A Not So Sweet Deal for Employers Seeking to Protect Trade Secrets Under the Inevitable Disclosure Doctrine
An Illinois appellate court recently clarified the outer limits of the controversial “inevitable disclosure doctrine” under the Illinois Trade Secrets Act.
Archer Daniels Midland Company (“ADM”), a sweetener manufacturer and distributor, moved for a preliminary injunction against its former employee, Sinele, to prevent Sinele’s new consulting company from working with ADM customers and violating the Illinois Trade Secret Act. As a consultant, Sinele planned to represent buyers of sweetener in their negotiations with five manufacturers, including ADM. ADM relied on the inevitable disclosure doctrine, arguing that Sinele would inevitably use ADM’s trade secrets in conducting his business, as well as the nondisclosure provisions contained in two of Sinele’s employment agreements.
The lower court originally entered an order, barring Sinele from transacting business involving ADM customers and enjoining him from disclosing trade secrets or otherwise using that information. The Illinois Appellate reversed, holding ADM could not keep Sinele from consulting with former customers of ADM, even with a nondisclosure agreement in place.
ADM had argued that Sinele’s knowledge of an ADM database that contained manufacturing costs and profit margins would inevitably be used to assist customers in negotiating prices for sweetener, forcing ADM to offer discounted pricing. The appellate court disagreed, finding that the mere knowledge of the profit desired is not a trade secret under the law.
The appellate court noted that Sinele took only his “unaided memory,” which he is free to use along with the knowledge and experience he acquired. Furthermore, even if Sinele had a detailed memory of the profit margins and costs, this information merely represents a floor that ADM would not go below. ADM is free to reject any detrimentally low offer that Sinele makes on behalf of a customer. The appellate court was also unpersuaded by ADM’s proposition that the database set the pricing for sweetener, noting that the price of sweetener is in flux and the selling price is actually based on the judgment of a product manager, not contained in the ADM database.
The inevitable disclosure doctrine was first recognized in the case of Pepsico v. Redmond, a federal court case which applied Illinois law. Since then, courts in Illinois and other states have recognized the doctrine, but as in this case, have applied it only in narrow circumstances. Significantly, the appellate court distinguished this case from PepsiCo because Sinele did not go to work for an ADM competitor, and instead formed his own consulting business where he would be representing only ADM customers. The court found Sinele could do this job without disclosing or using ADM’s confidential information or any remembered data. Therefore, ADM could not prove that Sinele’s use was inevitable. The court found that at the end of the day, the only thing that matters is which manufacturer offers the best deal for the customer, and not what he might remember from ADM’s database.
The appellate court ended its opinion by noting that ADM could have included noncompetition and nonsolicitation provisions requiring Sinele to refrain from representing ADM customers in future negotiations and ADM did not do so. The court explained that this lawsuit could not be used to re-write employment agreements “under the rubric of inevitable disclosure.”
- Courts are unlikely to apply the “inevitable disclosure” doctrine absent strong proof of actual harm resulting from the use of confidential information; and
- If an employee has sensitive information that could be used against the employer on behalf of the competitors or customers, the employer should consider adopting narrowly tailored restrictive covenant agreements that specifically restrict the employee’s post-employment activities. Note however, that such agreements are also closely scrutinized by courts and will not be enforced unless the employer can show a true risk of harm to its business.