Does the Inevitable Disclosure Doctrine Apply Under the DTSA? It Depends on the State.

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The Defend Trade Secrets Act (“DTSA”) went into effect in May 2016. Since then, federal courts have largely adhered to existing law in their respective states to determine whether the inevitable disclosure doctrine applies to DTSA claims. This article provides a sampling of existing opinions that have either permitted or rejected the inevitable disclosure doctrine under DTSA claims, broken down by state.[1] 
 

California. In December 2017, the Northern District of California[2] struck DTSA allegations in a complaint that relied on the inevitable disclosure doctrine because California courts have “resoundingly rejected claims based on the ‘inevitable disclosure’ theory.” And, in December 2018, the Southern District of California[3] dismissed a DTSA claim for failure to allege facts supporting a plausible inference of misappropriation, noting that such a claim cannot rely on the inevitable disclosure doctrine.

Illinois. Illinois federal courts, on the other hand, have permitted inevitable disclosure claims under the DTSA even though the Seventh Circuit has not yet expressly allowed for such claims under the DTSA.[4] For example, in June 2019, the Northern District of Illinois[5] rejected a defendants’ argument that the DTSA does not recognize the inevitable disclosure doctrine, holding that “a DTSA claim based on inevitable disclosure may survive a motion to dismiss.” Moreover, because this was a motion to dismiss, the court declined to consider the defendants’ argument that entering an injunction based on the inevitable disclosure doctrine would violate California and/or New York law. Likewise, in August 2019, after finding that a California choice of law provision in a confidentiality agreement did not apply, the Northern District of Illinois evaluated a plaintiff’s DTSA and Illinois Trade Secrets Act claims together, given that the “pertinent definitions of the two acts overlap,” and performed an inevitable disclosure analysis using the standard factors: (1) the level of competition between the former employer and the new employer, (2) whether the employee’s position with the new employer is comparable to the position he held with the former employer, and (3) the actions the new employer has taken to prevent use or disclosure of the trade secrets. It ultimately found that there was a threat of inevitable disclosure of the plaintiff’s trade secrets and granted a preliminary injunction.

Pennsylvania. In December 2018 and June 2019, the Eastern[6] and Western Districts[7] of Pennsylvania interpreted a June 2017 unpublished Third Circuit opinion[8] to mean that the inevitable disclosure doctrine applies both under the Pennsylvania Uniform Trade Secrets Act (“PUTSA”) and the DTSA. The Eastern District denied a motion to dismiss, reasoning that the defendant’s access to the plaintiff’s confidential information and subsequent work for a direct competitor, without any assurances that trade secrets would be protected, was sufficient to state a claim under the PUTSA and DTSA. The Western District, however, dismissed the PUTSA and DTSA claims without prejudice for failure to allege facts that the employee has or will misappropriate trade secrets.

Minnesota. In November 2018, the District of Minnesota[9] explained that the Minnesota Uniform Trade Secrets Act (“MUTSA”) and DTSA require the same showing under the inevitable disclosure doctrine but acknowledged that the Eighth Circuit has not expressly accepted or rejected the doctrine. The court ultimately declined to rule on whether the doctrine applied under the MUTSA or DTSA because it found that the plaintiff failed to make a showing of inevitable disclosure sufficient to support a preliminary injunction.

District courts will likely continue to address inevitable disclosure claims under the DTSA the same way they have addressed such claims under state law in the past. This approach appears consistent with the purpose of the DTSA, which is to provide federal jurisdiction for the theft of trade secrets, and not to “preempt or displace any other remedies.”[10]

Nevertheless, before bringing state law and DTSA claims predicated on the inevitable disclosure doctrine, plaintiffs should consider whether a DTSA claim really adds anything to their case. If state law already provides an adequate remedy, a DTSA claim may unnecessarily expose plaintiffs to an argument that the inevitable disclosure doctrine does not apply due to DTSA decisions barring the doctrine in federal courts. Adding a DTSA claim may also present an amplified hurdle to obtaining employment-restricting injunctions because the DTSA prohibits placing conditions on employment unless such conditions are based on “evidence of threatened misappropriation and not merely on the information the person knows.”


 

[1] The states included in this article are the states in which federal courts have thus far grappled with the inevitable disclosure doctrine under the DTSA. The small number of states is likely due to the fact that the DTSA is a relatively new statute.

[2] UCAR Tech. (USA) Inc. v. Yan Li, No. 5:17-CV-01704-EJD, 2017 WL 6405620 (N.D. Cal. Dec. 15, 2017)

[3] Human Longevity, Inc. v. J. Craig Venter Inst., Inc., No. 18CV1656-WQH-LL, 2018 WL 6617633 (S.D. Cal. Dec. 18, 2018)

[4] Packaging Corp. of Am., Inc. v. Croner, No. 19-CV-03286, 2020 WL 43011 (N.D. Ill. Jan. 3, 2020)

[5] Gen. Elec. Co. v. Uptake Techs., Inc., 394 F. Supp. 3d 815 (N.D. Ill. 2019)

[6] Jazz Pharm., Inc. v. Synchrony Grp., LLC, 343 F. Supp. 3d 434 (E.D. Pa. 2018)

[7] Pittsburgh Logistics Sys., Inc. v. LaserShip, Inc., No. 2:18-CV-1382, 2019 WL 2443035 (W.D. Pa. June 12, 2019)

[8] Fres-co Sys. USA, Inc. v. Hawkins, 690 F. App’x 72 (3d Cir. 2017)

[9] Prime Therapeutics LLC v. Beatty, 354 F. Supp. 3d 957 (D. Minn. 2018)

[10] 18 U.S.C. § 1838; see also https://www.congress.gov/bill/114th-congress/senate-bill/1890/text

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.

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