Williams-Sonoma is embroiled in a contentious trade secret theft case with its former executive and direct competitor. On June 18, 2015, a federal district court in Tennessee granted a preliminary injunction motion to enjoin Williams-Sonoma’s former vice president and direct competitor from using confidential business information, soliciting Williams-Sonoma employees, and destroying electronic evidence. But the federal court refused to give Williams-Sonoma everything it requested. It stopped short of prohibiting Williams-Sonoma’s former senior vice president from working for a competitor. And in doing so, the federal court rejected an invitation to adopt the inevitable disclosure doctrine in this trade secret theft case.
The Background. The facts in Williams Sonoma, Inc. v. Arhaus, LLC, echo those in most trade secret cases. An employee is contacted by a competing company with a lucrative offer. The employee accepts — but before leaving, accesses confidential business information on the company’s databases and saves that information onto external storage devices. Then, after leaving, the employee recruits former co-workers to join the competitor and encourages more trade secret theft.
Williams-Sonoma implemented measures to protect its confidential business information relating to its supply chain and distribution channels. The furniture giant required log-in credentials for and restricted access to its network and databases. It distributed employee handbooks and acknowledgment forms explaining the importance of confidential information. The company also forced employees to abide by a code of ethics detailing the ongoing obligations of employees to protect confidential information. Williams-Sonoma even required employees to take a quiz each year on the contents of the code of ethics.
Williams-Sonoma alleged that it employed these preventive measures because its supply chain and distribution channels represented a huge competitive advantage—one that resulted in tens of millions in savings and allowed Williams-Sonoma to have lower retail prices than most of its competitors.
So when Williams-Sonoma’s Senior Vice President of Transportation took a similar position for a competitor—Arhaus, LLC—the company wanted to ensure that information was not stolen. An extensive forensic investigation revealed the executive had downloaded large amounts of confidential business information to external storage devices immediately after announcing his departure. The executive also solicited two of his co-workers and encouraged additional trade secret theft.
As a result, Williams-Sonoma filed suit against Arhaus and its former employee for trade secret theft, breach of contract, breach of the fiduciary duty, tortious interference with contract, and violations of the Computer Fraud and Abuse Act.
The Inevitable Disclosure Doctrine. Williams-Sonoma also sought to immediately prevent the use and disclosure of trade secrets by preventing its former employee from continuing his employment with the competitor. Though Arhaus argued that all trade secrets and information had been returned—Williams-Sonoma argued that the former executive would inevitably disclose or use Williams-Sonoma’s information if he were allowed to continue working for Arhaus.
The Inevitable Disclosure Doctrine provides equitable relief in the absence of an enforceable non-competition agreement. The principle behind the doctrine is that knowledge and skill obtained through employment qualify the employee for a similar position at a competing company, and thus, the employee will have to rely on this knowledge and skill, which include trade secrets, to successfully perform her duties for the competitor. Ultimately, the doctrine presumes that it’s unfair to force an employer to wait for relief until the former employee and competitor misappropriate trade secrets. It allows the employer to prevent the inevitable disclosure of the confidential business information on the front end through injunctive relief.
Acceptance of the doctrine has varied. For instance, Louisiana courts have rejected the doctrine, whereas Texas courts have applied it in certain circumstances. Compare Tubular Threading, Inc. v. Scandaliato, 443 So. 2d 712, 715 (La. Ct. App. 1983) (finding that an injunction is a harsh remedy when based solely on speculation) with Rugen v. Interactive Bus. Sys., Inc., 864 S.W.2d 548, 551 (Tex. App. 1993) (finding that a former employee in possession of trade secrets and in position to use those secrets should not be able to use them to the detriment of the former employer).
The Court Declined Adopting The Doctrine. The Tennessee federal court declined the opportunity to adopt the Inevitable Disclosure Doctrine. But the court didn’t close the door entirely either. The court found that the knowledge and information remaining in the former employee’s head didn’t rise to the level necessary to invoke the doctrine. The court noted that it wasn’t a secret formula from Coca-Cola or highly specialized information used by only a few obscure companies. The court ruled that much of the information remaining in the former employee’s head “is of the type that one would find in any business school class.” Because the knowledge wasn’t sufficiently specialized, the court denied Williams-Sonoma’s request to enjoin its former employee from competing.
The Take Away. Companies should use non-compete and non-disclosure agreements to ensure confidential business information is protected. Relying on the Inevitable Disclosure Doctrine is unreliable at best.