Legal argument could hamper high-tech job-changers

The high-profile dispute largely hinges on a noncompete agreement Lee signed with Microsoft. But in court filings, the software giant has also mentioned the theory of "inevitable disclosure," which holds that in some circumstances people can't avoid sharing or relying on trade secrets from their former employer when moving to a competitor.

Thanks to this increasingly popular legal argument, techies and other employees could be in for a surprise when they try to switch companies. In states that accept the inevitable disclosure concept, employers can sue defectors even if they've signed only a confidentiality agreement--or even if they haven't signed an employment agreement at all, said Robin Meadow, an attorney with the firm Greines Martin Stein & Richland.

"It's sort of an unwritten noncompete contract, in effect," Meadow said. "The fact that you haven't signed something doesn't mean you're safe when you move to another company."

Chief scientists and engineers at high-tech companies, as well as executives, are particularly vulnerable to the inevitable disclosure argument, according to Martin Foley, an attorney with the law firm Sonnenschein, Nath & Rosenthal. Courts making inevitable disclosure rulings tend to bar a worker from a new position for a year or less, but the concept conceivably could keep someone from taking a new job in their field forever, Foley said.

"Inevitable disclosure is ultimately, potentially, a form of indentured servitude, if it's applied in an extreme manner," Foley said.

A few years ago, Foley himself helped convince a California court of appeals to reject the inevitable disclosure doctrine. But it has been upheld in federal court. Employer suits that call on the inevitable disclosure doctrine are on the rise and now number in the hundreds each year, said Johnny Taylor, partner at the law firm McGuireWoods. It's difficult to say how many state courts have ruled in favor of at least a limited version of inevitable disclosure.

"It's become a trend," said Taylor, also chair of the Society for Human Resource Management professional group. "This theory or doctrine is taking hold."

Microsoft v. Google
The issue has gained renewed attention thanks to a bitter and at times personal legal spat between tech giants Microsoft and Google. After Google hired Lee to run its China operations last month, Microsoft filed suit in a Washington state court claiming Lee was breaking a contract by taking the new position. Coverage of the legally complex case has focused on Microsoft's claim that Lee's new job violates a one-year noncompete clause, which bars him from doing work that would compete with projects he worked on at Microsoft.

But near the end of Microsoft's initial complaint, the company accuses Lee of violating nondisclosure provisions in his contract. In doing so, the software giant calls on the inevitable disclosure theory: "Lee's conduct threatens to disclose or Lee inevitably will disclose Microsoft's trade secrets to Google and/or others for his and/or Google's financial gain in the course of working to improve Google search products that compete with Microsoft, and in the course of establishing and building Google's presence in China to compete with Microsoft's efforts in China."

Microsoft spokeswoman Stacy Drake said the company is not trying to keep Lee, who founded a Microsoft research center in China, from taking his Google post forever. "We are asking that Dr. Lee and Google honor the one-year noncompete/confidentiality agreement that Lee signed with us," Drake said in a statement.

In court documents, Google has called Microsoft's suit a "charade" that's meant to scare Microsoft employees into staying put. Google has claimed that Lee is "not a search expert" and described him as peripheral to Microsoft's business in China--though Microsoft says a document it found in the recycle bin of one of Lee's computers indicates Google anticipated a possible lawsuit in hiring Lee.

Lee has said he has not disclosed any Microsoft secrets to Google, and Google said it has told Lee not to disclose Microsoft's confidences.

A recent court filing by Lee makes the case that he does not possess key confidential information related to Microsoft's Internet search efforts: "Dr. Lee states that he has never seen and has no relevant technical knowledge of Microsoft's Internet search engine source code, nor has he ever attended a Microsoft Internet search architectural review."

Google declined comment for this story. (Google representatives have instituted a policy of not talking with CNET News.com reporters until July 2006 in response to privacy issues raised by a previous story.)

A Washington judge has temporarily barred Lee from performing work at Google that competes with what he did at Microsoft.

Even if Microsoft's argument about Lee breaking the noncompete clause fails in court, the company could prevail with its claims about

There's a simple logic behind the principle of inevitable disclosure, said Lee Paterson, an attorney with the law firm Winston & Strawn: Despite promises to avoid using proprietary information from a past employer, that may be impossible in practice. "People can't do frontal lobotomies of themselves," he said. "You can't shut off part of your brain."

Companies often have invoked the doctrine in cases where the employee did not sign agreements not to compete or not to disclose confidential information, said Dick Leasia, partner in the law firm Thelen Reid & Priest. To make the case, employers have relied on the assumption that courts will protect their trade secrets. "It became a species of unfair competition or theft of trade secrets," he said.

A beverage industry brouhaha a decade ago became a landmark case in the area of inevitable disclosure. After Quaker Oats, maker of Gatorade, hired an executive away from PepsiCo, PepsiCo sued to keep him from assuming his new duties. In December 1994, a federal district court barred the executive, William Redmond, from taking his new job at Quaker through May, 1995. An appeals court upheld the decision, saying the Quaker job "would initially cause him to disclose trade secrets."

In its ruling, the appeals court suggested the concept of inevitable disclosure does not apply to all cases of employees jumping ship to a competitor. A solid case for the unavoidable misuse of secrets must be made, the court ruled. It said PepsiCo presented "substantial evidence" that William Redmond had "extensive and intimate knowledge" about PepsiCo's strategic goals for 1995.

"PepsiCo finds itself in the position of a coach, one of whose players has left, playbook in hand, to join the opposing team before the big game," the court said.

Theoretically, the inevitable disclosure doctrine could prevent someone from ever taking a new job in their chosen area of expertise. Paterson gave the hypothetical case of a person who knows the secret formula for Coca-Cola seeking to join another drink company. "You might very well get a ruling from the judge that you can't go to work for a competitor in the beverage industry," he said.

In practice, though, trade secrets tend to get stale over time, and employment bans are limited, Taylor said. "I've never seen anything (lasting) past two years," he said.

To Taylor, growing numbers of inevitable disclosure suits are a response to the twin trends of workers switching employers more frequently and the shift to a more "knowledge"-based economy. He says employers increasingly are asking employees at all levels to sign noncompete and confidentiality agreements, and he links rising inevitable disclosure litigation to the growing number of patents filed. Both, he said, illustrate companies aggressively protecting their intellectual property.

Businesses that employ the inevitable disclosure doctrine aren't likely to get a friendly welcome in California courts, however. In 2002, a California appeals court explicitly rejected the concept: "We hold this doctrine is contrary to California law and policy because it creates an after-the-fact covenant not to compete, restricting employee mobility."

The ruling, in a case involving Schlage Lock Company and a former Schlage employee who joined competitor Kwikset, cited a California law that frowns on noncompete agreements, and said "California public policy strongly favors employee mobility."

Paterson, for one, predicts that courts throughout the country will follow California's lead over time when it comes to inevitable disclosure suits. As society becomes more economically mobile, judges themselves are moving from job to job in the course of their careers and will be sympathetic to workers doing the same, he argued. "The rights of the employee are going to trump the rights of the employer," he said.

Taylor isn't so sure. "The judges who understand business realities understand that inevitably there will be opportunities for information to be disclosed to competitors," he said.