Whyte v. Schlage Lock Company

Opinion

FYBEL, J.

The doctrine of inevitable disclosure permits a trade secret owner to prevent a former employee from working for a competitor despite the owner’s failure to prove the employee has taken or threatens to use trade secrets. Under that doctrine, the employee may be enjoined by demonstrating the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer’s trade secrets. No published California decision has accepted or rejected the inevitable disclosure doctrine.

[1447]

In this opinion, we reject the inevitable disclosure doctrine. 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.

This holding leads us to affirm the trial court’s order denying the application of Schlage Lock Company (Schlage) for a preliminary injunction and granting the motion of J. Douglas Whyte (Whyte) and Kwikset Corporation (Kwikset) to dissolve a temporary restraining order. We reach the issue of inevitable disclosure because we conclude certain information Schlage seeks to protect does constitute trade secret, but the evidence presented below, viewed (as it must be) through the lens of the applicable standard of review, fails to establish actual or threatened misappropriation.

Facts

Schlage is a subsidiary of defendant Ingersoll-Rand Company (IngersollRand). Kwikset and Schlage manufacture and sell locks and related products. They are fierce competitors and vie intensely for shelf space at The Home Depot, which is the major seller of locks and alone accounts for 38 percent of Schlage’s sales.

Whyte worked as Schlage’s vice-president of sales and was responsible for sales to The Home Depot and other “big box” retailers such as Home-Base, Lowe’s, Menard’s, and Sears. Whyte signed a confidentiality agreement to protect Schlage’s proprietary information and agreed to abide by Schlage’s code of ethics, which forbids disclosure of confidential information for personal or noncompany uses. Whyte did not sign a covenant not to compete.

The Home Depot periodically conducts a review of its suppliers’ product lines, prices, pricing and marketing concessions, and ability to deliver product. The Home Depot uses this “line review” to determine which products it will sell and which products to remove from its shelves. As part of the line review, The Home Depot usually asks vendors, such as Kwikset and Schlage, to submit proposals for pricing and marketing concessions and for the amount of promotional discounts and advertising funds, and to present information about product changes and new products.