Authored by Griffith B. Prince Jr.
Injunctive relief—temporary restraining orders, injunctions pendente lite, and final mandatory and prohibitory injunctions—has long been held to be the life blood of trade secret litigation. In particular, because a trade secret, once disclosed, may be "lost forever,"1 the misappropriation, unauthorized disclosure, and/or wrongful use of trade secrets has been held to give rise to a presumption of "irreparable injury" sufficient to support the entry of an injunction.2
Three recent decisions, two in the Supreme Court—eBay Inc. v. MercExchange, LLC3 and Winter v. Natural Resources Defense Council, Inc.4 —and one in the Court of Appeals for the Second Circuit—Faiveley Transport Malmo AB v. Wabtec Corporation5—call that credo into serious question, and, with particular reference to the doctrine of "inevitable disclosure," appear to threaten the scope, if not the viability, of the doctrine itself.
This article discusses the decisions in question and their application to a number of recent trade secret cases. Notably, a number of these recent cases fail to cite either of those Supreme Court decisions, or Faiveley, with respect to the prerequisites for preliminary or permanent injunctive relief, and it is fair to speculate that the outcomes in at least some of them might have changed if those precedents had been applied.
In the trade secrets cases in which one or more of these three decisions have been applied courts have reached inconsistent and, to some extent, conflicting decisions. No circuit court decisions have yet been reported that resolve, or even begin to address, those inconsistencies and conflicts. Instead, many courts have merely cited these decisions as foundational for injunctive relief, but nonetheless proceeded in the application of varied standards. It therefore remains uncertain what the long-term impact of eBay, Winter, and Faiveley on trade secret litigation will be.
Nevertheless, it seems clear that these three cases, alone or in combination, may make it more difficult to obtain injunctive relief in trade secrets cases in federal courts in the future, even where actual or threatened misappropriation of trade secrets is shown. Moreover, if literally applied, Faiveley may call into question the scope, if not the viability, of the doctrine of inevitable disclosure under all but the most extreme circumstances. These three decisions—especially when considered together with other recent Supreme Court cases such as Bell Atlantic Corporation v. Twombley6 and Ashcroft v. Iqbal7 that raise the bar for plaintiffs in satisfying the pleading requirements of the Federal Rules and opposing motions to dismiss—may therefore give trade secrets plaintiff's counsel good reason to consider whether there are advantages to bringing suit in a state, rather than a federal, forum.
The Trilogy of Cases That Potentially Limit Injunctive Relief in Trade Secret Litigation
In eBay Inc v. MercExchange, LLC, the Supreme Court unanimously determined that an injunction should not automatically issue based on a finding of patent infringement. Instead, the trial court must weigh all four equitable factors traditionally considered in determining whether an injunction should issue.
MercExchange sued eBay for infringement of its online auction patent portfolio and prevailed after a jury trial. Following the verdict, MercExchange sought an injunction to prevent eBay's continued infringement of those patents. On appeal, the Federal Circuit held that, as a general rule, permanent injunctions will issue after a finding of patent infringement. The Supreme Court overturned the Federal Circuit, holding that nothing in the Patent Act eliminated the requirement of weighing all four established factors in determining whether an injunction should issue.
That test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.
Although it was a patent infringement case, the application of eBay to requests for injunctive relief in intellectual property cases in general has been growing.8 It therefore seems likely, if not inevitable, that the eBay four-factor test will be applied in trade secret cases and, in particular, that evidence of irreparable injury, not just reliance on a presumption, will be required.
A second Supreme Court decision applied eBay to motions for preliminary injunctions. In Winter v. Natural Resources Defense Council, Inc. the Supreme Court reversed the entry of a preliminary injunction on the basis that the plaintiff had established only a "possibility" of irreparable harm to marine mammals from the Navy's use of sonar training exercises off the coast of California. The Supreme Court held that a movant must make a showing that irreparable injury absent entry of preliminary injunction is not merely "possible," but rather "likely."
At a minimum, under Winter, plaintiffs seeking preliminary injunctions in future trade secrets cases may well be required to satisfy a higher standard of proof—likelihood, not mere possibility, of irreparable injury—than some courts have accepted in the past. Moreover, certain of the "balancing" or "sliding scale" tests formulated by a number of the regional circuits in deciding motions for preliminary injunctions may no longer be viable. Tests such as those employed by the Second, Seventh, and Ninth Circuits, among others,9 permitting entry of an injunction based on a showing of "possible" irreparable injury when there is a strong showing of likely success on the merits or the balance of hardships tips strongly in the moving party's favor—may not survive.
