Enjoining Employment Based on “Inevitable” Misappropriation: Yes, No, Maybe So!
A key employee resigns and joins a competitor. A confidentiality agreement may have been signed. A noncompete agreement may have been signed. But are they enough? What if misappropriation of the former employer’s trade secrets is “inevitable?” What is misappropriation anyhow?
Broadly speaking, misappropriation is acquiring by improper means, disclosing or using someone else’s trade secret. If a former employee acquired the trade secrets properly, use of those trade secrets for a competitor would constitute misappropriation.[1]
The Background: Noncompete Agreements Are Not Limited to Trade Secrets
Florida statutes provide a multi-tiered guide for the duration of covenants not to compete based on the former role of the person against whom enforcement is sought.[2] For completeness, the rebuttable presumptions are illustrated in Figure 1.
What if an employee signs and then violates a covenant not to compete? A court may have difficulty extending injunctive relief beyond the number of years in the covenant. What if the former employee waits until the covenant expires and then uses “valuable information” and “trade secrets” to compete with the former employer or to obtain a commercial advantage over third parties? Does the former employer have any remedies?
Florida’s Uniform Trade Secrets Act May Not Provide Enough Relief
In 1988, Florida adopted its version of the Uniform Trade Secrets Act, F.S. §688.001, et seq. (FUTSA). FUTSA permits injunctive relief against actual or threatened misappropriation for at least as long as the trade secret remains a secret, and the injunction may be continued for an additional reasonable period of time in order to eliminate any commercial advantage from the misappropriation.[3] Extending injunctive relief to eliminate commercial advantage complements the covenant not to compete. FUTSA defines a “trade secret” as
information including a formula, pattern, compilation, program, device, method, technique, or process that: (a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.[4]
What about valuable information that does not rise to the level of a trade secret? Absent FUTSA, the valuable information is protectable only by an employee’s covenant not to compete.
Threatened But Not Actual Misappropriation — Is Injunctive Relief Available?
If an employee leaves with a treasure trove of documents, or in this day and age, a flash drive or has uploaded documents to a private cloud account, then if the information constitutes a trade secret, or if there is a written noncompete, injunctive relief against competitive employment may be justified based on actual misappropriation. But what if all the “valuable information” and “trade secrets” are in the ex-employee’s head and, therefore, misappropriation is threatened rather an actual? What options are available to the former employer? Can the former employer argue that misappropriation is inevitable and, therefore, competing employment should be enjoined? Does Florida recognize the “inevitable disclosure” doctrine?
Gatorade: The First Appellate “Inevitable Disclosure” Decision
The Gatorade brand of sports drinks was originally made for the Gators at the University of Florida, hence the obvious name choice. By 1994, the Gatorade brand had been purchased by the Quaker Oats Company (Quaker) and was the market leader. At that time, PepsiCo (Pepsi) had a competing sports drink called “All Sport.”
Enter William Redmond, a key employee of Pepsi, who had actual knowledge of Pepsi’s trade secrets, including Pepsi’s strategies for pricing, marketing, and distribution. In early November 1994, Quaker hired Redmond as vice president of Field Operations for Gatorade. Six days later, Pepsi sued for anticipatory trade secret misappropriation. Suit was brought in Chicago, where Quaker was located, based on the Illinois Trade Secrets Act, which provides that a court may enjoin actual or threatened misappropriation of a trade secret.[5] Florida’s Trade Secrets Act contains the same language that “actual or threatened misappropriation [of trade secrets] may be enjoined.”[6]
| Duration of noncompete that is presumed reasonable | Duration of noncompete that is presumed unreasonable | Relationship between former employer and former employee |
| 6 months or less | More than 2 years | Former employee not associated with the sale of part or all of a business.[7] |
| 1 year or less | More than 3 years | Former distributor, dealer, franchisee or license of a trademark or service mark but not associated with the sale of part or all of a business.[8] |
| 3 years or less | More than 7 years | The seller of part or all of a business.[9] |
| 5 years or less | More than 10 years | Protection of former employer trade secrets[10] and valuable information that does not qualify as a trade secret.[11] |
Pepsi argued a “threatened or inevitable” misappropriation because Redmond would have the Pepsi trade secrets “in mind,” and they would influence his decisions for Quaker. Pepsi was granted a preliminary injunction, affirmed on appeal, preventing Redmond from divulging Pepsi trade secrets and confidential information and from assuming any duties with Quaker relating to beverage pricing, marketing, and distribution.[12] The last clause was the key as it essentially blocked Redmond’s employment with Quaker.[13] While nothing prevents skilled employees from taking their general skills and knowledge elsewhere, Redmond was in a position where he inevitably would do more since his decisions would necessarily be based on his knowledge of Pepsi’s plans. PepsiCo was the first appellate decision affirming an injunction based on “inevitable disclosure” of trade secrets under the Uniform Trade Secrets Act.
