CHICAGO — A federal judge has rejected a manufacturer's attempt to shelve a competitor's lawsuit that it should pay for hiring a former employee who allegedly improperly took trade secrets with him.
And the decision could offer lessons to employers in lllinois and elsewhere.
In May, U.S. District Judge Edmond Chang shot down arguments by Nidec Motor Corp. in a third-party misappropriation claim brought by Nidec's competitor, Molon Motor and Coil.
According to court documents, Chang encouraged the two parties to engage in immediate settlement negotiations.
Nidec hired Manish Desai, a former Molon employee who allegedly downloaded several files containing sensitive information onto a thumb drive while employed as head of quality control.
Molon Motors filed suit, but the defendant filed a motion to dismiss the lawsuit, claiming the employee acquired the trade secrets properly while still employed with the plaintiff. Nidec also argued Molon did not specifically allege the defendant used or disclosed the trade secrets.
The court, however, rejected both arguments.
The court found that the plaintiff sufficiently alleged that the defendant used or disclosed trade secrets under the “inevitable disclosure” doctrine. Illinois is among a few states that expressly recognizes the inevitable disclosure doctrine.
Additionally, the court found the hire could have been improper, as it would cause Desai to breach an employee agreement that required him only to use the trade secrets while at work and for work purposes.
The ruling is significant to employers for two reasons, said Kevin Burns, an attorney at Fisher Phillips in Denver.
“First, employers would be wise to use best hiring practices to mitigate the risk of an expensive and time-consuming lawsuit resulting from hiring an employee," Burns said.
Secondly, Burns said employers should note "the inevitable disclosure doctrine could apply in Defend Trade Secrets Act (DTSA) cases in Illinois."
“Although the DTSA rejects the application of the inevitable disclosure doctrine to prevent a person from entering into an employment relationship, it applies here because the employee was not independently restrained from working for his new employer," Burns said.
The implications of this ruling on Illinois-based companies, or those hiring former employees of Illinois-based firms, could impact future lawsuits, Burns said.
“The implications are more for Illinois-based employers,” he said. “Companies outside Illinois hiring workers may not be operating under the inevitable disclosure doctrine. This depends on choice-of-law and choice-of-forum issues.”
Considering this ruling, Burns advised employers to be wise and to use best practices such as instructing the employee not to bring trade secrets and to certify this fact in writing in the employer’s offer letter. These best practices, Burns said, “are simple steps employers can take at little or no cost that are aimed at avoiding an expensive lawsuit.”
“Tell the employee to check and purge common sources of information such as personal email accounts, cloud-based accounts, home computers and smartphones and reviewing or having their counsel review the employee’s prior employment agreements,” he said. “They can also discuss with the prospect during the interview process whether they were exposed to trade secrets or if it was part of their job duties to review or use trade secrets.”