In Faiveley Transport Malmo AB v. Wabtec Corporation, the Second Circuit Court of Appeals potentially impeded the ability of trade secret plaintiffs to obtain injunctive relief by stripping away any presumption of irreparable harm arising from a showing of likelihood of success on the merits. While acknowledging that the value of trade secrets stems from their secrecy, the court drew a distinction between an accused misappropriator who disseminates the trade secrets to third parties and one who merely uses the secrets for its own profit. In the instance of the former, a rebuttable presumption of irreparable harm may arise, but the latter situation, the court held, warrants no such presumption. The court rationalized this distinction on the basis that "once a trade secret is misappropriated, the misappropriator will often have the same incentive as the originator to maintain the confidentiality of the secret in order to profit from the proprietary knowledge."10
The Second Circuit's decision in Faiveley (like the Supreme Court's decision in eBay) has been much discussed, and criticized, as failing to afford adequate protection to a trade secret owner; placing the protection of the owner's trade secrets in the hands of a competitor (and one whom the court has already found likely to be guilty of misappropriation or misuse); and, in essence, granting the defendant a compulsory license at least for the duration of the litigation, if not beyond.11
Moreover, if the Faiveley holding is literally applied to inevitable disclosure cases, it may be difficult if not impossible for plaintiffs in such cases to obtain injunctive relief, at least in the absence of evidence of wrongful intent or actual or threatened disclosure to third parties, not just to a former employee’s new employer. On its face, Faiveley requires, as a prerequisite to such relief, a showing that the former employee and/or new employer have disclosed, or threaten to disclose, the former employer’s trade secrets to third parties or that they otherwise threaten to destroy or impair their value. Such showings are not required under current inevitable disclosure case law, and indeed that doctrine has evolved in large part to protect trade secrets in cases where such showings cannot be made. Moreover, they are particularly difficult to make where details of the former employee's new duties and activities, the new employer's operations, and the bona fides or mala fides of both, are in defendant’s rather than plaintiff's possession at the pleading and motion to dismiss stage. These problems are compounded by the Supreme Court's recent Twombley and Iqbal decisions that raise the bar for plaintiffs in satisfying the pleading requirements of the Federal Rules12 and opposing motions to dismiss.13 Faiveley, if literally and categorically applied, may therefore effectively ring the death knell for many inevitable disclosure cases.
Recent Trade Secret Cases Discussing Ebay, Winter, and/or Faiveley
Cases Discussing eBay
A number of courts have cited eBay in trade secrets cases, as well as in trademark and copyright cases, in the more than three years since eBay was decided. The extent to which eBay has been recognized and applied as controlling in non-patent infringement litigation has, however, varied.
Four district court decisions, for example, acknowledge and apply eBay in different ways. In Rx.com v. Hruska,14 a Texas federal district court applied eBay in denying plaintiff's motion for summary judgment and a permanent injunction against trade secret misappropriation and disclosure. Plaintiff offered evidence that defendant had disclosed its trade secret information to a third party, allegedly pursuant to a subpoena, in another proceeding. However, the court found that plaintiff had failed to meet eBay's requirement of a showing of irreparable injury where the claimed trade secret information was, in fact, not confidential and where plaintiff no longer operated the business from which the information allegedly had been misappropriated.
In TM Computer Consulting,15 a trademark infringement and unfair competition case, the court also preliminarily enjoined unauthorized disclosure of plaintiff's proprietary information. The court rejected application of eBay in favor of the Ninth Circuit's presumption that where a plaintiff demonstrates a likelihood of confusion in a trademark infringement action, the plaintiff will suffer irreparable harm absent an injunction. Despite only analyzing plaintiff's likelihood of success on the merits of its trademark infringement and unfair competition claims, the court also enjoined defendant from disclosing any of plaintiff’s trade secrets and confidential information related to the disputed software.
Oculus Innovative Sciences, Inc. v. Nofil Corporation16 and ClearOne Communications, Inc. v. Chiang17 both purport to apply eBay in granting injunctive relief. Interestingly, both decisions find the standards of eBay satisfied, but both involved entry of permanent, not preliminary, injunctions. Thus, the question remains whether the stricter prerequisites for injunctive relief espoused by eBay may be too difficult for a plaintiff to satisfy at the preliminary injunction or temporary restraining order stage, particularly in a trade secret misappropriation case.
In Oculus, the court found that plaintiff had established its trade secret misappropriation claim on the basis of evidence that plaintiff had disclosed trade secrets to defendant under a non-disclosure agreement (NDA) and that defendant had made unauthorized use of that information in its manufacturing operations. The court further found a threat of irreparable injury based on evidence that defendant had agreed in the NDA that irreparable harm would result from defendant's unauthorized disclosure of plaintiff's confidential information.
Likewise in ClearOne, the court granted plaintiff's motion for a permanent injunction after a jury verdict that defendants willfully misappropriated plaintiff's trade secrets. Also citing Winter with respect to the requirement of irreparable harm, the court found that irreparable harm would result in the absence of an injunction based on: (1) the threats to plaintiff's market position if its trade secrets were to be used or disclosed by a competitor, and (2) the danger that defendants or their third party licensees might still possess and might continue to use the trade secrets in the future.
A recent Northern District of California decision, TMX Funding, Inc. v. Impero Technologies, Inc.,18 appears to confirm that despite eBay, in the Ninth Circuit, a presumption of irreparable injury in a trade secret misappropriation case following a showing of a likelihood of success on the merits remains intact. Acknowledging that, post eBay, the viability of this presumption may be in question, the TMX Funding court nonetheless cites a Ninth Circuit trademark decision affirming the existence of the presumption, and states "[w]hile the Ninth Circuit has not addressed the presumption of harm in a trade secret action, it follows reasonably that the presumption remains valid in this circuit following Marlyn Nutraceuticals."19 However, despite its endorsement of a presumption, the district court declined to issue a preliminary injunction based on the plaintiff's inadequate showing of irreparable harm. While still refraining from adopting eBay wholeheartedly, this decision may signal an unwillingness to apply a presumption absent at least some evidence of irreparable harm.
