Employers who are zealous about keeping their trade secrets under wraps face their toughest challenge when a key employee jumps to the competition. Under what circumstances, they wonder, can the employee actually be stopped from taking that new job?
A federal appeals court recently suggested that it is hard to impede employee mobility, but not as hard as it once seemed. An employer need not show that the new position would result in “inevitable disclosure” of its trade secrets. In Bimbo Bakeries v. Botticella, the Third Circuit said it is enough if the facts show a “substantial threat” of misappropriation.
Chris Botticella was a senior executive at Bimbo Bakeries, the maker of goods sold under such brand names as Thomas’, Entenmann’s, and Boboli. He was one of an elite group of individuals who had access to the formulas for all of Bimbo’s products, including the secret behind the “nook and crannies” texture of Thomas’ English Muffins, which sell like hot cakes, on the order of half a billion dollars per year.
After almost nine years with Bimbo, Botticella announced he was taking a position at Hostess Brands, makers of Twinkies, HoHos, and Wonder Bread. While at Bimbo, Botticella had signed a confidentiality agreement, agreeing never to disclose Bimbo’s proprietary information, but he was under no restriction as to where he could work.
The trial court judge agreed with Bimbo that Botticella should be enjoined from working for Hostess because of the threat of trade secret disclosure. The following factors were especially influential:
- Botticella was in the know regarding all of Bimbo’s marketing, production, pricing and distribution strategies
- His position at Hostess was expected to be much the same as at Bimbo, overseeing production and new product development
- All of Bimbo’s proprietary recipes had been entrusted to Botticella
- Botticella had engaged in dubious behavior that suggested betrayal
With this preliminary evidence, Bimbo had demonstrated a likelihood of winning its trade secret case, giving the judge good reason to prevent Botticella from working for Hostess. The appellate court agreed with this analysis.
The importance of this case is the lighter burden placed on employers who fear that an ex-employee’s new job will jeopardize their confidential business information. The Third Circuit corrected a misimpression (fostered by its own precedent) that employers in that situation must prove that it would be “virtually impossible” for the likes of Botticella to work for a competitor without disclosing trade secrets, or that disclosure is inevitable.
Instead, an employer can win an injunction, as Bimbo did here, by presenting facts demonstrating a “substantial threat” of trade secret misappropriation. This is a much easier mark to hit.
Bimbo was decided under Pennsylvania’s Uniform Trade Secrets Act. That uniform act has been widely adopted, although not in Massachusetts. Its interpretation varies considerably, however, from state to state. Pennsylvania is one of the few jurisdictions that had adopted the “inevitable disclosure” rule, which has been rejected in at least three other states.
Thus, the influence of Bimbo in other states is likely to vary as well. How this influence makes its mark turns on how courts in these states grapple with the contradictory policy concerns that these cases present.
The appellate court in Bimbo saw two policy goals in conflict: the public interest in the inviolability of trade secrets, and the public interest in employees being free to work where they please. The court acknowledged that the latter interest ordinarily takes precedence, but believed “the facts of this case” altered the usual calculus.
Those facts have to do with the unusually shabby and furtive behavior Botticella displayed in seeking to transition from one job to the next. He accepted the Hostess position in October and agreed to start in January 2010.
However, he didn’t tell anyone at Bimbo, and had continued access to Bimbo’s confidential information. He acknowledged to the trial court judge that Bimbo would have blocked such access if his plans were known.
On January 4, 2010, Botticella told his superiors at Bimbo that he was leaving on January 15, but didn’t say where he was headed. Bimbo learned that Botticella was going to work for Hostess only from a January 12 press release from Hostess. After Botticella confirmed his job offer, he was ordered to clear out.
Bimbo hired a forensics expert who discovered that Botticella had accessed a number of confidential documents in his final weeks of employment, including 12 files accessed just minutes after finally disclosing his plans to Bimbo. The expert said this usage indicated that Botticella was copying the files. The files in question held Bimbo’s most sensitive production, labor, cost structure and product launch data.
In a final farewell to his dignity, Botticella admitted copying files from his laptop to external devices, but said he did so only to practice his computer skills before going to Hostess. The judge concluded, generously, that this explanation was “not credible.”
Had Botticella exited with his virtue intact, Bimbo’s attempt to prevent his new employment would have presented a close call to the trial and appellate courts. He might well have persuaded the judges that he was capable of working for Hostess without harming his ex-employer’s interests. Botticella’s egregious conduct, however, provided the judges with a relatively easy day at the office.
Public policy may favor the protection of employee mobility over preventing a possible confidentiality breach, all things being equal. But an employer can shift the equilibrium in its favor—and satisfy the “substantial threat” standard–if it can throw a cloud of suspicion over its employee’s motives and intentions. With this strategy, Bimbo made toast of the muffin man.