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Did Panera Bread Improperly Take Papa John’s Information Technology Executive?

In May 2016, the Defend Trade Secrets Act (“DTSA”) was signed into law. It amends the Economic Espionage Act, creating a federal civil cause of action for trade secret misappropriation claims.

Panera, LLC, the company that operates the well-known Panera Bread cafes, is one of the first companies to assert claims under this new law. In Panera, LLC v. Nettles, a case pending in the Eastern District of Missouri, Panera asserted claims against Michael Nettles, the Company’s former Vice President of Architecture of the Information Technology Department for misappropriation.  Mr. Nettles worked for the company from 2012 until June 2016, when he resigned to work for Papa John’s.  He resigned, despite having signed a confidentiality and non-competition agreement at the time of his hire that named Papa John’s as a direct competitor to Panera.

Not surprisingly, Panera filed a motion for a temporary restraining order (“TRO”) to prevent Mr. Nettles from working with Papa John’s. One key aspect the Court considered in granting the TRO was the reality that Mr. Nettles would inevitably disclose Panera’s trade secrets.  This is referred to as the “inevitable disclosure” doctrine.  Specifically, the Court reasoned that although Missouri nor the Eighth Circuit Court of Appeals (the federal appellate court that covers claims in Missouri), officially recognize the doctrine:

By virtue of his position with Panera, Nettles was privy to Panera’s substantial confidential and trade secret information directly affecting Panera’s actual and prospective development of integrated technology systems, including ongoing business strategy. His employment as a technology executive at Papa John’s is likely to draw upon, as a matter of course, his experience and knowledge with regard to Panera’s confidential systems and business strategy.

The Court’s analysis served as a basis for holding Panera would suffer irreparable harm if Mr. Nettles was not restrained from working with Papa John’s. The Court granted Panera’s motion for a TRO.

The case serves as a cautionary tale for employers. It shows that when a key employee has access to the company’s confidential information and trade secrets, it is possible a court will find the employee will inevitably disclose what he/she learned at the old job.  It also highlights the importance of confidentiality and non-compete agreements for high level employees.  Without both types of restrictions, Panera Bread would have had a much more difficult time preventing Mr. Nettles from working at Papa John’s.

But, did this court make the right decision under the new law? A strong case can be made that it did not! The DTSA provides “any injunction under the DTSA cannot prevent a person from entering into an employment relationship . . .  (unless there is) evidence of threatened misappropriation and not merely on the information that the person knows.”  18 U.S.C. 1836(b)(3)(A)(i)(I).  The Panera Court seems to have done exactly what the Act prohibits.  Only time will tell if other Courts follow Panera or require more active proof of misuse of confidential/proprietary information.

Brody and Associates regularly provides counsel on employment agreements, covenants not to compete, and employment litigation in general.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.