Cases Discussing Winter
The application of Winter to preliminary injunction motions in trade secrets and other intellectual property litigation has varied to an even greater extent than is the case with eBay. In particular, the courts have struggled with, and come to inconsistent and inconclusive results on, the question of whether Winter entirely supersedes the various tests for preliminary injunctive relief previously formulated and applied in the regional circuits.20
The district courts in the Ninth Circuit, particularly, have struggled with the application of Winter as the standard for granting injunctive relief. Ninth Circuit district court cases decided immediately after Winter almost entirely acknowledge the Supreme Court decision, but either overtly or impliedly fail to apply it. Interestingly, while most of these decisions cite Winter as the standard, the courts nonetheless apply their own fact-based or factcontextual variations, often in contradiction to Winter.
For example, in Les Concierges, Inc. v. Robeson,21 the Northern District of California district court denied the plaintiff's motion for preliminary injunction, citing Winter for the proposition that a plaintiff must establish that it is likely to succeed on the merits. Nevertheless, the Les Concierges court also considered the Ninth Circuit's “alternative” test under which a plaintiff's showing that "'serious questions are raised' as to the merits of its claim" may entitle a plaintiff to an injunction if the plaintiff also shows that "the balance of hardships tips sharply in [its] favor."22 Conveniently, the court did not need to resolve whether the circuit's alternative test survives in light of Winter because, under either standard, the plaintiff had failed to produce evidence that the defendant misused or wrongfully disclosed its trade secrets.
Likewise, in Western Directories, Inc. v. Golden Guide Directories, Inc.,23 the Northern District of California district court cited Winter as the standard for granting injunctive relief, but instead granted the plaintiff's motion for a preliminary injunction on the basis that the plaintiff had raised "sufficiently serious questions" through evidence that defendant, former founder of plaintiff's business, had stated that he had taken plaintiff's computer and accessed its contents including lists of advertisers and terms of contracts. Such a showing satisfied the sliding scale standard. One other court decision, likewise recognizing Winter but also applying the ninth Circuit's sliding scale test permitting a preliminary injunction to issue upon a lesser showing of success on the merits, appears to present its rationale for continuing to apply the test: "[D]iscovery has not yet commenced, and it would be unreasonable to require [plaintiff] to demonstrate in connection with the present motion the precise ways in which Defendants may have used [plaintiff]'s trade secrets, given that Defendants are the only ones who possess such information."24
After this initial flush of denial, however, even the Ninth Circuit's ardent district courts have begun to acknowledge that Winter supersedes the Ninth Circuit's previous, more lenient "possibility of harm" test. In Sky Capital Group, LLC v. Rojas, the district court of Idaho denied plaintiff's motion for preliminary injunction, finding that the plaintiff had not demonstrated a likelihood of irreparable harm because the threatened injury that it claimed—market disadvantage, disclosure and consequent loss of trade secrets, and loss of existing and potential customers—had either already been incurred or was capable of being remedied by a monetary award.25 Similarly, the district court in Leatt Corporation v. Innovative Safety Technology,26 has recognized and applied Winter in denying plaintiff's motion for preliminary injunction where the defendant's product allegedly comprised of plaintiff's trade secrets was already on the market and thus plaintiff could not show irreparable harm. Likewise in TMX Funding, Inc. v. Impero Technologies, Inc.,27 the district court applied Winter, stating in dicta that the lesser standard is no longer controlling or even viable in the Ninth Circuit.
Other circuits, including the Second Circuit, have also vacillated in the application of Winter. In International Business Machines Corporation v. Johnson,28 the Southern District of New York district court considered and rejected IBM's request for a preliminary injunction to restrain its former Vice President of Corporate Development from going to work as Senior Vice President of Strategy at Dell. The court found that because of factual uncertainties as to whether Johnson had ever executed a binding and effective non-compete agreement with IBM, the latter would face a "daunting, if not insurmountable task" at trial and therefore could not show a likelihood of success on the merits of its breach of contract claim. The court acknowledged, but refused to resolve, the tension between the Second Circuit's previously-established preliminary injunction test "allowing parties who cannot show a likelihood of success to obtain an injunction if they show that there are 'questions so serious, substantial, difficult, and doubtful as to make them fair ground for litigation,'"29 on the one hand, and Winter's requirement that a plaintiff must show a likelihood of success on the merits and that irreparable harm is likely absent an injunction, on the other. Despite language suggesting that the court would have applied its own circuit's alternative test, the court ultimately states that a "party seeking injunctive relief must establish a likelihood of success on the merits and that irreparable injury is likely in the absence of an injunction; a possibility of either is insufficient."30
However, more recently, Southern District of New York and Connecticut district courts have failed to cite or apply Winter to motions for preliminary injunctions in trade secret misappropriation cases. The courts in Nebraskaland, Inc. v. Brody,31 and Genworth Financial Wealth Management, Inc. v. McMullan32 instead continue to cite regional standards, namely that a party seeking a preliminary injunction must demonstrate: (1) that it will be irreparably harmed if an injunction is not granted, and either (2) a likelihood of success on the merits or (3) sufficiently serious questions going to the merits to make them fair ground for litigation and a balance of the hardships tipping decidedly in its favor. The Nebraskaland court does cite the Faiveley standard that irreparable harm must be actual and imminent, but ultimately concludes that the plaintiff's customer lists and price lists were public information and thus not trade secrets. Genworth also cites Faiveley, as further discussed infra.
