Preliminary Injunctions and TROs in Commercial...

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Preliminary Injunctions and Preliminary Injunctions and TROs in Commercial DisputesObtaining or Opposing Emergency Motions in Business Litigation

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, FEBRUARY 8, 2012

Today s faculty features:

Robert W. Capobianco, Partner, Jackson Lewis, Atlanta

Craig R. Tractenberg, Partner, Nixon Peabody, New York

Rosanne Felicello, Principal, Felicello Law, New York

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STANDARDS FOR EMERGENCY INJUNCTIVE RELIEFRELIEF

PRESENTED BYPRESENTED BY

ROSANNE E . FEL ICELLO

FEL ICELLO LAW P .C .

ROSANNE@FEL ICELLOLAW.COM

5© 2012 Felicello Law P.C.

ABOUT ROSANNE FELICELLORosanne Felicello, the principal attorney at Felicello Law graduated from Boston UniversityFelicello Law, graduated from Boston University School of Law in the top ten of her class and has honed her legal skills working on high profile, bet‐the‐company litigation at two of the nation’s premier law firmsthe nation s premier law firms. She has a wide range of business litigation experience, including antitrust, securities (including residential mortgage‐backed ( g g gsecurities), property insurance defense, contract matters, false advertising, and legal malpractice. Rosanne has also represented individuals and companies before the pSecurities & Exchange Commission.Rosanne is licensed to practice in New York and Massachusetts.


OVERVIEW OF PRELIMINARY INJUNCTIONS & TROSPreliminary Injunction (PI)Preliminary Injunction (PI)

• An order prohibiting a party form disturbing the status quo until the court renders a final judgment.

ll h b i• Generally sought by motion.

• Court may order a hearing and/or expedited discovery to determine PI.

• Preliminary injunction may become permanent injunction.

Temporary Restraining Order (TRO)

A t d i t i i th t t f h t• A temporary order maintaining the status quo for a very short period until a hearing can be held with both parties.

• Generally sought ex parte, in NY by an order to show cause.


OVERVIEW, CONTINUEDRequests for Preliminary Injunctions and Temporary RestrainingRequests for Preliminary Injunctions and Temporary Restraining Orders are often combined in one request.

The supporting affidavits and memorandum of law can support both requests.

Generally, a party seeks a TRO ex parte (or only informal rather than formal notice). The court may then grant or deny the TRO pending a hearing on a PI.


STATUTORY AUTHORITYFederal

• Preliminary Injunction ‐‐ Federal Rule of Civil Procedure, Rule 65(a)

• Temporary Restraining Order – Federal Rule of Civil Procedure, Rule 65(b)p y g ( )

NY State

• NY CPLR § 6301 et seq.

• “A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual, or in any action where the plaintiff has demanded and would be entitled to a judgment restraining the defendant fromhas demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff. A temporary restraining order may be granted pending a hearing for a preliminary injunction where it appears that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be had ”

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unless the defendant is restrained before the hearing can be had.

© 2012 Felicello Law P.C.

PRELIMINARY INJUNCTION STANDARD (2ND CIRCUIT)General Preliminary Injunction Standard:General Preliminary Injunction Standard:• Irreparable harm absent injunctive relief• Either a likelihood of success on the merits or a serious question going

to the merits to make them fair ground for trial (balance of hardships to t e e ts to a e t e fa g ou d fo t a (ba a ce of a ds psin plaintiff’s favor);

• Public interest in favor of granting injunctive reliefNOTE: Where proposed PI will affect government action taken in the p p gpublic interest pursuant to a statutory or regulatory scheme, “(When, as here, the preliminary injunction "will affect government action taken in the public interest pursuant to a statutory or regulatory scheme," it "should be granted only if the moving party meets the more rigorous l k l h d f d d "likelihood‐of‐success standard." Red Earth LLC v. U.S. 657 F.3d 138, 143 (2d Cir. 2011) (internal quotation marks and citations omitted)


TEMPORARY RESTRAINING ORDER STANDARD (2ND CIRCUIT)

General TRO Standard:General TRO Standard:

• Show the need to preserve the status quo (irreparable harm)

• Less focus on the likelihood of success on the merits (no (opportunity to consider the merits)

• Often ex parte or with short notice

• If issued ex parte, expires after 14 days if not extended.

• General procedure is to obtain a TRO pending a hearing on the PI.

Garcia v Yonkers School Dist 561 F 3d 97 (2d Cir 2009) & 2009Garcia v. Yonkers School Dist., 561 F.3d 97 (2d Cir. 2009) & 2009 Amendment to Fed. R. Civ. P. 65(b).


