Inevitable Disclosure Doctrine Takes Another Hit in the SDNY

The decision in American Airlines v. Charles F. Imhof and Delta Airlines, Inc. puts another nail in the coffin of the “inevitable disclosure doctrine.” Justice Kaplan refused to hold that a former senior exec at American Airlines would inevitably disclose confidential information to his new employer, Delta Airlines, though it was undisputed that the exec had misappropriated information.

The exec offered to return the materials and Delta assured that it would not accept confidential information, minimizing the risk of disclosure. The court relied on a recent Second Circuit decision holding that the rebuttable presumption of irreparable harm arises only when there is risk that secrets will be disseminated, whereas the use of trade secrets is often fully compensable through monetary damages. The court considered American’s inevitable disclosure claim. The court observed that the doctrine effectively creates an implied noncompete contrary to New York policy.

It contrasted the doctrine’s potential application to cases involving highly technical or specialized scientific data to those which merely involved sensitive sales or general business management information. Given American’s weak showing of inevitable disclosure, the court denied the injunction and determined that any harm to American from disclosure failed to outweigh the hardship to the exec who would effectively have been barred from the industry in which he had worked for two decades.

The case raises a few general practical pointers:

* Consider whether you have adequate controls and agreements in place, both to protect your confidential information from disclosure to competitors and to prevent receipt of unwanted information from competitors.

– If you are an employer and need a noncompete to protect confidential information, get one. Do not rely on the doctrine of inevitable disclosure. Injunctive relief will rarely be granted under New York law on that theory alone.

– For the employee and hiring employer, act immediately to avoid improperly disclosing or accepting any competitor’s legitimately confidential information.

Written by Andre Castaybert | Download v-card