Recent decisions by district courts in the Tenth Circuit have unabashedly punted a decision regarding the continued viability of a regional preliminary injunction standard in light of Winter. In March 2010 in SBM Site Services, LLC v. Garrett,33 a plaintiff was denied a temporary restraining order seeking to restrain defendant from disclosing plaintiff's trade secrets. The court found that plaintiff's unsubstantiated fears that defendant had used its trade secrets for nefarious purposes were not "certain, great" or "actual" enough to warrant injunctive relief. Seemingly applying a standard akin to Faiveley, the court acknowledged that the application of the Tenth Circuit's lenient standard for granting preliminary injunctions has been "questioned" by at least one Tenth Circuit district court in light of Winter. However, given the plaintiff's unsubstantiated showing of irreparable harm, the court need not, and indeed simply stated that it would not, address the disconnect between the standards.
Such sporadic and unpredictable application of the heightened Winter standard to preliminary injunctions for trade secret misappropriation leaves a party seeking such an order without much firm guidance as to the probability of success.
Decisions Issued after Faiveley and the Status of the Inevitable Disclosure Doctrine
Courts citing Faiveley in trade secrets cases have, by and large, accepted and applied its holding that actual or threatened disclosure to third parties, or other impairment of their value must be shown and that irreparable injury is not presumed. Some courts, however, have entered injunctions on the basis of that presumption even after citing Faiveley, and no court yet appears to have recognized the full potential impact of Faiveley on the inevitable disclosure doctrine.
In American Airlines, Inc. v. Imhof,34 the court found that defendant Imhof, formerly the senior-ranking employee of American Airlines' New York Sales Division who left to join Delta Airlines in a comparable position, had access to and upon leaving took copies of allegedly trade secret information that "in any case, is both confidential and competitively sensitive." American sought a preliminary injunction to bar Imhof from assuming his new position with Delta.
American made several arguments in support of its motion for preliminary injunction. First, it argued that defendant's concession that he had misappropriated trade secrets gave rise to a presumption of irreparable harm. Noting that American had not cited Faiveley, however, the court rejected this contention out of hand. American next argued: (1) that Imhof was likely to disclose the documents and information that he had copied to Delta, especially in view of his knowing and intentional misappropriation of them, (2) that he intended to disclose such information and use it for Delta's benefit in his new job, and (3) that he would inevitably do so because he carried that information in his head. The court rejected the first two of these arguments. As to the third, the court analyzed American's invocation of the "inevitable disclosure" doctrine and rejected it on the facts of the case at bar, principally but not exclusively because much of the allegedly misappropriated information was "so obvious and so general as to be virtually meaningless" and because Imhof was not likely to remember the details of the rest.
Notably, even after citing Faiveley as rejecting a presumption of irreparable injury, the court did not discuss that case in the context of its analysis of American's "inevitable disclosure" claims—even though Faiveley's rationale and holding would appear to have been sufficient to reject those claims on the ground that Imhof, in his new position, and Delta, as his new employer, would have had the same interest in maintaining their secrecy as American.
In Genworth Financial Wealth Management, Inc. v. McMullan, plaintiff was granted a preliminary injunction against defendants, plaintiff's former employees, where defendants had downloaded and copied plaintiff's client information and investment portfolio management histories.35 Citing Faiveley's requirement for indicia of dissemination of the trade secrets beyond the competitor's own business, the Connecticut district court found sufficient dissemination through the defendants’ provision of plaintiff's information to counsel for a class action instituted against plaintiff: "Defendants have misappropriated protected, proprietary Genworth information and is motivated to further impair both the value of Genworth's reputation and the exclusivity of the information in question."36 The presumption of irreparable harm being unrebutted, the court issued a narrowly drawn injunction.
The use of Faiveley to limit the inevitable disclosure doctrine has been applied in New York state court. In Systems Management Planning, Inc. v. Gordon,37 a New York state court case, the court rejected plaintiff's contention that proof of trade secret misappropriation ipso facto raises a presumption of irreparable harm, and cited the Second Circuit's Faiveley decision in partial support of its holding to that effect. The court rationalized its reliance upon Faiveley to on the grounds of New York courts' "very tentative acceptance of the related inevitable discovery doctrine." While the application of Faiveley in a state court case may presage a willingness on the part of other courts to apply the Second Circuit's Faiveley decision, especially in limitation of the doctrine of inevitable disclosure in jurisdictions that have not readily embraced it, Faiveley appears to have been applied only to a single trade secret misappropriation decision outside the Second Circuit.
A New Jersey district court in Esquire Deposition Services, LLC v. Boutot,38 applied Faiveley in granting plaintiff's motion for a preliminary injunction. Citing Faiveley as persuasive authority, the court found a likelihood of success on the merits of plaintiff's trade secret claim. The court also found a likelihood of irreparable injury absent a preliminary injunction where defendants (former employee and new employer) were in possession of plaintiff's trade secrets and confidential information and it appeared that defendant's new employer was willing to capitalize on this possession and on former employee's specialized business experience to compete with plaintiff.
