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Trade Secret “Inevitable Disclosure” Doctrine Taking Shape in North Carolina

Although the wait continues for those seeking to learn how the “inevitable disclosure” doctrine may apply in North Carolina trade secret cases, the question no longer appears to be whether the court may apply the doctrine–at least in the North Carolina Business Court.  In Allegis Group, Inc. v. Zachary Piper LLC, Judge Gale provides some helpful insights for proponents of the inevitable disclosure doctrine in his Order denying Plaintiff’s PI motion.

In their Complaint, Plaintiffs asserted that a former high-level executive misappropriated trade secrets and systematically raided Plaintiffs’ employees for his newly-formed competitive companies.  Plaintiffs relied “heavily” on the doctrine of inevitable disclosure to support their motion for preliminary injunction.  Op. ¶ 35.   

Inevitable Disclosure

Judge Gale explains that the North Carolina Trade Secrets Protection Act (“TSPA”) expressly recognizes that “actual or threatened misappropriation of a trade secret may be preliminarily enjoined during the pendency of the action . . .,” but also observes that North Carolina courts are “reluctant to grant injunctive relief solely on the basis of threatened misappropriation. . . .”  Op. ¶ 52.

The Court recognized two important points about the inevitable disclosure doctrine in North Carolina:

  • “should the doctrine be applied, it should be used only to limit the scope of an employee’s new employment duties while not preventing any and all employment with [Plaintiffs’] competitor,”  Op. ¶ 53, and
  • proof of the likelihood of disclosure must be “high,” and “ordinarily the mere fact that the employee works for a competitor will be inadequate” to meet that burden.  Op. ¶ 54.

In the end, Judge Gale denied the PI because the Plaintiffs have not yet shown an “adequate factual predicate to justify issuing an injunction based on threatened inevitable disclosure.”  Op. ¶ 56.  Specifically, Plaintiffs failed to clearly establish that the parties were competitors, and without that threshold showing, the Court could not find that any disclosure was truly “inevitable.”

Stay tuned for further rulings.  Click here for a link to the Business Court Docket for Allegis.

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About this Author

Betsy Cook Lanzen, Trade Secrets attorney, Womble Carlyle, Unfair Competition Lawyer
Partner

Betsy has more than a decade of experience litigating complex business matters involving misappropriation of trade secrets, unfair and deceptive trade practices, unfair competition, fraud, complex contract and licensing disputes, non-competition agreements and other restrictive covenants, corporate raiding, the Computer Fraud & Abuse Act, and business torts between competitors.  Her cases frequently include demands for restraining orders and permanent injunctions and complex electronic discovery issues.

Betsy’s broad experience includes cases in federal, state, and business...

blanzen@wcsr.com