Information Law and Policy Blog

Wexler vs Greenberg (1960)

Overview

This case is about what right a business has to prevent an ex-employee from disclosing trade secrets after leaving the business and being hired by a competitor.

The trade secrets in question are the formulas for three cleaning products.

In this case, a chemist named Greenberg worked for a cleaning products company, Buckingham.  He left Buckingham of his own accord and was hired by one of Buckingham’s distributors, Brite Products Co.  Within a short time of Greenberg working at Brite, his new employer had begun a manufacturing business, and the company had begun making three cleaning products that were essentially identical to products made by Buckingham.

The case hinged on two points. 1. How had Greenberg come to know the ‘recipes’ for the cleaning products.  If it could be shown that Buckingham had taught Greenberg the formulas, then the court would have a problem with Greenberg’s giving the formulas to Brite.  But if Greenberg devised the formulas himself, then he would have the right to take them with him, unless…

2. He had entered into some binding covenant with his employer that expressly forbade him from doing so.

Issues

The court was mindful of any effect their decision would have in disrupting the mobility of employees (from one company to another). It was suggested that employees moving from one company to another was very conducive for technological advances (sharing of skills and minds across an industry). And in an age of atomic bombs and superpower rivalry, the court was hesitant to tamper with this employee mobility

The question of whether there is an implicit non disclosure covenant between employee and employer was visited.  In this case the court found that because Greenberg discovered the formulas himself, there was no implied secrecy covenant between employer and employee (as there would have been if the employer had given Greenberg the secret formulas).

Basically the court found that an employee has the right to use his general knowledge, experience, memory and skill at a future employer, so long as he didn’t disclose any trade secrets that the former employer had given him.

Lastly there is this concept of ‘fairly’ obtained trade secrets. “Ownership of a trade secret does not give the owner a monopoly in its use, but merely a proprietary right which equity protects against usurpation by unfair means.”  As long as trade secrets are ‘fairly’ gotten, it’s fine to use them.

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Whyte vs Schlage (2002)

Overview

This case has to do with trade secrets, and in particular whether the doctrine of inevitable disclosure applies in California.  Whyte is V.P. of Sales at Schlage Lock company. He resigns and is hired immediately by Kwikset Lock company a Schlage competitor.  Schlage accuses Whyte of giving Kwikset numerous trade secrets of various types, including details of Schlage’s sales contract with Home Depot (referred to as a line review).

Facts

Whyte signed a ‘confidentiality’ agreement with Schlage to protect their proprietary information. He did not sign a covenant not to compete.

Issues

The court ruled that Whyte did know some Schlage trade secrets that had to do with marketing strategy. But it also denied that other knowledge that Whyte had could be considered a trade secret. This included market research, and the Home Depot line review.  The court decided, for lack of evidence, that it had no reason to overturn the decision of the lower court that had found that Whyte did not threaten to or actually misappropriate Schlage’s trade secrets.  It is not clear what part of the testimony convinced the lower court that Whyte did not misappropriate the trade secrets. But cited Schlage’s evidence that Whyte disclosed trade secrets to Kwikset was circumstantial.

Misappropriation is generally speaking, improper acquisition of a trade secret or its nonconsensual use or disclosure.

Doctrine of Inevitable Disclosure – This is the idea that if an employee who knows trade secrets goes to work for another company in the same capacity as his previous job, he will inevitably share the trade secrets with the new company. (unless he has the ‘uncanny ability to compartmentalize information’) Therefore the former employer should have the right to prevent the employee going to the competitor.  The California court ruled to reject the Doctrine of Inevitable Disclosure in California because it is “contrary to Caliifornia law, and creates an after-the-fact covenant restricting employee mobility.”