The court cited Faiveley for the proposition that "[a] rebuttable presumption of irreparable harm might be warranted in cases where there is a danger that, unless enjoined, a misappropriator of trade secrets will disseminate those secrets to a wider audience or otherwise irreparably impair the value of those secrets." The court cited this proposition from Faiveley as persuasive and as a further basis for finding irreparable harm, ignoring or overlooking the fact that the "wider audience" the Faiveley court referred to encompassed third parties outside the new employer's organization.
While the potential impact of Faively on the inevitable disclosure doctrine was predicted to resonate outside the Second Circuit, that premonition has not yet been borne out by subsequent decisions. The most recent appellate decision discussing inevitable disclosure, in fact, does not even cite Faiveley. In Bimbo Bakeries USA, Inc. v. Botticella,39 the Third Circuit affirmed the Eastern District of Pennsylvania's grant of a preliminary injunction preventing defendant, plaintiff's former senior vice president and one of only seven individuals knowing the secrets of the famous "nooks and crannies" in Thomas' brand English muffins, from starting work for Hostess, Inc., plaintiff's competitor. The district court had plainly approved of the inevitable disclosure doctrine: "A court may enjoin threatened misappropriation of a trade secret in addition to actual misappropriation. When analyzing threatened misappropriation of trade secrets, Pennsylvania courts apply the 'inevitable disclosure doctrine.'"40 In finding threatened disclosure, the district court looked at defendant's conduct in continuing to work for plaintiff after accepting the competing position, surreptitiously accessing confidential documents, and copying plaintiff's trade secret information onto external storage devices prior to departure.
On appeal, the Third Circuit held that a preliminary injunction barring employment of a defendant by plaintiff's competitor may be warranted where there is a "sufficient likelihood, or substantial threat" that defendant will reveal trade secrets. Again, Bimbo Bakeries did not involve disclosure, or any immediate threat of disclosure, to third-parties, but rather a competitor who presumably, under Faiveley, possessed the same motivation to maintain secrecy as the plaintiff. Retreating slightly from the district court's ardent, if not confusing, application of the inevitable disclosure doctrine, the Third Circuit upheld the injunction based on a showing of a sufficient likelihood or substantial threat of disclosure. Acknowledging the inevitable disclosure doctrine, but finding the district court's injunction not issued pursuant to it, the Third Circuit nonetheless characterized defendant's anticipated actions as if inevitable, including chiding defendant's purported mental blocking of plaintiff's confidential information and repeatedly referring to the similarity between defendant's former and new positions. Notwithstanding these suggestive statements, the Third Circuit rejected defendant's argument that the district court failed to apply the "virtual impossibility” standard in which injunctions are only permitted where plaintiff shows that it is "virtually impossible" for the defendant to perform his new job without disclosing trade secrets, finding the standard inapplicable under Pennsylvania trade secret law. BimboBakeries thus recognizes the inevitable disclosure doctrine, but applies an arguably equivalent standard under the rubric of a "sufficient likelihood or substantial threat" of disclosure. While not citing Faiveley, the Third Circuit's deliberate departure from using the term "inevitable" may similarly signal some impending limitation of the doctrine itself.
Likewise, in Proudfoot Consulting Co. v. Gordon,41 the Eleventh Circuit reversed a decision granting plaintiff an injunction and damages relating to a covenant not to compete. In reaching this decision, the Eleventh Circuit ruminated on the existence and application of the inevitable disclosure doctrine in trade secrets law, stating that "[a]s other jurisdictions have recognized, under trade secrets law, threatened misappropriation can be enjoined where, based on the details of the trade secrets at issue and the employee's position at the new employer, disclosure of the trade secrets would be inevitable."42 Although Proudfoot was not a trade secret misappropriation case, the court nonetheless continued questioning, not the existence of the inevitable disclosure doctrine (in light of Faiveley or otherwise), but rather whether its application results in a different outcome than would otherwise ensue.
Recent Cases Evaluating Preliminary Injunctive Relief without Discussing Ebay, Winter, and/or Faiveley
Despite the weighty impact of eBay, Winter, and Faiveley on a plaintiff's ability to obtain injunctive relief, and the widespread recognition and (at least to some extent) application of these decisions across circuits riddled with various entrenched regional standards, a number of courts have entered preliminary and/or permanent injunctions without citing eBay, Winter, and/or Faiveley in a handful of recent trade secrets cases. It is open to question whether the outcome in these cases would have been if the rules of any of those cases had been applied.
Although not proceeding through the preliminary injunction factors, the Eastern District of Pennsylvania in Maaco Franchising, Inc. v. Augustin,43 cited a Third Circuit test for issuing preliminary injunctions. The cited test did not require a likelihood of irreparable harm, but rather stated that the court would look at the "extent to which the defendant will suffer irreparable harm." Two recent district court decisions from the Fifth and Eleventh Circuit likewise apply their own tests in language akin to, but notably different from, Winter, requiring a "substantial" showing of success on the merits and a "substantial" threat of irreparable harm.44 The Eighth Circuit, deciding a trade secret preliminary injunction motion in May 2009, failed to cite eBay, Winter, or Faiveley, instead citing a 1981 Eighth Circuit decision as providing the standard under which a trade secret preliminary injunction motion is to be decided.45 While this court did not evaluate all four preliminary injunction factors as the plaintiff had failed to show a likelihood of success on the merits, the irreparable harm test cited weighed "the presence or risk of irreparable harm."46 The Eastern District of Wisconsin district court similarly applied a Seventh Circuit test requiring a threshold showing of three requirements— (1) some likelihood of success on the merits of its claims; (2) the plaintiff will suffer irreparable harm if the injunction is denied; and (3) there is no adequate remedy at law—following by a sliding scale or balancing test.47
This litany of recent decisions indicate that circuit courts may be slow or simply unwilling to relinquish their long-standing preliminary injunction tests in favor of the facially more stringent tests articulated in the Supreme Court decisions in eBay and Winter.
