The Business Divorce Law Report
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A court may immecdiately grant the plaintiff a restraining order or preliminary injunction when there is a valid trade secret claim and the plaintiff may suffer irreparable harm without it.
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Courts make the determination whether an injunction is necessary based on the evidence presented by the plaintiff at an initial application at the start of the case.
In a misappropriation of trade secrets lawsuit, one of the first actions taken by the court is to determine if an injunction will be available to protect the trade secret from use or disclosure pending a final resolution of the case.
Whether an injunction will be granted at the outset of the case pendente lite, or while the lawsuit is pending, is a critical must-win for both plaintiff and defendant. It will not only color the way the matter is handled, but in many cases reflects the ultimate outcome of the case.
An injunction is a remedy that is available under both federal and state law, and it can be imposed through preliminary streets or through a permanent injunction. A federal court may also issue seizure orders under federal law, but these are extremely rare.
The case of Mallet & Co. Inc. v. Lacayo, from the Third Circuit Court of Appeals demonstrated the essential principles of a trade secret claim under federal law and the standards for an injunction. As the court there made clear, a preliminary injunction based on trade secret misappropriation must adequately identify the allegedly misappropriated trade secrets.
To prove eligibility for a preliminary injunction, the moving party must demonstrate a likelihood of success on the merits and that it is more likely than not to suffer irreparable harm in the absence of preliminary relief. If both factors are established, the district court considers the two remaining factors: whether granting relief will result in even greater harm to the nonmoving party or other interested persons, and whether the public interest favors such relief.
The plaintiff, Mallet and Company, sued Russell T. Bundy Associates, Inc., a competitor in the baking release agent market, and former employees or misappropriating its trade secrets. The District Court issued a preliminary injunction, restraining the defendant former employees from competing with Mallet.
Mallet claimed its competitive advantage resulted from a unique ability to solve customer problems. Two of Mallet’s former employees, Bowers and Lacayo, gained access to Mallet’s proprietary information, including product data sheets and pricing information, and both worked for the defendant and shared information that Mallet claimed was a trade secret.
The District Court ruled that the defendants had acquired a substantial volume of Mallet’s confidential information and had not stopped using it. The court ordered the defendants to refrain from using Mallet’s information in formulating, manufacturing, distributing, or selling products competitive to Mallet’s products. The Third Circuit, however, vacated the injunction and remanded the matter
As the Mallet decision demopnstrates, there are two principal steps to securing an injunction.
First, the plaintiff miust establish a viable claim; specifically that there is a misappropriation or threatened misappropriation of a trade secret. This is the element of showing a reasonable probability of success on the merits.
Second, the plaintiff must meet the other generally applicable requirements for injunctive relief: that it will suffer irreparable harm and that a balancing of the parties’ interests and the public’s interest favor awarding an injunction. The successful plaintiff will also have to post an injunction bond.
The test for that is whether the information derives economic value from its not being generally known. Put another way, the information must be secret. and valuable. What that typically means is that the information is not generally known to the public, not readily accessible and not easily replicated. And because of all that, the information must be valuable. T
The owner of information claiming the trade secret will have to show that it took reasonable steps to keep the information secret, such as security measures and contractual agreements. Oonce the plaintiff meets these elements necessary to establish that a trade secret exists, it must prove that it has a reasonable chance of prevailing in the case.
The showing necessary for a preliminary injunction will be be based pm the evidence that the plaintiff gathers and presents the court in its initial appl;ication, typically in the form of affidavits and documents.
Irreparable harm is the touchstone of injunctive relief. To get a restraining order or an injunction, the plaintiff must prove that the unauthorized disclosure of the trade secret will create harm that cannot be adequately remedied by an award of money damages alone.
In other words, someone could write a check and cover all the damages. The plaintiff is unlikely to get an injunction.
There is a body of both state and federal laws that apply to trade secret cases. The Uniform Trade Secrets Act, which is uniform law adopted in most states, and the Federal Defense Trade Secrets Act both specifically provide for the issuance of an injunction to prevent irreparable harm.
In addition, the federal Defend Trade Secrets Act permits a federal court to issue a civil seizure order in extraordinary cases, without notice to the defendant.
The standards for a seizure order are very high and a handful have been issued. The court must find that an ordinary injunction would be inadequate because the party to which the order would be issued is very likely to evade, avoid or otherwise not comply with the order.
Other elements that are equired for the issuance of a seizure order include, first, that the trade secret was misappropriated by improper means, or that a conspiracy is under way to misappropriate the trade secret. Second, the plaintiff has to show that the defendant has actual possession of the secret. And third, the plaintiff has to show that the person against whom seizure would be ordered would destroy, move, hide or otherwise make the matter inaccessible to the court.
Finally, as in all injunction cases, the court will consider the balance of hardships between the parties and the public’s interest in whether an injunction is issued and is a final step. The party that successful secures an injunction will be required to post bond to cover the costs or damages caused by the injunction. If it turns out that the injunction was not justified, after all, the amount of the bond will cover the costs incurred by the defendant if the injunction should not have been issued in the first place.
One other principle that was important in the Mallet case is that the remedy must be specific and readily enforceable. One of the key issues in the Third Circuit ordering remand in that case was that the order may it too difficult to identify the trade secreats at issue and enforce it terms.
Mallet teaches that the trade secret must be well-defined, the harm clear and that there must be sufficient details in the circumstance to allow a court to enforce an injunction once it is granted.