NY STATE COURT STANDARDIn general NY state law follows the federal standards for a grants ofIn general, NY state law follows the federal standards for a grants of preliminary injunctions and TROs:

1. Likelihood of success on the merits;

2. Probability of irreparable harm if the remedy is not granted (status quo is not maintained); and

3 A balance of the equities in favor of the movant3. A balance of the equities in favor of the movant.

In NY, notice must be given for a TRO unless significant prejudice will result from giving notice. See Uniform Rules of the Trial Courts, Rule 202 7(f)202.7(f).


NY ‐‐ SPECIAL RULES MODIFYING THE USUAL STANDARD4 Types of Situations with Modified Thresholds for PI:yp

1. Relief on lesser showing of likelihood of success on the merits

• Provided where irreparable harm severe, later cure would be ineffectual2. Yellowstone Injunction – Commercial Tenant/Landlord Dispute

• Maintains status quo (tenant does not forfeit lease) while court determines whether there has been a breach

• Eliminates requirement to show likelihood of success on the merits

3. Government actors may be able to enjoin zoning and other statutory violations without meeting the 3‐part test

• Does not require a showing of irreparable harm

4. Other statutes may prescribe different criteria (such as dealing with marital property pending divorce)

S D id L F t di G l Edit 13 6301 N Y k Ci il P ti CPLR P 6301 06

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See David L. Ferstendig, General Editor, 13‐6301 New York Civil Practice: CPLR P 6301.06.


KEY DIFFERENCES BETWEEN STATE AND FEDERAL PI/TROS

NY STATE

N ti

FEDERAL (2nd Cir.)

N ti• Notice• Always required for PI• Required for TRO, unless

movant can demonstrate “significant prejudice to the

t ki th t i i

• Notice• Always required for PI• Required for TRO unless specific

facts in an affidavit or verified complaint show “immediate and i bl i j lparty seeking the restraining

order by giving of notice” Rule 202.7(f)

• Not required for orders of protection pursuant to Domestic Relations or for special

di d A ti l 7 f

irreparable injury, loss or damage” before adverse party can be heard in opposition and a good faith effort to give notice has been made

proceedings under Article 7 of Real Property Actions

• Security• For PI, must give an undertaking

‐‐ CPLR § 6312(b)

• Security• Required for TROs and PIs

(F.R.C.P. 65(c))• Some exceptions if TRO/PI not

likely to cause damages if • For TRO, the Court may require

an undertaking – CPLR § 6313 (c)

y ggranted


KEY DIFFERENCES CONTINUEDNY STATE FEDERAL (2nd Cir.)

• Time period for TRO• Upon granting the

TRO court shall set

• Time period for TRO• TRO without notice

expires within 14TRO, court shall set the date for a PI hearing at earliest possible time (CPLR

expires within 14 days unless extended (F.R.C.P. 65(c)(2))

§ 6313(a))• Standard flexible in

certain situations

• Uniform standard in all cases, except government action

• 4 situations detailed above

government action


CHOOSING THE FORUMCONSIDERATIONS:CONSIDERATIONS:

1. Security/Bond/Undertaking Requirement

2. Notice Requirementq

3. Forum’s familiarity with substantive law (i.e. securities litigation, restrictive covenant litigation)

4. Forum Selection Clause

5. Judge

6 Likelihood of removal6. Likelihood of removal

7. Other considerations?


STRATEGIC CONSIDERATIONSShowing Irreparable HarmShowing Irreparable Harm

• Need for relief must be urgent

• Delay may show lack of urgencyy y g y

• But must have good faith basis for relief

Equitable Remedy

• If money damages can cure, equitable relief not appropriate

• Unclean hands defense

Credibility


CONSIDERING AN APPEALPI DeniedPI Denied• Christian Louboutin S.A. v. Yves Saint Laurent America, Inc., No. 11‐

2381 (VM) (S.D.N.Y., Aug. 10, 2011) (denying Louboutin’s request for an injunction barring the sale of YSL’s red‐soled shoes)

• On appeal – at argument on Jan. 24, 2012 – Judge Cabranes asked, “What do you want from us?” Louboutin’s counsel responded he wanted the Second Circuit to enter the injunction. “You can’t expect us to do that!” Cabranes said.

PI Granted• CFTC v. Walsh, 618 F.3d 218 (2d Cir. 2010) (Walsh I) – The district court

had granted PIs to the Commodity Futures Trading Commission and h h f h b lk f l h’the Securities Exchange Commission freezing the bulk of Walsh’s ex‐wife’s assets.