Given the significant departure of eBay, Winter, and Faiveley from prior precedent, the failure to apply these decisions likely can affect the delicate equilibrium between the grant and denial of injunctive relief. By way of example, several recent decisions granting injunctive relief might, in fact, have denied such relief had they applied eBay, Winter, and/or Faiveley.48 In The Rightthing, LLC v. Brown,49 the Northern District of Ohio granted plaintiff's motion for a temporary restraining order prohibiting defendant from using or disclosing allegedly misappropriated trade secret information based on its finding, inter alia, a threat of irreparable harm because such misappropriation would result in the disclosure of its trade secrets and give defendant's new employer a competitive advantage. It is fair to speculate that, if the Rightthing court had in fact applied eBay, Winter, and/or Faiveley in deciding plaintiff's motion for a TRO, that motion might have been denied. The court did not find, or refer to any evidence to suggest, that defendant had disclosed plaintiff's alleged trade secrets to a third party, as opposed to merely using them in the course of her new job. In fact, the court denied plaintiff's later motion for modification of the TRO to preclude defendant from working for her new employer on the ground that the new employer had taken adequate steps to avoid disclosure of them.
Similarly, SKF USA, Inc. v. Bjerkness50 granted plaintiff's motion for a preliminary injunction because: (1) plaintiff had established a reasonable likelihood of success on the merits of its claims for breach of the nondisclosure and non-compete provisions of defendants' employment contracts, and (2) such breach threatened plaintiff with irreparable harm. Without citing eBay, Winter, or Faiveley with respect to the issue of irreparable harm or otherwise, the court instead cited two district court decisions for the propositions that a threat of irreparable harm can be "inferred" from breach of a restrictive covenant,51 and that threatened endangerment of customer relationships constitutes irreparable harm.52 These propositions on the basis of which irreparable harm was found, of course, run directly counter to the holdings of eBay and Winter.
The trilogy of cases discussed in this article—eBay, Winter, and Faiveley—does nothing to ease a trade secret owner's burden in seeking injunctive relief against the misappropriation, unauthorized use, and/or wrongful disclosure of its trade secrets.
Quite the contrary, eBay may be applied to limit the availability of permanent injunctions even where trade secret claims are upheld at trial; Winter may preclude injunctive relief pending trial unless a likelihood, not just a possibility, of irreparable injury is shown; and Faiveley may rule out injunctions against disclosure to and use by a former employee's new employer unless a threat of further disclosure or other impairment of the trade secrets' value can be shown. The impact of the latter on inevitable disclosure cases remains to be seen, but Faiveley may make injunctive relief difficult to obtain in any but the most egregious situations involving evidence of actual or threatened disclosure to third parties, or other evidence of wrongful conduct or intent.
Taken together with the Supreme Court's recent decisions in Iqbal and Twombley, the trilogy of cases discussed in this paper may thus call into question the availability of effective relief in trade secret cases in federal courts in the future.
On September 7, 2010, technology giant Hewlett-Packard Company (HP) filed a complaint against Mark Hurd, its former Chief Executive Officer, in the Superior Court of the State of California, alleging breach of contract and misappropriation of trade secret claims. Mark Hurd, who had served as CEO for HP for five years, accepted a position as President of HP's competitor, Oracle. Hurd had executed confidentiality agreements containing protective covenants providing that he would not engage in conflicting business activities for a period of 12 months.
The HP/Hurd/Oracle dispute has received considerable high-profile attention in the press, much of which has questioned the viability of HP's claims under California law. As California courts have not looked favorably on either the inevitable disclosure doctrine or the enforceability of non-compete provisions, this case may prove to be a contentious testing ground for the viability of the inevitable disclosure doctrine in California. As HP has requested both preliminary and permanent injunctive relief, the case may also provide a forum for the California courts to address a number of the other issues described in this article including the applicability of eBay, Winter, and Faiveley to requests for preliminary injunctions in trade secret cases.
1 "[T]he loss of trade secrets cannot be measured in money damages" where the secret, once disclosed, is "lost forever." FMC Corp. v. Taiwan Tainan Giant Indus. Co., 730 F.2d 61, 63 (2d Cir. 1984) (per curiam).
2 See, e.g ., id. ; B.U.S.A. Corp. v. Ecogloves, Inc., 05 Civ. 9988, 2006 U.S. Dist. LEXIS 85988, at *17 (S.D.N.Y. Jan. 31, 2006) (loss of trade secrets cannot be readily measured in money damages because once lost, the secret is lost forever, and therefore, irreparable harm for the purposes of issuing an injunction can be presumed from the misappropriation of trade secrets); Ivy Mar Co. v. C.R. Seasons, Ltd., 907 F. Supp. 547, 567 (E.D.N.Y. 1995) ("[I]rreparable harm is presumed where a trade secret has been misappropriated."); Monovis, Inc. v. Aquino, 905 F. Supp. 1205, 1234 (W.D.N.Y. 1994) (irreparable injury is presumed where there has been misappropriation of a plaintiff's trade secret); and other cases cited at 4 Milgrim on Trade Secrets § 15.02[c] (Matthew Bender 2006).
