Irreparable Harm in Preliminary Injunctions and

Inevitable Disclosure

December 2, 2010

#720196

Injunctive Relief – Trade Secrets

• Injunctive Relief – temporary restraining orders, injunctions pendente lite, final mandatory and prohibitory injunctions.

• Because a trade secret, once disclosed, may be lost forever, the misappropriation, unauthorized disclosure, and/or wrongful use of trade secrets gives rise to presumption of “irreparable injury” sufficient to support injunction.

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Injunctive Relief – Trade Secrets

• eBay, Inc. v. MercExchange, Winter v. Natural Resources Defense, and Faiveley Transport call that credo into serious question.– Also appear to threaten scope, if not viability, of “inevitable

disclosure” doctrine.

• Number of recent trade secret cases fail to cite any of these cases with respect to prerequisites for preliminary or permanent injunctive relief.

• In trade secret cases in which one or more of these cases were applied, courts have reached inconsistent and sometimes conflicting decisions.

• Many courts have cited these decisions as foundational for injunctive relief but applied varied standards instead.

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Injunctive Relief – Trade Secrets• These cases may make it more difficult to obtain

injunctive relief in trade secrets cases in federal courts, even where actual or threatened misappropriation of trade secrets is shown.

– Consider bringing suit in state, rather than federal, forum.

• If Faiveley is literally applied, may call into question the scope, if not viability of “inevitable disclosure” under all but the most extreme circumstances.

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Injunctive Relief eBay, Inc. v. MercExchange (US 2006)• Injunction does not automatically issue based on

finding of patent infringement.• Must weigh all four factors for injunction:

1. Plaintiff (P) suffered an irreparable injury;2. Remedies available at law are inadequate to

compensate for injury;3. Balance of hardships between P and Defendant (D),

a remedy in equity is warranted; and4. Public interest would not be disserved by permanent

injunction.• Patent infringement case but applied to other IP.

– Evidence of irreparable injury, not just reliance on presumption, will be required.

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Irreparable Harm in Trade Secret InjunctionseBay – Trade Secret Cases• District Courts apply eBay in different ways.

– Failed to meet showing of irreparable injury where trade secret was not confidential and P no longer operated business from which trade secret had been misappropriated. P’s evidence – D disclosed trade secret to a 3rd party, allegedly pursuant to a subpoena, in another proceeding. Permanent injunction denied. Rx.com v. Hruska.

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Irreparable Harm in Trade Secret InjunctionseBay – Trade Secret Cases• eBay satisfied but involved permanent, not preliminary,

injunctions. Are stricter prerequisites for injunctive relief by eBay too difficult for a P to satisfy at preliminary injunction or temporary restraining order stage?

1. Met showing of irreparable injury. P disclosed trade secrets to D under NDA and D made unauthorized use of information. Irreparable injury because D agreed in NDA that irreparable harm would result from disclosure. Oculus Innovative Sciences v. Nofil.

2. Met showing of irreparable injury based on (i) threats to P’s market position if its trade secrets were disclosed to competitor and (ii) danger that D might possess and use trade secrets. ClearOne Communications v. Chiang.

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Injunctive ReliefWinter v. Natural Resources Defense (US 2008)• Applied eBay to motions for preliminary injunctions.

– Reaffirmed four-factor test for preliminary injunction.

• Must show that irreparable injury absent entry of preliminary injunction is not merely “possible” but rather “likely.”– P seeking preliminary injunction in trade secret cases may

be required to satisfy higher standard of proof-–likelihood, not mere possibility, of irreparable injury.

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Injunctive ReliefWinter

• “Balancing” or “sliding scale” tests may no longer be viable.– Second, Seventh, and Ninth Circuits tests permitting

entry of an injunction based on showing of “possible” irreparable injury when there is a strong showing of likely success on merits or balance of hardships tips strongly in moving party’s favor--may not survive.

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Irreparable Harm in Trade Secret Injunctions Winter – Trade Secret Cases• Application of Winter to preliminary injunctions has

varied to an even greater extent than eBay. – Courts have inconsistent and inconclusive results on

whether Winter entirely supersedes tests for preliminary injunctions.

• Ninth Circuit (now): Winter supersedes more lenient “possibility of harm” test.– Did not meet showing of irreparable injury for

preliminary injunction. P had not demonstrated a likelihood of irreparable harm because threatened injury (market disadvantage, loss of trade secrets, loss of existing and potential customers) had either already been incurred or was capable of being remedied by a monetary award. Sky Capital Group v. Rojas.

