On July 27, 2010, a three judge panel of the United States Court of Appeals for the Third Circuit issued an opinion clarifying how Pennsylvania’s trade secret law is interpreted in the Third Circuit. The Court affirmed the District Court order granting a preliminary injunction against an ex-employee that left to work at a competitor. The court refused to limit the inevitable disclosure doctrine to only technical trade secrets. The court also affirmed that the District Court had applied the proper standard in finding that there was “a sufficient likelihood or substantial threat of disclosure of a trade secret” and that the higher “virtually impossible” standard was not required by earlier decisions of the Court.
Botticella, a former Vice President of Operations at Bimbo Bakeries, was privy to corporate strategies, trade secrets and proprietary know-how of Bimbo products including the secret for the famous “nooks and crannies” of Thomas’ English Muffins. Thomas’ English Muffins accounted for approximately half a billion dollars of Bimbo’s annual income. In October 2009, Botticella accepted a job offer from competitor Hostess Brands, Inc., agreeing to start his new position in January 2010. During that period and without informing Bimbo of his new job at Hostess he continued to work at Bimbo. Botticella also continued to attend management meetings where confidential strategy and other information was discussed, and accessed numerous confidential documents that a forensic analysis concluded was consistent with copying of files.
Bimbo brought an action for misappropriation of trade secrets upon learning that Botticella accepted a position with a competitor three months prior to his resignation. The District Court entered a preliminary injunction enjoining him from working for Hostess Brands until after resolution of Bimbo’s misappropriation claim. Botticella appealed.
Botticella argued that the District court erred in granting the preliminary injunction because under Pennsylvania law a court can only enjoin a defendant from new employment to protect a former employer’s technical trade secrets, and that an injunction should only issue when it would be “virtually impossible” for the employee not to disclose trade secrets.
The Third Circuit rejected Botticella’s argument that Pennsylvania’s inevitable disclosure doctrine only applies to technical trade secrets. The Court cited the leading Pennsylvania decision on inevitable disclosure, Air Products & Chemical, Inc. v. Johnson, 442 A.2d 114 (Pa. Super. Ct. 1982). The Air Products court emphasized that “trade secrets need not be technical in nature” to be protected under Pennsylvania law. The Court acknowledged that precedent suggests that Pennsylvania courts are more willing to enjoin against disclosure of technical trade secrets, compared to confidential information protected as a trade secret, but rejected any inflexible rule limiting the scope of trade secret protection to only technical trade secrets. The decision makes clear that trade secret determinations are fact-specific conclusions and the court has the discretion to enjoin an employee if the “facts of the case demonstrate a substantial threat of trade secret misappropriation.”
The Third Circuit also rejected Botticella’s argument that the District Court imposed an incorrect, lower standard of “a sufficient likelihood or substantial threat of disclosure of a trade secret” instead of the higher “virtually impossible” standard. Botticella cited this “virtually impossible” language from the Third Circuit’s Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) decision. The Court found that the “virtually impossible” language is non-binding dictum that was raised in a counterfactual hypothetical. The Third Circuit then affirmed the District Court’s preliminary injunction based on the standard that employment would lead to “a sufficient likelihood or substantial threat of disclosure of a trade secret.”