3 eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006) (in patent infringement case, court must weigh all four established equitable factors before entering permanent injunction; infringement per se does not support a "general rule" that permanent injunction should be entered).
4 Winter v. Natural Resources Defense Council, Inc., 129 S. Ct. 365 (2008) (court must find likelihood, not mere possibility, of irreparable injury to justify entering preliminary injunction).
5 Faiveley Transport Malmo AB v. Wabtec Corporation, 559 F.3d 110 (2d Cir. 2009) (trade secret misappropriation by former employee and wrongful use by new employer/competitor, without threat of further disclosure or other "irreparable impair[ment] of the value of those secrets," does not establish irreparable injury supporting entry of preliminary injunction), dismissed on remand, 2009 WL 3270854 (S.D.N.Y. Oct. 7, 2009).
6 Bell Atlantic Corp. v. Twombley, 550 U.S. 544 (2007) established that a complaint must plead facts with sufficient particularity to establish "plausible," not just "speculative," entitlement to relief in order to survive a motion to dismiss, and overruled prior cases holding that motions to dismiss must be denied unless “no set of facts” encompassed by the complaint could establish the plaintiff's right to relief.
7 Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) held that to survive a motion to dismiss, a complaint must plead facts that, if accepted as true, state a claim to relief that is "plausible on its face." "Determining whether a complaint states a plausible claim is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1940.
8 See, e.g., Salinger v. Colting, 2010 WL 1729129 (2d Cir. Apr. 30, 2010) (holding that post-eBay there is no longer a presumption of irreparable harm in copyright preliminary injunctions).
9 See, Stoll-DeBell, Dempsey & Dempsey, Injunctive Relief: Temporary Restraining Orders and Preliminary Injunctions 19-30 (Am. Bar. Ass'n., 2009) (discussing tests applied in various circuits).
10 Faiveley, 559 F.3d at 119.
11 See, e.g., Michael Levinson, License to Steal?, Trading Secrets: A Law Blog on Trade Secrets, Non-Competes and Computer Fraud (Mar. 31, 2009), http://www.tradesecretslaw.com/tags/faiveley-transport-malmo .
12 Bell Atlantic Corp. v. Twombley, 550 U.S. 544 (2007).
13 Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).
14 Rx.com v. Hruska, 2006 U.S. Dist. LEXIS 63953 (S.D. Tex. Sept. 7, 2006).
15 TM Computer Consulting, Inc. v. Apothacare, L.L.C., 2008 U.S. Dist. LEXIS 69284 (D. Or. Sept. 11, 2008).
16 Oculus Innovative Sciences, Inc. v. Nofil Corp., 2007 U.S. Dist. LEXIS 86305 (N.D. Cal. Nov. 15, 2007).
17 ClearOne Communications, Inc. v. Chiang, 608 F. Supp. 2d 1270 (D. Utah 2009).
18 TMX Funding, Inc. v. Impero Tech., Inc., 2010 WL 274584 (N.D. Cal. July 9, 2010).
19 Id . at *7.
20 Compare Applied Filter Tech., Inc. v. Wetzel , 2009 Dist. LEXIS 68533 (W.D. Wash. Aug. 5, 2009) (applying standards consistent with Winter and Faiveley ), with Western Directories, Inc. v. Golden Guide Directories, Inc., 2009 U.S. Dist. LEXIS 52023 (N.D. Cal. June 8, 2009) (citing Winter as setting the standard for preliminary injunctive relief, but applying the Ninth Circuit's inverse sliding scale of the required showings of irreparable harm and likelihood of success on the merits).
21 Les Concierges, Inc. v. Robeson, No. C-09-1510 MMC, 2009 WL 1138561 (N.D. Cal. Apr. 27, 2009).
22 Les Concierges , 2009 WL 1138561, at *5-*6 (citing In re Excel Innovations, Inc., 502 F.3d 1086, 1093 (9th Cir. 2007) (emphasis added) (holding, for purposes of establishing entitlement to issuance of preliminary injunction, “"equired degree of irreparable harm increases as the probability of success decreases")).
23 Western Directories, Inc. v. Golden Guide Directories, Inc., 2009 U.S. Dist. LEXIS 52023 (N.D. Cal. June 8, 2009).
24 Vinyl Interactive, LLC v. Guarino, 2009 U.S. Dist. LEXIS 41498, at *21, 91 U.S.P.Q.2d (BNA) 1771, 1777 (N.D. Cal. May 1, 2009) (granting plaintiff's motion for a preliminary injunction under the Ninth Circuit's sliding scale based upon on direct evidence that defendant accessed plaintiff's proprietary information after termination from plaintiff's employment and circumstantial evidence of the coincidental time frame between defendant's start at a competitor company and the genesis of that company’s similar and competing product).
25 Sky Capital Group, LLC v. Rojas, 2009 U.S. Dist. LEXIS 40970 (D. Idaho May 14, 2009).
26 Leatt Corp. v. Innovative Safety Tech., LLC , 2010 WL 1526382 (S.D. Cal. Apr 15, 2010).
27 TMX Funding, Inc. v. Impero Tech., Inc., 2010 WL 1028254 (N.D. Cal. Mar. 18, 2010).
28 International Business Machines Corp. [IBM] v. Johnson, 629 F. Supp. 2d 321 (S.D.N.Y. 2009), aff’d , Nos. 09-2749-cv (L), 09-3372-op (Con), 09-3426-cv (Con), 2009 WL 3416154 (2d Cir. Oct. 22, 2009).
