The Nooks and Crannies of Inevitable DisclosureBy http://profile.typepad.com/alchu // June 15, 2010 in Guest Posts, NDAs & Trade Secrets
These are indeed interesting times in which we live when the relatively obscure “doctrine of inevitable disclosure” makes its way into the mainstream media. You may or may not have caught the article on MSNBC.com entitled “Guarding ‘nooks and crannies,’” but this is a classic case for the “doctrine of inevitable disclosure." This also seems to be perfect timing as Jeremy and I had alluded to this topic in our comments to Bill’s post “Noncompete = Presumption There Will Be a Trade Secret Breach." This post will be part one of a series as this is a relatively pointy-headed legal topic which also takes us into a discussion of the “residuals” mentioned in Bill’s post, “NDAs with a “Residuals” Clause.”
As we’ve been discussing in our last series of posts (which Bill has summarized here), trade secrets are valuable because they convey some sort of competitive advantage and they’re not generally known or easy to figure out by others who could use them for economic gain. However, not all information is protectable as a trade secret. As we’ve discussed, general knowledge, skill and experience cannot normally be protected as a trade secret. This goes to the age old balance that the courts must strike between a former employer’s right to maintain their competitive advantage and the former employee’s right to ply his or her trade in order to earn a living. However, as I alluded to in my comments to Bill’s “Noncompete” post, at some point of specificity/specialization, knowledge and know-how will cross the line and become protectable as trade secrets. That specialized knowledge is exactly the source of the dispute in Bimbo Bakeries USA v. Botticella, which was recently before the 3d Circuit Court of Appeals.
Pardon the pun, but there’s a lot of ‘dough’ to be made in the baking industry. Bimbo Bakeries owns the Thomas’ brand of English muffins. The secret to Thomas’ success has been the “nooks and crannies” in their muffins – a secret that they’ve been able to keep for the last 75 years. According to Bimbo, only seven executives know all three parts of the secret formula/process for making these English muffins. Bimbo’s ability to keep their secret a secret has amounted to $500 million in annual sales over the years. Thus, as you can imagine, this is a secret a competitor would love to get its hands on.
Botticella was one of the seven holders of the Thomas’ secret. In the fall of 2009, Botticella accepted a position with Hostess, a Bimbo competitor. However, according to Bimbo, Botticella did not disclose that he had accepted the position (a point which Botticella disputes). Botticella stayed through January of 2010 so that he could collect his 2009 bonus. In the interim, he continued to participate in high-level strategy meetings. Bimbo also claims that Botticella copied a number of files from his computer to a thumb-drive before leaving the company. Upon learning that Botticella was going to work for its competitor Hostess, Bimbo filed suit to stop him from working for Hostess where he would “inevitably” disclose the secret to Thomas’ English muffins.
Now let’s step back just a bit and talk about humans. The funny thing about humans is that we get smarter through experience. Think about it – do you know how to ride a bike? Do you think you could forget how to ride a bike (short of falling off the bike while not wearing a helmet and hitting your head on the pavement)? Unless you have some sort of brain defect or damage/trauma, it’s generally hard to unlearn something once you’ve learned it. Now, if you are presented with a bike different from your own, will you know what to do with it? How about a tricycle? That’s the other funny thing about humans – we’re able draw upon our past experiences and apply them to different situations. Now apply that to trade secrets – if you learn a secret, do you think you could forget?
The fact that humans get smarter, and can apply those smarts, goes to the heart of the claim of inevitable disclosure. In these sorts of cases, the former employer’s argument is that a former employee is so familiar with the former employer’s secrets, that it is inevitable that he or she will use or disclose those secrets in their next job. This brings us to the end of part 1.