo] trade secrets. Id. 33. Id. (quotation omitted). 34. Id. at 1270. The court explained its view of the facts with a sports analogy: “PepsiCo finds itself in the position of a coach, one of whose players has left, playbook in hand, to join the opposing team before the big game.” Id. 35. Id. at 1271. 36. Cardinal Health Staffing Network v. Bowen, 106 S.W.3d 230, 241 (Tex. App.— Houston [1st Dist.] 2003, no pet.) (“We have found no Texas case expressly adopting the inevitable disclosure doctrine, and it is unclear to what extent Texas courts might adopt it or view it as relieving an injunction applicant of showing irreparable injury.”). 37. 864 S.W.2d 548, 552 (Tex. App.—Dallas 1993, no writ); see also Conley v. DSC Commc’ns Corp., 1999 Tex. App. LEXIS 1321, *10-11 (Tex. App.—Dallas 1999, no pet.). 38. Rugen, 864 S.W.2d at 552. 39. See, e.g., Mabrey v. Sandstream, Inc., 124 S.W.3d 302, 319 n. 44 (Tex. App.—Fort Worth 2003, no pet.); Sweet v. Inkjet Int’l, 2003 Tex. App. LEXIS 8539, *4-5 (Tex. App.—Dallas 2003, no pet.). 40. Rugen, 864 S.W.2d at 550. 41. See, e.g., Shoreline Gas, Inc. v. McGaughey, 2008 Tex. App. LEXIS 2760, *29 (Tex. App.—Corpus Christi 2008, no pet.) (“[N]on-solicitation agreements are subject to the same analysis as covenants not to compete. ... A non-solicitation agreement is sufficiently analogous to a covenant not to compete such that the provisions of the Act must apply fully to such agreements.”) (citations omitted); Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 599-600 (Tex. App.—Amarillo 1995, no pet.) (“Both [nonsolicitation covenants and noncompetition covenants] prevent the employee from soliciting customers or business enjoyed by the employer. Both contain geographic and durational parameters. Both effectively restrict competition. Moreover, both allegedly serve to protect goodwill.”); Guy Carpenter & Co., Inc. v. Provenzale, 334 F.3d 459, 465 (5th Cir. 2003) (noting that “non-solicitation covenants restrain trade and competition” and are governed by the Act); Rimkus Consulting Gp., Inc. v. Cammarata, 255 F.R.D. 417, 438-39 (S.D. Tex. 2008) (“To the extent that the nonsolicitation provisions constitute a separate covenant, such a nonsolicitation covenant is also a restraint on trade and competition and must meet the criteria of [the Act] to be enforceable.”). 42. See Bowen, 106 S.W.3d at 241 (declining to adopt the Rugen doctrine) (dictum). 43. 864 S.W.2d at 552; but see Variable Annuity Life Ins. Co. v. Miller, 2001 Tex. App. LEXIS 8340, *14-17 (Tex. App.—Amarillo 2001, no pet.) (noting that the Rugen court did not specifically address whether its “possession” requirement included information retained only in a defendant’s memory and upholding a temporary injunction restraining the defendant only from using or disclosing “written information, information downloaded from computers, or computer software, but not information retained by [the defendant] or which was generally available to the general public or competitors of [the plaintiff]”). 44. Rugen, 864 S.W.2d at 551 (finding that “[t]he temporary injunction does not prevent Rugen from competing with IBS” or “organizing a competing firm and developing her own clients and consultants”). 45. See, e.g., Reliant Hosp. Partners, LLC v. Cornerstone Healthcare Gp. Holdings, Inc., 374 S.W.3d 488, 502 (Tex. App.—Dallas 2012, pet. filed) (noting plaintiff’s reliance on Rugen in seeking to uphold an injunction barring defendants, plaintiff’s former employees, from, among other things, “engaging in, or attempting to engage in, the development, acquisition, merger, partnership, or joint or shared service with any post-acute care facility, information about which was presented or disclosed to Defendants ... while employed” with plaintiff). 46. Id. at 502-03 (concluding that “[i]n a case involving trade secrets or confidential information, the injunction must be narrowly tailored to address the improper use of confidential or proprietary information” and must not be framed so broadly as to prohibit the enjoyment of lawful rights”); T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 25-26 (Tex. App.