29 IBM, 629 F. Supp. 2d at 334-35 (citation and footnote omitted).
30 Id. at 334-335 n.14 (citing 13 James Wm. Moore et al., Moore's Federal Practice § 65.22[b] (3d ed. 2009)).
31 Nebraskaland, Inc. v. Brody, 2010 WL 157496, at *2 (S.D.N.Y. Jan. 13, 2010).
32 Genworth Fin.Wealth Mgmt, Inc. v. McMullan, 2010 WL 2428749 (D. Conn. June 10, 2010) (notably the court cites Faiveley for this regional standard).
33 SBM Site Services, LLC v. Garrett, 2010 WL 749823 (D. Colo. Mar. 4, 2010).
34 American Airlines, Inc. v. Imhof, 620 F. Supp. 2d 574, 579 (S.D.N.Y 2009).
35 Genworth Fin.Wealth Mgmt, Inc., 2010 WL 2428749 at *1.
36 Id. at *7.
37 Systems Management Planning, Inc. v. Gordon, No. 2009/02730, 23 Misc. 3d 1104(A), 2009 WL 901514 (Sup. Ct. N.Y. Monroe County Apr. 3, 2009) (unpublished).
38 Esquire Deposition Services, LLC v. Boutot, 2009 U.S. Dist. LEXIS 52207 (D.N.J. June 19, 2009).
39 Bimbo Bakeries USA, Inc. v. Botticella, 2010 WL 2902729 (3d Cir. July 27, 2010).
40 Bimbo Bakeries USA, Inc. v. Botticella, 2010 WL 571774 (E.D. Pa. Feb. 9, 2010), at *11 (citing Air Prods. & Chems., Inc. v. Johnson, 442 A.2d 1114, 1120 (Pa. Super. Ct. 1982); Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007)).
41 Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223 (11th Cir. 2009).
42 Id. at 1236 n.12 (citing the seminal inevitable disclosure case, PepsiCo., Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995).
43 Maaco Franchising, Inc. v. Augustin, 2010 WL 1644278 (E.D. Pa. Apr. 20, 2010). The Third Circuit in Bimbo Bakeries USA, Inc. v. Botticella , 2010 WL 2902729 (3d Cir. July 27, 2010), likewise required only that plaintiff "will suffer irreparable harm if the injunction is denied."
44 See, e.g., Merial Ltd. v. Roman, 2010 WL 1249646 (N.D. Ga. Mar. 24, 2010); Ferrellgas, L.P. v. McConathy, 2010 WL 1010831 (W.D. La. Mar. 15, 2010) (citing Fifth Circuit standard and denying motion for preliminary injunction).
45 CDI Energy Serv. v. West River Pumps, Inc., 567 F.3d 398, 401 (8th Cir. 2009) ("In assessing the propriety of preliminary injunctive relief, the district court applied the factors from Dataphase Systems, Inc. v. C.L. Systems, Inc., 640 F.2d 109, 114 (8th Cir.1981) (en banc).").
46 CDI, 567 F.3d at 402.
47 Share Corp. v. Momar Inc., 2010 WL 933897 (E.D. Wis. Mar. 11, 2010).
48 In addition to the textual cases described, see also Cenveo Corp. v. Southern Graphic Systems, Inc., No. 08-5521 (JRT/AJB), 2009 U.S. Dist. LEXIS 4542 (D. Minn. Jan. 22, 2009) (court enjoined defendants from using or disclosing plaintiff's confidential information based on a finding of a threat of irreparable injury), and Philips Electronics North America Corp. v. Hope, 631 F. Supp. 2d 705 (M.D.N.C. June 30, 2009) (granted preliminary injunction against plaintiff’s former employee based on evidence that defendant had formed a rival company while still employed by plaintiff, siphoned confidential information from plaintiff, and misled plaintiff regarding plans after termination).
49 The Rightthing, LLC v. Brown, No. 3:09 CV 135, 2009 WL 249694 (N.D. Ohio Feb. 2, 2009), modification denied , 2009 WL 1954632 (N.D. Ohio July 6, 2009).
50 SKF USA, Inc. v. Bjerkness, 636 F. Supp. 2d 696 (N.D. Ill. 2009).
51 "Disclosure of confidential information or trade secrets can constitute irreparable harm." Id. at 715 (citing Medtronic, Inc. v. Gibbons , 527 F. Supp. 1085 (D.C. Minn. 1981) ("[U]nder Minnesota law, a threat of irreparable harm can be inferred from the breach of a valid and enforceable restrictive covenant.")).
52 "Additionally, some of the information Defendants took relates directly to current SKF customers, and the endangerment of those relationships can also constitute irreparable harm." SKF USA, 636 F. Supp. 2d, at 716 (citing Diamond Blade Warehouse, Inc. v. Paramount Diamond Tools, Inc., 420 F. Supp. 2d 866, 872 (N.D. Ill. 2006) (loss of goodwill, competitive position, and customer relationships constitute irreparable harm with no adequate remedy at law)).
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