Overview
It is an often-recited adage that a person is not required "to perform a prefrontal lobotomy on himself or herself" before leaving one company to join a competitor, in order to protect the former employer’s trade secrets.1 On the contrary, the law expects and permits departing employees to retain the general knowledge, skills, and experience they gained from their employer. But the law also holds that a person can misappropriate a trade secret by remembering it, that is, without stealing documents or files that recite the information—provided the other elements of misappropriation are met. These two concepts, general knowledge on the one hand and memorized trade secrets on the other, can be difficult to distinguish.
Last month, a decision by a district court in Wyoming highlighted the perils faced by employees and employers alike when applying trade secret law to information retained in employees' heads. In First Interstate BancSystem v. Hubert, the district court first reaffirmed the principle that a person can misappropriate a trade secret simply by remembering it.2But it also clarified the limitations of that principle. Specifically, the court granted in pertinent part the defendants' motion for summary judgment, finding that whatever information they had retained in their memories either did not rise to the level of a trade secret or had not been used or disclosed outside the confidences of their prior employer.
Summary of the Case
FIB sued seven of its employees who resigned on the same day and subsequently joined a competitor, Glacier Bank. FIB had published a "Code of Conduct" that directed its employees to protect the company’s trade secrets, including prohibiting the employees from using the trade secrets or disclosing them for personal gain. FIB did not, however, require its employees to sign non-compete or non-solicitation agreements that would restrict their conduct even after their employment ended.
FIB contended that several of the employees misappropriated trade secrets upon their departure from the company by various means, including by remembering the trade secrets. The district court acknowledged that the law recognized misappropriation via memorization as a viable theory because "the nature of the trade secret acquisition . . . is immaterial." "What matters," the court determined, is not the "nature of the trade secret acquisition" but rather “whether the information meets the definition of a trade secret and, if so, whether the trade secret was” improperly disclosed or used in a way that injured the trade secret owner.3
FIB posited that the defendants maintained the following confidential information in their heads:
- "deep knowledge" of specific customers' accounts
- "in-depth knowledge about the customers handled by" one defendant’s subordinates
- "intimate knowledge of customers' financial condition, circumstances, and business needs"
Nevertheless, the court determined that FIB had failed to raise a material dispute of fact sufficient to survive the defendants' motion for summary judgment on the trade secret claims. Even if the employees had retained intimate knowledge about FIB's customers, the court held that FIB had proffered no evidence that that the employees ever used that intimate knowledge for personal gain or for the benefit of their new employer. Rather, the evidence showed the former employees had only communicated with FIB customers and potential customers in a broad and general sense, such as informing the customers that they had changed employers.
The court also held that the identities of FIB's customers were not trade secrets, even though customer lists are often classic examples of trade secrets. Here, unlike in cases cited by FIB, there was no "confidential customer list" at issue and many of FIB's customers were readily ascertainable from public information. So the list could not constitute a protectable trade secret.
Lessons to Learn4
The district court’s decision highlights one of the greatest challenges companies face in protecting their trade secrets: maintaining secrecy over sensitive information residing in a person’s mind. As this case demonstrates, trade secret law can protect against certain harms, but it has limits: it is not a panacea against competition.
Identify and Protect Sensitive Information
Here, the court found that FIB's disclosures to third parties and the public revealed many of its claimed trade secrets. It didn’t matter, therefore, that FIB’s former employees remembered the information at issue, because the information didn’t warrant trade secret protection. To avoid that pitfall, companies should identify their most sensitive information and review disclosures to third parties to ensure the sensitive parts remain secret or subject to appropriate confidentiality agreements. This should include evaluating whether sensitive information is discernible from other public information.
Employers should also consider adopting non-compete and non-solicitation clauses (to the extent permissible under applicable employment and competition laws) that can prevent competitors from unfairly benefiting from former employees' inside knowledge, even if it may be difficult to prove that knowledge amounts to a trade secret.
Even in the absence of a non-compete agreement, employers may be able to obtain an injunction to prevent a former employee from beginning a position, if the former employee will necessarily rely on the trade secrets that reside in his or her head. This is a legal theory known as "inevitable disclosure."5 Employers should act quickly to determine whether a claim of inevitable disclosure is appropriate and viable, although such claims will require the same kinds of proof that FIB lacked.
Prevent Misuse of Others' Sensitive Information
The district court also found that FIB had failed to show that its former employees used any secret information retained in their memories, as opposed to using publicly discernible information or general industry skills and knowledge. Although the district court’s decision stemmed from a failure of proof by FIB, it nevertheless teaches that companies that hire from their competitors should consider how they would affirmatively demonstrate that their work was developed properly. That is, what evidence could a company offer to show its work was conducted any influence from misappropriated trade secrets retained by employees—whether tangibly or in their heads. One helpful mechanism is to implement robust record-keeping practices that can help establish the provenance of any work product.
Employees should also beware: even if a company's trade-secret protections are imperfect or incomplete, the company's confidential information may still constitute a trade secret. As the FIB decision confirms, that is true even if the information resides only in a person's memory. Employees should seek guidance regarding whether information they've learned from their prior employment constitutes trade secrets of their prior employer. They should also consider taking steps not only to prevent misappropriation of that information but also to affirmatively demonstrate compliance with their confidentiality obligations.
Endnotes
1 See, e.g., Fleming Sales Co. v. Bailey, 611 F. Supp. 507, 514 (N.D. Ill. 1985)
2 First Interstate BancSystem Inc. v. Hubert, Case No. 2:21CV00067, ECF 147 (D.WY July 15, 2022).
3 Id. at 21.
4 For another discussion of lessons learned from a case study in trade secret misappropriation, see Hazards of the Digital Age: A Case Study of Tesla v. Cao on Handling Confidential Material.
5 Note, however, that the strength of the inevitable disclosure theory may be waning. See, e.g., Idexx Labs., Inc. v. Bilbrough, Case No. 2:22-cv-00056-JDL, ECF No. 41 (D. Me. Aug. 2, 2022) (finding that the statutory language of the federal Defend Trade Secrets Act (“DTSA”) does not provide for inevitable disclosure theory); Hooked Media Grp., Inc. v. Apple Inc., 55 Cal. App. 5th 323 (2020) (declining to apply “inevitable disclosure” theory under California law).
