Georgia Supreme Court Rejects Independent Cause of Action for Inevitable Disclosure of Trade Secrets

During the past 15 years or so, courts around the country have considered whether a person can be barred, or enjoined, from engaging in certain types of competitive behavior purely on the theory that the behavior will inevitably result in the disclosure of trade secrets.   The Georgia Supreme Court seems to have rejected this sort of approach in a decision entered in May 2013. 

Georgia has a series of statutes called the Trade Secrets Act, OCGA §§10-1-760 et seq., that define a trade secret and authorize both injunctive relief and monetary damages associated with misappropriation or threatened misappropriation of a trade secret.  Under this body of law, information such as formulae, client lists, financial data, or other business-crucial information that is the subject of efforts to keep it secret and that derives its value from the fact that it is not generally known to those who could benefit financially from the information, may be considered to be a trade secret.  Information that is deemed to be a trade secret is protected from unauthorized use or disclosure in Georgia so long as it remains a trade secret.  Someone who illegally uses or discloses a trade secret can be enjoined, or barred, from continuing to use or disclose the trade secret.  The person can also be required to pay money damages resulting from the illegal use or disclosure. 

Several years ago, when other courts started considering whether to bar a person from simply engaging in activity in which he or she would inevitably disclose trade secrets – regardless of whether the disclosure had occurred or been threatened – the Georgia Supreme Court seemed to suggest that it was receptive to this idea.  In Essex v. Southwire, the Georgia Supreme Court affirmed a decision to bar an individual from joining his former employer’s competitor for the purpose of developing a logistics system.  The Court noted that the employee had developed a logistics system for his previous employer, yielding a competitive advantage for the previous employer following several years of trial and error and an investment of $2 million.  It was assumed that if he were to develop a logistics system for his new employer he would do so more efficiently and at less expense than the first time, and that the competitive advantage would shift to the new employer at the expense of the former employer.  Since Essex was decided, Georgia attorneys have debated whether the decision established the legal concept of inevitable disclosure in Georgia.  The new decision by the Georgia Supreme Court seems to reject inevitable disclosure as a legal concept in Georgia.

In the May 2013 decision, Holton v. Physician Oncology Services, the Georgia Supreme Court considered claims against a former executive with a radiation therapy service for cancer patients.  After Holton was terminated, he joined a competitor as an executive.  The former employer obtained an injunction barring Holton from, among other activities, using or disclosing any of its trade secrets. The injunction was based on the premise that, simply by working for a competitor while having the sort of intimate business knowledge that Holton had, he would inevitably use or disclose his former employer’s trade secrets.  The Georgia Supreme Court concluded that this assumption of inevitable disclosure did not warrant injunctive relief.

Specifically, the Supreme Court noted that, although the Georgia Trade Secrets Act authorizes injunctive relief, the injunctive relief must be supported by evidence that Holton had either already disclosed or used the trade secrets, or threatened to do so.  Here, Holton had testified under oath that he had been instructed by his new employer not to use or disclose any trade secrets.  At the injunction hearing before the trial court, the former employer introduced no evidence that Holton had used, disclosed or intended to use or disclose trade secrets, but instead argued that Holton had a great deal of important knowledge in his memory and would inevitably use or disclose these memorized trade secrets even if he tried not to do so.  The trial court accepted this argument and entered an injunction based merely on the proposition that Holton would inevitably disclose trade secrets if he were allowed to work for a competitor in a capacity similar to that of his position with his former employer.  The Georgia Supreme Court rejected this theory, concluding that Georgia does not recognize a cause of action of inevitable disclosure of trade secrets separate and apart from claims available under the Trade Secrets Act.  Although there will be much discussion among attorneys over the exact interpretation of this decision, it appears that the Georgia Supreme Court was saying that, while evidence supporting the likelihood of inevitable disclosure may be used to support a request for injunctive relief under the Trade Secrets Act, the possibility of inevitable disclosure alone, without evidence of actual or threatened disclosure, is unlikely to warrant injunctive relief.    

The analysis set forth in this article is provided for general understanding only and should not be considered legal advice.  Counsel should be consulted regarding any specific trade secret or confidentiality issues.

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