Yes: The “Inevitable” Misappropriation Doctrine in Florida — 1960
The earliest Florida decision[14] enforcing a noncompete on the theory of “inevitable disclosure” is Fountain v. Hudson Cush-N-Foam Corp., 122 So. 2d 232, 234 (Fla. 3d DCA 1960) (an employee’s “knowledge of the trade secrets would be so entwined with his employment” that “it would seem logical to assume that his employment by a competitor…would eventually result in a disclosure of this information”).
No: The “Inevitable” Misappropriation Doctrine in Florida — 2001
Del Monte sued its competitor Dole,[15] and its former senior scientist and high-ranking executive, Dr. Daniel Funk, for threatened trade secret misappropriation. While at Del Monte, Dr. Funk participated in the planning of a lawsuit against Dole regarding Dole’s competing pineapple product. The court denied relief under the Florida Uniform Trade Secrets Act.[16] In denying relief, the court recognized that under Illinois, New York, or North Carolina law, Del Monte would probably prevail under the inevitable disclosure theory, but denied relief explaining that Florida “has not had an opportunity to discuss inevitable disclosure,” and many other states had rejected the theory, including California, Missouri, and Indiana, all of which had adopted the Uniform Trade Secrets Act.[17]
Maybe So: The “Inevitable” Misappropriation Doctrine In Florida — 2006 and Later
Inevitable disclosure was raised by both sides but not addressed in Hatfield v. AutoNation, Inc., 939 So. 2d 155 (Fla. 4th DCA 2006). Hatfield, a former general manager of an AutoNation Mercedes-Benz dealership, went to a competitor’s Mercedes-Benz dealership. Less than a week before he resigned, Hatfield downloaded computer files containing everything necessary to start up a dealership, as well as inside information regarding AutoNation’s sales, payments, and incentives to employees by department and internal programs to stay competitive. An injunction was granted because there was actual misappropriation, namely, the taking of confidential information.[18]
Three years later, Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223 (11th Cir. 2009), addressed a restrictive covenant that contained both a noncompete clause and a prohibition against use or disclosure of confidential information. Proudfoot clarified the two approaches as follows:
Under the approach adopted by the district court, such [restrictive] covenants should be enforced where an employee is in a position at her new employer to use her former’s employer’s confidential information. Other authorities suggest a second, slightly different standard that would enforce such covenants where it is established that disclosure of the confidential information by the employee would be inevitable in the employee’s new position.[19]
The 11th Circuit affirmed the district court’s grant of the injunction and reliance on Autonation v. O’Brien, 347 F. Supp. 2d 1288, 1305-08 (S.D. Fla. 2004), for the scope of the injunction, noting that “inevitable disclosure” was not raised in O’Brien.
The district and appellate courts in Proudfoot followed the first approach that the employee’s access to confidential information, which included the former employer’s strategic plan, market analyses, forecasts, sales trends, and best practices, justified a restriction against work for a competitor where the employee was in a position at his new employer to use that information to unfairly compete against the former employer.
Merely being in a position to use the information does not mean that use was inevitable. While Proudfoot cited Fountain to explain the inevitable disclosure approach, the 11th Circuit declined to “resolve this uncertain issue of Florida law” (inevitable disclosure) because it was not raised on appeal.[20]
Subsequent to Proudfoot there do not appear to be any state or federal court decisions applying “inevitable disclosure” under Florida law, although the issue has been raised several times.[21]
The Federal Defend Trade Secrets Act[22] creates a federal cause of action for the protection of trade secrets, but provides no guidance on the “inevitable disclosure” issue. The “threatened misappropriation” language in that act mirrors the Uniform Trade Secrets Act language.[23]
Conclusion
Florida law remains unsettled. Parties should not rely solely on FUTSA or its federal counterpart since they do not protect valuable information that does not rise to the level of trade secrets. But covenants not to compete, to the extent based on trade secrets, may have a shorter duration than under FUTSA. Employers should consider using a covenant not to compete and include a clause that the covenant does not provide the exclusive remedy. Employers should even consider including, in the potential remedy section of a covenant not to compete, that the remedy is based on actual, threatened, and/or inevitable use or disclosure of valuable information and trade secrets.
