As long as a departing employee isn’t bound by a noncompete agreement, he or she is free to work wherever he or she chooses, right? Not according to the U.S. Court of Appeals for the Third Circuit in Bimbo Bakeries USA, Inc. v. Botticella.

Baker’s secrets

Bimbo Bakeries is one of the four largest baking companies in the United States. Chris Botticella worked for Bimbo as its vice president of operations for California from 2001 through Jan. 13, 2010. He oversaw a variety of areas, including product quality and cost, labor issues, and new product development. While employed by Bimbo, Botticella signed a “Confidentiality, Non-Solicitation and Invention Assignment Agreement” but didn’t sign a noncompete agreement.

In the course of his employment, Botticella acquired a broad range of confidential information about the company. For example, he was one of only seven people who possessed all of the information necessary to replicate the company’s popular line of Thomas’ English Muffins, right down to the secret behind the muffins’ famous “nooks and crannies” texture. In March 2009, Botticella signed a confidentiality agreement with Bimbo.

A battered agreement

On Oct. 15, 2009, Botticella accepted an employment offer from Hostess Brands, one of Bimbo’s primary competitors, and signed an “Acknowledgment and Representation Form.” The form stated Hostess wasn’t interested in and Botticella wouldn’t disclose trade secrets from Bimbo. He agreed to start in January 2010 and continued to have full access to Bimbo’s confidential and proprietary information in the meantime. Botticella didn’t inform Bimbo of his plans to leave until Jan. 4, 2010, and even then he didn’t disclose his plans to join Hostess.

Bimbo learned of that plan when Hostess made an announcement on Jan. 12, 2010. The next day, Bimbo’s vice president for human relations discussed the situation with Botticella, directing him to vacate the company’s offices that day.

After his departure, Bimbo hired a computer forensics expert to investigate Botticella’s use of his company laptop during December 2009 and January 2010. The expert found evidence that indicated Botticella had accessed a number of confidential files during that time. Minutes after his conversation with the vice president of human relations, for example, Botticella accessed 12 files within 13 seconds.

The expert discovered several similar patterns of access in the weeks leading up to Botticella’s last day, which he characterized as “inconsistent with ordinary usage.” His testing also revealed that three external storage devices had at some time been connected to the laptop.

Into the mix

Bimbo sued Botticella for misappropriation of trade secrets. The district court granted a preliminary injunction preventing him from starting work with Hostess and from divulging any confidential or proprietary information.

Botticella appealed the order granting the injunction. He argued that a court can enjoin a defendant from starting a new job to protect only a former employer’s technical trade secrets, and that an injunction is appropriate only when it would be “virtually impossible” for the defendant to perform the new job without disclosing trade secrets.

The Third Circuit held that the law in Pennsylvania (where the case was filed) is clear that even nontechnical trade secrets are protected. The court acknowledged that Pennsylvania courts might enjoin new employment more readily if technical trade secrets are involved but declined to adopt an inflexible rule restricting injunctive relief to such cases.

The court also surveyed previous Pennsylvania cases on the appropriate standard for enjoining employment. It found that the state’s appellate-level court has ruled that the proper inquiry is whether there’s a sufficient likelihood — or substantial threat — of the defendant disclosing trade secrets. The “virtual impossibility” standard didn’t apply. (See the sidebar “Court sidesteps earlier ruling.”)

Proof in the pudding

Turning to the facts at hand, the Third Circuit held that the district court’s injunction was appropriate because Bimbo had demonstrated a likelihood of success on its misappropriation claim. In particular, the court found that the conclusion that Botticella intended to use the trade secrets rested on solid evidence.

This evidence included his failure to disclose his acceptance of a job offer from a competitor, his decision to remain in a position that received confidential information and actually receiving such information after committing to the new job, and his apparent efforts to copy Bimbo’s trade secret information from his laptop onto external storage devices.

Stuck in limbo

Although the court indicated that “it was unclear exactly when [the external storage] devices had been used,” it still found enough of a likelihood of success on the merits to support an injunction. Thus, until trial, Botticella is stuck in limbo.

Sidebar: Court sidesteps earlier ruling

In Bimbo Bakeries USA, Inc. v. Botticella (see main article), the U.S. Court of Appeals for the Third Circuit conceded that one could find support for a “virtual impossibility” standard in a 2007 decision involving claims for violations of a noncompete covenant and misappropriation of trade secrets.

In that case, a three-judge panel of the Third Circuit stated that an injunction against employment was available only when it’s “virtually impossible” for the employee to perform his or her new duties without bringing his or her former job’s confidential information to the new position. But in Bimbo Bakeries, a different three-judge panel explained that the “virtually impossible” language cited in the 2007 case came from an Ohio case and didn’t, in fact, state Pennsylvania’s standard for granting injunctions in trade secret cases.

Traditionally, a panel’s holding in a precedential opinion is binding on subsequent panels — unless the holding is overruled by a full panel of the circuit’s appellate judges. But subsequent panels aren’t bound by mere “dictum” that wasn’t necessary to the court’s holding. And this panel concluded that the discussion in the earlier case of a “virtually impossible” standard was just such nonbinding dictum.

About the corporate and commercial law firm:

Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm located in Dallas, TX.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution. 

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