In Holton v. Physician Oncology Servs., LP, No. S13A0012, 2013 WL 1859294 (Ga. May 6, 2013), the Georgia Supreme Court held that Georgia law does not recognize the inevitable disclosure doctrine as an independent cause of action for trade secret misappropriation. Whether the potential for a party’s inevitable disclosure/use of trade secrets can be included within a broader claim for threatened trade secret misappropriation, however, remains an open question.
In Holton, the Georgia Supreme Court held that Georgia law does not recognize a “stand-alone claim for the inevitable disclosure of trade secrets.” 2013 WL 1859294 at *1 (emphasis added). The Georgia Supreme Court’s rejection of the inevitable disclosure doctrine in Holton was somewhat surprising because Georgia had previously been believed to have implicitly recognized the inevitable disclosure doctrine in the 1998 case of Essex Grp., Inc. v. Southwire Co., 269 Ga. 553, 501 S.E.2d 501, 502 (1998). Yet, the inevitable disclosure doctrine may still be viable in Georgia, despite Holton, because the Court simply eliminated an independent cause of action for inevitable disclosure. Consistent with Essex, Georgia law may still allow allegations of inevitable disclosure to support a broader claim for threatened trade secret misappropriation.
The “Inevitable Disclosure” Doctrine
The “inevitable disclosure” doctrine evolved in the employment context and began as a mechanism to prohibit a former employee from post-employment activities, even in the absence of a valid, enforceable non-competition agreement. The doctrine effectively prohibited a former employee from working in a new position that would require the former employee “inevitably” to disclose or use the trade secrets of the former employer in his new position.
Typically, the doctrine applied when (1) the former employee possesses a valuable trade secret; (2) the employee has joined a competitor in a functionally equivalent position; and (3) in working for the new employer, the employee could not be expected not to use the trade secret. See generally Milgrim on Trade Secrets § 5.02 (discussing basic elements of inevitable disclosure doctrine). Several states, including California, Florida and Virginia, have expressly rejected the “inevitable disclosure” doctrine. Until Holton, however, Georgia courts had not squarely addressed the inevitable disclosure doctrine.
Holton: The Facts
From 2009 until 2011, Mr. Holton served as vice president and chief operating officer of Physician Oncology Services, LP, which merged with Vantage Oncology, LLC in January 2011. (“Vantage”). Holton, 2013 WL 1859294 at *1. Vantage operates radiation oncology treatment centers throughout the United States. At Vantage, Holton supervised the day-to-day operations of facilities first only in Atlanta and then in other states. On October 4, 2011, Vantage terminated Holton’s employment. Holton’s employment agreement with Vantage included a one-year non-compete and a two-year confidentiality provision. Id.
Within a month of his termination, Holton accepted employment with Radiation Oncology Services of America, Inc. (ROSA), a direct competitor of Vantage. Vantage filed suit seeking injunctive relief prohibiting Holton from working at ROSA. Along with breach of contract claims based on his non-compete and confidentiality covenants, Vantage also asserted an independent claim under the Georgia Trade Secrets Act claiming that Holton would “inevitably disclose and use Vantage’s trade secrets.” Id.
Although Holton testified that he did not have any documents related to Vantage’s trade secrets in his possession, the trial court ruled in favor of the plaintiffs on the trade secret claim, holding that if Mr. Holton continued employment with ROSA he “would inevitably disclose the confidential and trade secrets of Plaintiffs.” Id. In other words, the trial court accepted the argument that Holton retained knowledge “in his head” of “major company initiatives,” and the likelihood of Holton’s disclosure of information in his “memory” formed the basis for the trial court’s inevitable disclosure finding.
After the trial court enjoined Mr. Holton from employment with ROSA for two years, he appealed directly to the Georgia Supreme Court. Holton bypassed the Georgia Court of Appeals because the appeal concerned only injunctive relief.
The Georgia Supreme Court’s Final Take on Holton
The Georgia Trade Secrets Act of 1990 prohibits the “actual or threatened misappropriation” of protected trade secrets. O.C.G.A. § 10-1-762. Because there was no evidence that Mr. Holton had “shared any trade secrets, disclosed any confidential information, or shown an intent to use proprietary evidence,” and any potential disclosure of trade secrets was merely “inevitable” because of Mr. Holton’s working knowledge of Vantage’s proprietary information, the Georgia Supreme Court held that under Georgia law “the inevitable disclosure doctrine is not an independent claim under which a trial court may enjoin an employee from working for an employer or disclosing trade secrets.” Id. at *5. The Court recognized that courts in other jurisdictions, including the Seventh Circuit, have held that ‘“a plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets”’ but the Court rejected that logic. Id. at *3 (citing PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir.1995)).
Notably, the Court remanded the case to the trial court because the trial court did not address Vantage’s trade secret claims of actual or threatened misappropriation. Id. Whether Vantage may use the inevitable disclosure doctrine to support its claim for threatened trade secret misappropriation remains an open question. Id.
In Essex, an employer brought suit against a former employee to enjoin him from disclosing trade secrets to his new employer. Essex, 269 Ga. at 553, 501 S.E.2d at 502. Although there was no evidence that the employee had actually shared Essex’s trade secrets, the Georgia Supreme Court upheld injunctive relief against the employee because the former employee possessed “particularized information learned solely through his position of trust at [Essex, his former employer].” Id. at 557, 505.
In Holton, the Court noted that many believe that Essex implicitly recognized the inevitable disclosure doctrine. Without comparing the facts, however, Justice Hunstein – who authored both Holton and Essex – explained that Essex “did not expressly address” inevitable disclosure, and warned that the Court’s “decisions stand only for the points raised by the parties and decided by the court.” Holton, 2013 WL 1859294, at *4. Thus, the Court distinguished Essex and did not reverse it, signaling that the inevitable disclosure doctrine may still be viable, albeit not as an independent claim, but merely as potential support for allegations of threatened trade secret misuse.
The significance of Holton rests with the claims now available to a trade secret plaintiff. In Holton, the plaintiff asserted inevitable disclosure as “an independent claim” for injunctive relief. In contrast, in Essex, allegations that the former employee would inevitably disclose trade secrets were part of a broader claim for threatened misappropriation of trade secrets. Although the Court in Holton rejected an independent inevitable disclosure claim, the Georgia Supreme Court did not go so far as to reverse Essex, thereby allowing that inevitable disclosure may still be used as part of a threatened misappropriation claim. Therefore, when drafting claims for trade secret misuse in Georgia, it remains important to consider allegations of inevitable disclosure as potential support for threatened trade secret misuse, but not as an independent cause of action.