[1] “Improper means” and “Misappropriation” are defined in Florida’s Uniform Trade Secrets Act, Fla. Stat. §688.002(1, 2).
[2] This article presumes that the geographic scope is reasonable and that there is a legitimate business interest to be protected. Florida’s noncompetition statute applies prospectively to covenants entered into on or after July 1, 1996. Fla. Stat. §542.335(3).
[3] Fla. Stat. §688.003(1).
[4] Fla. Stat. §688.002(4).
[5] 65 ILCS 1065/3(a).
[6] Fla. Stat. §688.003(1).
[7] Fla. Stat. §542.335(1)(d)(1).
[8] Fla. Stat. §542.335(1)(d)(2).
[9] Fla. Stat. §542.335(1)(d)(3).
[10] Fla. Stat. §542.335(1)(e).
[11] Fla. Stat. §542.335(1)(b)(1).
[12] PepsiCo., Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995).
[13] Two prior Seventh Circuit cases discussed threatened or inevitable misappropriation, but neither expressly ruled on that issue. In the first, Teradyne, Inc. v. Clear Communication Corp., 707 F. Supp. 353, 356 (N.D. Ill. 1989), the court, in dicta, explained that threatened misappropriation can be enjoined when there is a high degree of probability of inevitable use of trade secrets, but that such inevitable use had not been asserted. The second case was AMP Inc. v. Fleischhacker, 823 F.2d 1199 (7th Cir. 1987), where a preliminary injunction was denied for lack of proof supporting the allegation of inevitable use of trade secrets, and the court did not rule on the applicability of that doctrine. AMP predated the 1988 effective date of the Illinois Trade Secrets Act.
[14] Disclaimer: The author has not read every Florida Supreme Court or district court of appeals decision, nor every state or federal case applying Florida law. Rather, the author has relied on Casetext, Fastcase, Westlaw, and Lexis-Nexis to search for cases applying Florida law to the “inevitable disclosure” doctrine.
[15] Del Monte and Dole ranked first and second, respectively, as the largest worldwide marketers of fresh pineapples. The positions are reversed with Dole ranking first and Del Monte ranking third, as the largest sellers of bananas in the world.
[16] Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326 (S.D. Fla. 2001).
[17] Id. at 1336-37.
[18] The lower court relied on Fountain v. Hudson Cush-N-Foam Corp., 122 So. 2d 232, 234 (Fla. 3d DCA 1960), in fashioning the injunctive remedy but did not address inevitable disclosure.
[19] Proudfoot, 576 F.3d at 1236, n12. (internal citations omitted) (emphases added).
[20] Id.
[21] The post-Proudfoot cases are 1) Nelson Tree Service, Inc. v. Gray, 978 So. 2d 198 (Fla. 1st DCA 2008) (applying Ohio law); 2) GPS Industries, LLC v. Lewis, 691 F. Supp. 2d 1327 (M.D. Fla. 2010) (no ruling on the “inevitable disclosure” issue because of failure of proof on both “legitimate business interests” or “violation” of the agreement); 3) WellCare Health Plans, Inc. v. Pretauer, 8:12-cv-713-T-30 MAP (M.D. Fla. May 23, 2012) (“inevitable disclosure” argument raised, but the court found that plaintiff did not have the required “legitimate business interests” in the alleged confidential information and trade secrets); 4) Eli Research, LLC v. Must Have Info Inc., 2:13-cv-695-FtM-38 CM (M.D. Fla. Oct. 6, 2015) (applying North Carolina law); 5) Osborne Assoc., Inc. v. Cangemi, 3:17-cv-1135-J-34 MCR (M.D. Fla. Oct. 14, 2017) (decision not based on inevitable disclosure); and 6) Art Headquarters, LLC v. Lemak, 8:19-cv-2899-T_36JSS (M.D. Fla. Nov. 11, 2019) (inevitable disclosure alleged but case not decided on that basis.)
[22] 18 U.S.C. §1836.
[23] 18 U.S.C. §1836(3)(A)(i).
Jerold I. Schneider received his J.D., cum laude, from the George Washington University Law School and has specialized in all aspects of intellectual property law for his entire career. He is Florida Bar board certified in intellectual property law and served for six years on the IP Certification Committee, including one year as committee chair. Schneider’s new engagements are limited to mediation/ADR, serving as an expert witness, and assisting lawyers as co-counsel on IP matters.
This column is submitted on behalf of the Business Law Section, Leyza Florin Blanco, chair, and Robert Charbonneau, editor.