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Irreparable Harm in Trade Secret Injunctions Winter – Trade Secret Cases• Second Circuit vacillates in the application of Winter.

– Earlier decisions cite and apply Winter.– More recent decisions apply regional standards.

Party seeking preliminary injunction must show:- Will be irreparably harmed if injunction not

granted, and either:· Likelihood of success on merits, or· Sufficiently serious questions going to the

merits for fair ground for litigation and a balance of hardships tipping in P’s favor.

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Irreparable Harm in Trade Secret Injunctions Faiveley Transport, Second Circuit• Acknowledged value of trade secrets stems from secrecy,

court made distinction.• Distinction between:

1. One who disseminates trades secrets to third parties.• Rebuttable presumption of irreparable harm may

arise.2. One who uses trade secrets for own profit.

• No presumption. Misappropriator may have same incentive as the originator to

maintain the confidentiality of trade secret.

• Decision criticized as failing to provide adequate protection to trade secret owner; placing protection of owner’s trade secrets in competitor’s hands; in essence, granting D a compulsory license at least for duration of litigation.

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Faiveley cont’d:• Courts citing Faiveley in trade secret cases have

accepted and applied its holding.

– Actual or threatened disclosure to third parties or other impairment of their value must be shown and that irreparable injury is not presumed.

• Faiveley only applied to one trade secret case outside of Second Circuit.

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Faiveley cont’d:• If literally applied to Inevitable Disclosure cases:

– Requires showing that former employee and/or new employer have disclosed, or threaten to disclose, the former employer’s trade secrets or threaten to destroy/impair their value. Not required under current inevitable disclosure law. Difficult (maybe impossible) to make because details

of former employee’s new duties and/or new employer’s operations are in D’s rather than P’s possession at pleading and motion to dismiss stage.

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Conclusion – Trade Secret• Decisions question availability of effective relief in

trade secret cases.

– eBay applied to limit 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.

– 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 secret’s value can be shown.

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Irreparable Harm in Trademark Preliminary Injunctions• Significant change in determination of irreparable

harm for preliminary injunctions for trademarks.

• Traditional: presumed irreparable harm from finding of likelihood of confusion.– Presumption based on difficulty of ascertaining

economic harms such as damages to P’s business reputation and goodwill.

– Presumption effectively collapsed analyses of likelihood of confusion and irreparable harm into single inquiry, because affirmative finding on former would typically lead to an affirmative finding on the latter.

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Irreparable Harm in Trademark Preliminary Injunctions• Some courts recognize presumption of irreparable

harm while other courts do not.– Courts reach inconsistent results.

Ninth Circuit and Second Circuit split may soon arise.

– Other circuit courts have not construed eBay’s and Winter’s combined effect on presumption of irreparable harm in trademark preliminary injunctions.

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Irreparable Harm in Trademark Preliminary InjunctionsNinth Circuit

• Ninth Circuit held “irreparable injury may be presumed from a showing of likelihood of success on the merits.”– Ninth Circuit did not address eBay or Winter, instead

cited earlier precedent.

• Until another Ninth Circuit panel addresses whether eBay and Winter have created a stricter standard for finding irreparable harm, lower courts are likely to hold presumption of irreparable injury is granted to plaintiffs who show they are likely to succeed.

• Contrary to Second Circuit.

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Irreparable Harm in Trademark Preliminary Injunctions Second Circuit

• Second Circuit held preliminary injunction issued “only if plaintiff has demonstrated that he is likely to suffer irreparable injury in absence of an injunction.”

• Courts must “actually consider injury the plaintiff will suffer if he loses on the preliminary injunction but ultimately prevails on the merits.”– Second Circuit cautioned that courts “must not adopt a

categorical or general rule or presume that plaintiff will suffer irreparable harm.”

• District courts have applied stricter standard for irreparable harm in trademark cases.– E.g., “make an independent showing of irreparable harm.”

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Irreparable Harm in Trademark Preliminary Injunctions• Conclusion:

– P should present proof they will suffer “irreparable harm by pointing to same evidence of confusion and harm that they use to establish probability of success on the merits of infringement claims.”

– D rebuts that proof with evidence of their own.

• End Result:– Most likely preliminary injunction in trademark cases will

require stronger showing of irreparable harm.

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