NC Takes a Big Leap: “Opportunity to Misappropriate” Trade Secrets Enough for a PI

by Womble Carlyle Sandridge & Rice, LLP
Contact

NC Takes a Big LeapIn last month’s Horner v. McKoy decision, the North Carolina Court of Appeals appeared to lower the evidentiary threshold needed to obtain a preliminary injunction preventing the inevitable disclosure of trade secrets.  The Court equated an “opportunity to misappropriate” trade secrets with a “threat of misappropriation” under the North Carolina Trade Secrets Protection Act, without requiring the types of evidence other courts have often required before entry of an injunction.

The Case

Plaintiff Horner International Company manufactures and sells natural extracts and flavors, including cocoa, chocolate, coffee, tea, fenugreek, ginseng, and chamomile all over the world.  Horner produced flavors for a number of industries, but the largest industry it serviced was tobacco. 

Defendant Bill McKoy was a 24-year veteran in the flavor industry before he spent six years at Horner managing its North Carolina manufacturing plant.  While working for Horner, McKoy became physically ill, allegedly as a result of heavy exposure to some of the processes at the plant.  McKoy’s doctors recommended that he find a new job.  McKoy then left Horner to became the Facilities Manager for Teawolf, a New Jersey flavor producer in the food and beverage industry.

Horner brought suit seeking a preliminary injunction for McKoy’s alleged violation of his non-competition agreement and for a claim of misappropriation of Horner trade secrets based on an inevitable disclosure theory. 

The Decisions

The trial court found the non-compete agreement overly broad and unenforceable on its face, but granted the PI with respect to the trade secret claim.  Specifically, the trial court found that McKoy lawfully learned Horner trade secrets as a result of his former job and that his employment with Teawolf would provide him with the opportunity to misappropriate those trade secrets.  The Court of Appeals affirmed.

Both courts noted that under N.C. Gen. Stat. § 66-155, a misappropriation of a trade secret may be established by introducing substantial evidence that the person against whom relief is sought:

  • Knows or should have known of the trade secret; and
  • Had a specific opportunity to acquire the trade secret for disclosure or use, or acquired, disclosed, or used it without the express or implied consent or authority of the owner.

The courts then link the “opportunity to acquire” a trade secret in § 66-155 with a “threatened misappropriation” under § 66-154(a) (which allows courts to preliminarily enjoin actual or threatened misappropriation).  The subtle link creating an “opportunity to misappropriate” has a significant impact. 

In prior cases, to succeed on an inevitable disclosure theory, courts have set the bar higher by requiring some evidence of intentional conduct which had the appearance of an actual “threat.”  See our earlier post on the Business Court’s preliminary injunction decision in Allegis Group, Inc. v. Zachary Piper LLC where Judge Gale noted that proof of the likelihood of an inevitable disclosure must be “high,” and “ordinarily the mere fact that the employee works for a competitor will be inadequate” to meet that burden.   

In other instances, courts have pointed to specific actions which indicate the employee intended to disclose or use the information after s/he resigned.  For example, acts previously found sufficient to establish a “threat of misappropriation”  have included:

  • Before resigning, the employee made copies, downloaded or sent emails to himself containing customer, supplier, and pricing lists and precise production formulations (Barker Indus. v. Gould);
  • Employee downloaded trade secret information from employer’s servers to a one-terabyte flash drive retained by him after his resignation and then later destroyed evidence (Bridgetree v. Red F. Marketing);
  • After receiving notification of her termination, employee downloaded information on company contracts, billing rates, business development pipelines, and internal strategy documents (Marsteller v. ECS Federal); or
  • The employee quit and then immediately started his own company and underbid his former employer on jobs for customers he previously serviced (Byrd’s Lawn & Landscaping v. Smith).

In contrast, no such competent evidence in the record was presented — or relied upon — in Horner.  Although the findings of fact in the preliminary injunction note that in the months before his resignation, McKoy sent at least two emails to his personal address containing some Horner confidential and proprietary information, a footnote in the Court of Appeals decision notes that the parties dispute whether the emails were properly admitted, and consequently, the Court did not rely on the emails to support its opinion.  Without the emails, there does not appear to be any traditional evidence of an intent or threat to misappropriate any Horner trade secret.  And there was no evidence cited as to any actual disclosure or use of a trade secret. 

Takeaway from the Decision

Horner potentially changes the landscape in North Carolina trade secret cases:  Trial courts can now preliminarily enjoin former employees who lawfully acquired knowledge of trade secrets (during the normal course of their employment) from working for another company in the same industry, even if they did not sign an enforceable non-compete agreement, and even if no competent evidence has been presented that the former employee has used or intends to use the information.  The mere opportunity alone appears to be enough.  This is new ground in North Carolina.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Womble Carlyle Sandridge & Rice, LLP | Attorney Advertising

Written by:

Womble Carlyle Sandridge & Rice, LLP
Contact
more
less

Womble Carlyle Sandridge & Rice, LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.