The Inevitable Disclosure Doctrine in Delaware

Thumbnail image for topsecret_br69.jpgThe doctrine of inevitable disclosure protects confidential information and trade secrets in situations where a former employee will inevitably disclose or use the information in his or her new employment, even absent bad faith. The principle behind this doctrine is that an employee who has knowledge of his former employer’s trade secrets will inevitably disclose this information to his new employer resulting in an unfair business advantage. In asserting a claim under this doctrine, companies may seek to enjoin a former employee from working for a competitor, even if the employee had no existing covenant not to compete.

The inevitable disclosure doctrine has been applied on a number of occasions by the Delaware Court of Chancery. The applicability of the doctrine was first acknowledged in E.I. DuPont de Nemours & Co. v. American Potash & Chem. Corp., 200 A.2d 428 (Del. Ch. 1964). In E.I. DuPont, the Chancery Court considered whether a defendant could be enjoined from working on the development of a chloride process related to the manufacture of TiO2 pigments. In Chancellor Seitz’s words, “I have no doubt but that the court is entitled to consider, in judging whether an abuse of confidence is involved, the degree to which disclosure of plaintiff’s trade secrets is likely to result from the circumstances surrounding Hirsch’s employment by Potash. The defendants say that a finding of ‘inevitability’ would be no more than a ‘prophecy’ here. Nonetheless, in the context of determining whether a threat disclosure exists, it is but a finding as to the probable future consequences of a course of voluntary action undertaken by the defendants. Courts are frequently called upon to draw such conclusions based on a weighing of the probabilities, and while a conclusion that a certain result will probably follow may not ultimately be vindicated, courts are nonetheless entitled to decide or ‘predict’ the likely consequences arising from a given set of facts and to grant legal remedies on that basis. I am satisfied that the degree of probability of disclosure, whether amounting to an inevitability or not, is a relevant factor to be considered in determining whether a ‘threat’ of disclosure exists.”

Delaware courts have continued to apply the doctrine of inevitable disclosure in the intervening years. American Hoechst Corp. v. Nuodex, Inc., Civil Action No. 7950, 1985 Del. Ch. LEXIS 441 (Del. Ch. April 23, 1985); American Totalisator Co., Inc. v. Autotote, Ltd., Civil Action No. 7268, 1983 Del. Ch. LEXIS 401 (Del. Ch. Aug. 18, 1983), American Totalisator Sys., Inc. v. Automatic Totalisators (U.S.A.) Ltd., Civil action No. 5562, 1978 Del. Ch. LEXIS 529 (Del. Ch. April 20, 1978). For example, in American Hoeschst, the Court noted that injunctions are appropriate remedies where a former employee has taken a job with a competitor that will inevitably result in the former employee revealing the plaintiff’s trade secrets, regardless of whether the employee actually intends to “disclose or make use of the trade secrets.” In other words, there need not be a showing of bad faith or wrongdoing on the part of the former employee or of his/her new employer.

This point is made explicitly clear in the Automatic case. There, the Court issued a preliminary injunction preventing an employee with technical skills from working at a competitor. In this instance, the parties involved in the litigation agreed that the former employee would act in good faith and would not intentionally use or disclose trade secrets to his new employer. It didn’t matter. The Court agreed that a preliminary injunction was necessary because the former employee would inevitably rely on and use knowledge of the systems he had developed in his previous work as part of his employment with the defendant.

In Autotote, the Court of Chancery expanded upon the rationale for preventing an employee with certain knowledge from working for a competitor, noting that “without an injunction it would not be possible to separate the known information and the subtle nuances of that knowledge from what could be an objective attempt by [the former employee and/or the new employer] to do their jobs… without that information. In short, it is difficult to see how it would not be used.”

Most recently, in W.L. Gore & Assoc, Inc. v. Wu, Civil Action No. 263-N, 2006 Del. Ch. LEXIS 176 (Del. Ch. Sept. 15, 2006), the Chancery Court considered issues of inevitable disclosure in the context of a trades secret case. In Gore, the defendant objected to the length of a proposed injunction prohibiting him from working on any TFE containing polymers for a period of 5 years. In considering this argument, Vice Chancellor Parsons noted, as a general proposition, the court’s power to “limit a defendant from working in a particular field if his doing so poses a substantial risk of the inevitable disclosure of trade secrets.” Here, the former employee’s substantial knowledge of TFE-containing polymers was derived from his employment at Gore. Although Gore proved a great deal of misconduct by this particular employee, including the misappropriation of trade secrets, the Court concluded that “it would be very difficult, even assuming good faith, for him to not reveal Gore trade secrets if he were allowed to work with such polymers.”

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