Blog Post

Eastern District of North Carolina Predicts the North Carolina Supreme Court Will Apply the Doctrine of Inevitable Disclosure “Under Certain Circumstances.”

            The Eastern District of North Carolina recently decided a case affirming that, while North Carolina courts have not yet adopted the doctrine of inevitable disclosure, North Carolina would adopt the doctrine under certain circumstances.[1]  Spirax Sarco, Inc., (“Spirax”), alleged a claim for, among other things, injunctive relief under the doctrine of inevitable disclosure against one of its former employees.  Spirax purported that defendant Bryan Johnson (“Johnson”) used his company issued laptop to download thousands of confidential computer files to personal devices without permission.

 

           Johnson resigned from Spirax on May 27, 2014 to work for SSI Engineering, Inc. (“SSI Engineering”).  SSI Engineering had a consulting agreement with Spirax, which it terminated on May 30, 2014.  Following Johnson’s resignation, Spirax became suspicious that he deleted and/or transferred files to use at his new job, so Johnson’s company issued laptop was sent to a third party for forensic analysis.  The analysis revealed that Johnson copied approximately 20,000 files and deleted 18,000 from the computer the day before his resignation. Spirax claimed Johnson signed an employment agreement containing non-solicitation and confidentiality covenants, but Spirax was unable to produce a signed copy of the alleged agreement.

 

            In his defense, Johnson denied having any confidential information, arguing the laptop was also used for his personal benefit and all the files he removed were photographs, personal e-mails, and other non-confidential information.  The parties agreed to a protocol regarding the disputed information and hired a third party to take possession of the electronic devices Johnson used to download files, as well as the Dropbox account he used for file storage.  The third party made one copy of the electronic content and delivered it to Johnson.  Johnson agreed to remove all the documents belonging solely to him, making a list, and returned the remaining documents to Spirax with the list of the removed documents.  Spirax reviewed the remaining documents and Johnson’s list, and believed Johnson was continuing to assert ownership over information that belonged to Spirax, proceeding with a lawsuit for injunctive relief under the doctrine of inevitable disclosure.

 

            As the North Carolina Court of Appeals stated, injunctive relief is proper under the doctrine of inevitable disclosure “when an employee who knows trade secrets of an employer leaves the employer for a competitor, and, because of the similarity of the employee’s work for the two companies, it is ‘inevitable’ that he will use or disclose trade secrets of the first employer.”[2]  While North Carolina appellate courts have not squarely addressed whether the inevitable doctrine applies in this state, a federal district court in the Middle District of North Carolina predicted in Merck & Co., Inc. v. Lyon (“Merck”) that the North Carolina Supreme Court will recognize the doctrine under appropriate circumstances.[3] The Merck court also listed several factors it found important to consider in determining whether to apply the doctrine, including (1) the circumstances surrounding the termination of employment; (2) the importance of the employee’s job or position; (3) the type of work performed by the employee; (4) the kind of information sought to be protected by the various information; (5) the degree of competition between the former and new employer; (6) the new employer’s efforts to safeguard the former employer’s trade secrets; (7) the former employer’s lack of forthrightness in his activities before accepting his job and in his testimony; and (8) the degree of similarity between the employee’s former and current position.[4]

 

             The current court assumed – without deciding – that North Carolina would adopt the doctrine of inevitable disclosure under certain circumstances.  However, in applying the abovementioned factors, it found that Spirax had not “made the showing necessary for an issuance of preliminary injunction prohibiting Johnson from competitive activity on the basis of threatened inevitable disclosure.”  In support of its finding, the court noted Johnson consented at an earlier hearing to refraining from using, copying, or disclosing any of the information being held by the third party custodian.  Additionally, many of the factors listed by the Merck court were hotly disputed by the parties, and Spirax did not clearly establish any of them.  Finally, there was no indication that any items deleted by Johnson prior to the possession by the third party custodian actually contained any “trade secrets.” Since the court was left to hypothesize what exactly Johnson may disclose to his new employer, Spirax’s request for injunctive relief was denied.

 

 

[1] Spirax Sarco, Inc. and Spirax-Sarco Engineering, PLC v. SSI Engineering, Inc., SSI Services, Inc., and Bryan Johnson, et al., No. 5:14-CV-519-F (E.D.N.C. 2015).

[2] Analog Devices, Inc. v. Michalski, 157 N.C. App. 462, 470, 579 S.E. 2d 449, 445 (2003).

[3] Merck & Co., Inc. v. Lyon, 941 F. Supp. 1443, 1459 (M.D.N.C. 1996).

[4] Merck & Co., Inc, 941 F. Supp.  at 1459-1461.

Leave a Reply

Your email address will not be published. Required fields are marked *