In the Defend Trade Secrets Act (DTSA), Congress generally rejected the “inevitable disclosure doctrine” prevalent in the trade secret law of many jurisdictions. Interestingly, the DTSA appears to leave open whether, and to what extent, the corollary “memory rule” will be applied in connection with a federal trade secret misappropriation claim.
Under the inevitable disclosure doctrine, a plaintiff employer may prove a claim of trade secret misappropriation by demonstrating that the ex-employee’s new employment will inevitably lead to reliance on the plaintiff’s trade secrets. Courts typically consider the following factors in determining whether the disclosure of trade secrets is “inevitable”:
- the level of competition between the former employer and the new employer;
- whether the employee’s position with the new employer is comparable to the position previously held with the former employer; and
- the precautions that the new employer has taken to prevent the former employee from disclosing trade secrets of the former employer.
For example, the inevitable disclosure doctrine has been used to enjoin a former executive of a large beverage company from joining its competitor until a specified future date. In that case, the court expressed skepticism that the executive could compartmentalize information, such as his extensive knowledge of his former company’s strategic goals, so as not give the competitor corporation an unfair strategic advantage.
The DTSA seems to reject the inevitable disclosure approach by precluding a court from issuing an order that “prevent[s] a person from entering into an employment relationship” and by requiring “that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” 18 U.S.C. 1836(B)(3)(A).
Similarly, it is precisely “information the person knows” that implicates the so-called “memory rule.” States are split as to whether information residing in one’s memory can constitute trade secret misappropriation, although the majority view is that appropriation by memory will be restrained under the same circumstances as appropriation by writing. Courts in certain states, however, such as Georgia, North Carolina, and Louisiana, have held that their state trade secret act does not extend to information residing in the memory of former employees.
However, the DTSA defines “trade secret” as, “all forms and types of financial, business, scientific, technical, economic, or engineering information . . . whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.” Like the “memory rule,” this definition suggests that information residing in a person’s memory can constitute a protectable trade secret.
If a memorized trade secret is protectable, but mere possession of that memory is not grounds for a protective DTSA injunction absent “evidence of threatened misappropriation,” what is a trade secret owner to do?
One approach may be to characterize an employee’s deliberate memorization of a trade secret as sufficient “evidence of threatened misappropriation,” whereas knowledge that results from casual memory would not be sufficient. Unusual efforts to memorize trade secrets might provide grounds for inferring a threat of misappropriation.
Another approach is to interpret section 1836(B)(3)(A)’s prohibition as applying only to injunctions, such that a court may still award damages under the DTSA for appropriation of trade secrets based “merely on the information the person knows.”
A final approach is to bring a claim under state trade secret law, if the state follows the majority position of the memory rule, since the DTSA does not displace state trade secret claims.