—Houston [1st Dist.] 1998, pet. dism’d) (finding the trial court’s injunction overly broad and modifying it to prohibit the defendants only from “directly or indirectly disclosing ... any Hennessey Trade Secret information” and from “working on … and/or providing any types of services using Hennessey Trade Secret information”). 47. Reliant, 374 S.W.3d at 502. 48. Id. at 502-03. 49. S.B. 953 at § 1 (language of Tex. Civ. Prac. & Rem. Code § 134A.003(a)) (emphasis added). S.B. 953 does not define “threatened misappropriation.” See generally id. 50. See Wiesner, supra, 16 Marq. Intell. Prop. L. Rev. at 217 (noting that the states’ applications of the inevitable disclosure doctrine have been inconsistent). 51. See, e.g., Interbake Foods, 461 F.Supp. 2d at 973 (applying the Iowa Uniform Trade Secrets Act and finding that “the inevitable disclosure doctrine is just one way of showing a threatened disclosure in cases where additional evidence showing the existence of a substantial threat of impending injury is unavailable to the movant.”); Nucor Corp. v. Bell, 2008 U.S. Dist. LEXIS 119952, *55-56 (D.S.C. 2008) (predicting that “the South Carolina Supreme Court would recognize the inevitable disclosure doctrine” and noting that the South Carolina Uniform Trade Secrets Act “allows injunctions in cases presenting threatened misappropriation of trade secrets”); United Prods. Corp. of Am. v. Cederstrom, 2006 Minn. App. Unpub. 594, *14 (Minn. Ct. App. 2006) (recognizing that “[a]ctual or threatened misappropriation may be enjoined” under the Minnesota Uniform Trade Secrets Act but noting that “the moving party must demonstrate a high degree of probability of inevitable disclosure”) (quotations omitted); but see Del Monte, 148 F.Supp.2d at 1335 (“Courts that have adopted inevitable disclosure apply traditional trade secret misappropriation principles to situations where there has been no actual or threatened misappropriation.”). 52. Steak & Ale of Tex., Inc. v. Borneman, 62 S.W.3d 898, 905 (Tex. App.—Fort Worth 2001, no pet.) (“In construing a statute, [the court’s] primary purpose is to discover and give effect to the legislature’s intent in enacting it.”). This will no doubt be a difficult task since there is nothing in the legislative history of S.B. 953 suggesting that the Legislature even considered the issue. See Cleveland and Coffman, supra, Texas State Bar Litigation Section: News for the Bar, pp. 19-20 (noting that “[t]he proposed legislation does not address the inevitable disclosure doctrine” and would instead “allow the courts to develop this area of the law on a case-by-case basis”). 53. Tex. Bus. & Com. Code § 15.05(a); see Marsh USA, Inc. v. Cook, 354 S.W.3d 764, 782 (Tex. 2011) (Willett, J., concurring in the judgment only) (noting that Tex. Bus. & Com. Code § 15.05(a) “declares the public policy of Texas”). 54. Smith v. Decker, 312 S.W.2d 632, 633 (Tex. 1958) (citing Slaughter-House Cases, 83 U.S. (16 Wall) 36, 21 L.Ed. 394 (1873)). 55. Tex. Bus. & Com. Code § 15.04; see Marsh USA, 354 S.W.3d at 769 (noting that “[u]nreasonable limitations on employees’ abilities to change employers or solicit clients or former co-employees, i.e., compete against their former employers, could hinder legitimate competition between businesses and the mobility of skilled employees”). 56. Marsh USA, 354 S.W.3d at 782 (Tex. 2011) (Willett, J., concurring in the judgment only). 57. See id. at 768-80; Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848-52 (Tex. 2009); Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 648-57 (Tex. 2006); Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642, 643-48 (Tex. 1994). 58. See Marsh USA, 354 S.W.3d 780-95 (Willett, J., concurring in the judgment only, and Green, J., joined by Jefferson, C.J., and Lehrmann, J., dissenting). 59. Sheshunoff, 209 S.W.3d at 651; see also Powerhouse Productions, Inc. v. Scott, 260 S.W.3d 693, 696-97 (Tex. App.—Dallas 2008, no pet.). 60. Tex. Bus. & Com. Code § 15.50(a). 61. Wright v. Sport Supply Gp., 137 S.W.3d 289, 298 (Tex. App.—Beaumont 2004, no pet.); see also Garcia v. Oilfield Mud & Chem. Servs., Inc., 2012 Tex. App. LEXIS 9465, *8-9 (Tex. App.