Updated: Aug 31, 2019
PROSECUTION FOR “THIRD-PARTY TRADE SECRET MISAPPROPRIATION”
When posing this question, many of the organizations with whom we consult don’t know what we are talking about. Many of the organizations express surprise to learn that they may in fact be prosecuted for Trade Secret Misappropriation, as a result of their failure to employ carefully designed hiring practices and processes in arriving at their employment decision. After all, they have just hired someone, and neither they nor any of their employees have misappropriated or stolen anyone’s trade secrets.
However, Federal and State Civil and Criminal laws protecting the owner of Trade Secrets are much broader than often assumed; and courts have found against the new employer based on their poor hiring practices and processes leading to what are referred to as “Third-Party Misappropriation Claims,” in some cases, supported by an even more surprising judicial doctrine known as “The Inevitable Disclosure Doctrine.” An example can be found in a recent case: Molon Motor and Coil Corp. v. Nidec Motor Corp, Case No. 16 C 03545 (N.D. Ill. May 11, 2017)
The Molon v. Nidec Case
This case involved two competing motor companies. The defendant Nidec hired plaintiff Molon’s former employee who allegedly copied dozens of trade secrets and saved them to a thumb drive while he was still employed with plaintiff Molon. The plaintiff Molon sued the defendant/new employer Nidec for trade secret misappropriation.
Defendant Nidec moved to dismiss claiming that plaintiff Molon could not establish “misappropriation” because: (1) the new employee properly acquired them while still employed with plaintiff Molon, and (2) plaintiff Molon did not specifically allege the defendant Nidec used or disclosed the trade secrets.
The court rejected both arguments finding that:
The employee’s acquisition was improper, even though acquired while still employed, because the acquisition would breach his employment agreement, which required him solely to use trade secrets for work purposes.
The plaintiff Molon had sufficiently alleged that the defendant Nidec disclosed or used the trade secrets under the “inevitable disclosure doctrine” that permits plaintiffs to prove use or disclosure by showing the “defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.”
Lastly, the court rejected the defendant Nidec’s argument that plaintiff Molon could not establish continued misappropriation. Prior decisions decided by federal district courts have rejected this same argument. Unique to this case, the court held that the “inevitable disclosure doctrine” likewise established continued misappropriation because the trade secrets continued to be valuable, and under the inevitable disclosure doctrine, continued to be used.
This case is instructive to employers considering a new hire for a number of reasons.
It highlights the need to develop and follow best recruiting and hiring practices and processes to mitigate this substantial risk and create a defense in the event a rogue employee of another organization is hired.
Among other things, organizations can:
develop and utilize a comprehensive employee trade secret awareness training program for pre-hires to document that a pre-hire possesses a comprehensive understanding of the nature of trade secrets and the potential civil and criminal penalties associated with misappropriation.
Following the trade secret awareness training, conduct a comprehensive interview with individuals skilled in identifying deceptive behavior.
Review any employment agreements the employee has with his or her current or former employer,
Instruct the pre-hire employee not to bring trade secrets and certify this fact in writing in the employee’s offer letter,
Instruct the employee check and purge common sources of information such as personal e-mail accounts, cloud-based accounts, home computers, and smart phones.
These steps will hopefully assist employers in minimizing the risk that comes with hiring new employees, and may help identify a rogue employee before he or she is hired.
At a minimum, they can help set up a good defense to a third-party misappropriation case if a rogue employee slips through the cracks.