—Eastland 2012, no pet.) (“Although the injunction is limited to the performance of work involving products and services substantially similar to those provided by [plaintiff], it is not limited to customers with whom [defendant] had dealt while he was employed at [plaintiff]. In that respect, the injunction is overbroad and constitutes an unreasonable restraint of trade.”); Cobb v. Caye Publishing Gp., Inc., 322 S.W.3d 780, 783 (Tex. App—Fort Worth 2010, no pet.) (“A covenant not to compete with a broad geographical scope is unenforceable, particularly when no evidence establishes that the employee actually worked in all areas covered by the covenant.”); APRM, Inc. v. Hartnett, 2002 Tex. App. LEXIS 4779, *13 (Tex. App.—Houston [1st Dist.] 2002, no pet.) (not designated for publication) (restraint that was “not limited to the capacity in which [the employee] worked for [the employer]” held overbroad and unreasonable); Butler v. Arrow Mirror & Glass, Inc., 51 S.W.3d 787, 793 (Tex. App.—Houston [1st Dist.] 2001, no pet.) (holding that “[t]he breadth of enforcement of territorial restraints in covenants not to compete depends upon the nature and extent of the employer’s business and the degree of the employee’s involvement” but also noting that “[g]enerally, a reasonable area ... is considered to be the territory in which the employee worked while in the employment of his employer”); CDx Holdings, Inc. v. Heddon, 2012 U.S. Dist. LEXIS 86041, *29 (N.D. Tex. 2012). 62. See Whyte, 125 Cal. Rptr. 2d at 1458 (“The inevitable disclosure doctrine results in an injunction prohibiting employment, not just use of trade secrets.”). 63. Cobb, 322 S.W.3d at 784; Butler, 51 S.W.3d at 793. 64. Marsh USA, 354 S.W.3d at 768; Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 664 (Tex. 2008) (“This Court has long recognized Texas’ strong public policy in favor of preserving the freedom of contract.”) (citing TEX. CONST. art. I, § 16). 65. Fairfield, 246 S.W.3d at 664 (quoting In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129 & n. 11 (Tex. 2004)). 66. Id. (quoting Wood Motor Co. v. Nebel, 238 S.W.2d 181, 185 (Tex. 1951)). 67. Whyte, 125 Cal. Rptr. 2d at 293. 68. Cal. Civ. Code §§ 3426.-.11. 69. Id. at § 3426.2(a). 70. Whyte, 125 Cal. Rptr. 2d at 293 (internal citations, quotations, and brackets omitted). 71. Les Concierges, Inc. v. Robeson, 2009 U.S. Dist. LEXIS 39414, *4 (N.D. Cal. 2009). 72. Pellerin v. Honeywell Int’l, Inc., 877 F.Supp.2d 983, 989 (S.D. Cal. 2012). 73. Les Concierges, 2009 U.S. Dist. LEXIS 39414, *5. 74. FLIR Sys., Inc. v. Parrish, 95 Cal. Rptr. 3d 307, 316 (Cal Ct. App. 2009) (citing Cen. Valley Hosp. v. Smith, 75 Cal Rptr. 3d 771, 791 (Cal. Ct. App. 2008) (noting that a claim for threatened misappropriation may be established by showing that the defendant remains in possession of the plaintiff’s trade secrets and has actually misused or disclosed some of those trade secrets in the past)); Bayer Corp. v. Roche Molecular Sys., 72 F.Supp.2d 1111, 1120 (N.D. Cal. 1999) (“A trade secrets plaintiff must show an actual use or an actual threat.”). 75. Bayer, 72 F.Supp.2d at 1120. 76. See Marsh USA, 354 S.W.3d at 781 (noting that some “jurisdictions (most notably, California) champion freedom of competition and void virtually all noncompetes ....”). 77. Id. at 777. 78. Whyte, 125 Cal. Rptr. 2d at 292 (citing, inter alia, Cal. Bus. & Prof. Code § 16600). 79. Id. at 293 (quotation omitted). 80. Troy A. Martin, The Evolution of Trade Secret Law in Texas: Is it Time to Recognize the Doctrine of Inevitable Disclosure?, 42 S. Tex. L. Rev. 1361, 1387 (Fall 2001). 81. Id. 82. See Marsh USA, 754 S.W.3d at 770 (“The Legislature ... crafted the Act to prohibit naked restrictions on employee mobility that impede competition while allowing employers and employees to agree to reasonable restrictions on mobility that are ancillary to or part of a valid contract having a primary purpose that is unrelated to restraining competition between the parties”); Nacogdoches Heart Clinic, P.A. v. Pokala, 2013 Tex. App. LEXIS 1066, *13 (Tex. App.—Tyler 2013, pet. filed) (same). ALEX HARRELL practices in the commercial litigation section of Brackett & Ellis, P.C., in Fort Worth. He regularly advises clients on issues relating to covenants not to compete and represents plaintiffs and defendants in non-compete and trade secrets cases.
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