• Appeals court certified questions to state court. After receiving the answers, vacated the PI orders, 658 F.3d 194 (2d Cir. 2011) –Walsh II

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answers, vacated the PI orders, 658 F.3d 194 (2d Cir. 2011) Walsh II


DISCLAIMERThe information provided herein should not be relied on as legalThe information provided herein should not be relied on as legal advice or a definitive statement of the law in any jurisdiction. Consult an independent legal counsel for legal advice relative to your specific situation. No liability is assumed by reason of the informationsituation. No liability is assumed by reason of the information contained herein.


Craig R. Tractenberg, Esq.

Nixon Peabody LLP437 Madison AvenueNew York, New York 10022(212) 940 3000(212) 940-3000

Injunctions In Intellectual Property LitigationsInjunctions In Intellectual Property Litigations

About Craig R. Tractenberg

Craig Tractenberg is a partner in the business litigation and bankruptcy teams in the New York and Philadelphia offices of Nixon Peabody LLP and Team Leader of the Franchise Legal Team, which is recognized as Franchise Firm of the Year by U S News and World Report/Best Lawyersthe Year by U.S. News and World Report/Best Lawyers.

Mr. Tractenberg’s representative matters include:

• Termination and non-renewal litigation

• Restrictive covenant trade mark and trade secret litigation• Restrictive covenant, trade mark and trade secret litigation

• Acquisition of distressed companies and litigation

• Franchise encroachment issues

• Domestic and international Arbitration and mediation of commercialDomestic and international Arbitration and mediation of commercial disputes

• Temporary restraining orders and preliminary injunctions

Mr. Tractenberg has been recognized for exceptional standing in the legal community by U.S. News and World Report/Best Lawyer as “Franchise Lawyer of the Year in New York”; and Chambers USA: America’s Leading Lawyers for Business for franchising work. He has also been recognized by his peers as a “Super Lawyer” for Franchise law (2004-2012), the International Who’s Who of Franchise Lawyers and Best Lawyers in America and by

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Who s Who of Franchise Lawyers and Best Lawyers in America, and by Franchise Times as a “Legal Eagle,” an honor accorded the top franchise lawyers in the United States based on peer and client nominations.

Introduction

• Patents

• Trademarks

• Copyrights

• Franchise Relationships

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Patents

Injunctions Involving Patents

• Preliminary injunctions where patentees seek to enjoin infringers from further infringement pending trial.

f• May seek a recall of products.

• May enjoin termination of patent licenses.

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Standard for Injunction against Infringement

The equitable remedy of a preliminary injunction is governed by a four-factor test much like those outlined in the Supreme Court’s case of eBay v MercExchange 547the Supreme Court s case of eBay v. MercExchange, 547 U.S. 338 (2006). These four factors include: (1) the likelihood of the patentee’s success on the merits; (2) irreparable harm if the injunction is not granted; (3) the p j g ; ( )balance of hardships between the parties; and (4) the public interest.

The first two factors must each be established beforeThe first two factors must each be established before preliminary relief may be granted. Thus, although identified as factors, they are more properly seen as required elements.q

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Success on the Merits

• Defendant can defeat a motion for injunction by establishing a “substantial question of invalidity.”

O f• One court required a higher standard of likelihood that invalidity “would be established at trial.”

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No Presumption of Irreparable Harm

The eBay case changed the law from presumption of irreparable harm based solely on infringement “to potential losses which cannot be compensated by monetarylosses which cannot be compensated by monetary damages.”

“[L]ost sales standing alone are insufficient to prove irreparable harm” because they are presumed to beirreparable harm because they are presumed to be compensable though damages. Lost market share and price erosion could lead to a conclusion of irreparable harm However those must be proven or “at leastharm. However, those must be proven or at least substantiated with some evidence” and shown to be caused by ongoing infringement.

Loss of only one distributor to an infringer is insufficient toLoss of only one distributor to an infringer is insufficient to show irreparable harm. Automated Merchandising Systems, Inc. v. Crane (Fed Cir. Dec. 16, 2009).

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Defense Tips for Alleged Infringers

• Submit affidavits of third parties which may be harmed by injunction.

f f• Ask for stay of case pending re-examination by Patent and Trademark Office.

• Prove that Plaintiff will not go out of business.

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Trademarks

Regarding Trademark Infringement

The Lanham Act provides, in part:

(1) Any person who shall, without the consent of the registrant –

(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to

i t k t d icause mistake, or to deceive…shall be liable in a civil action by the registrant for the remedies hereinafter provided.15 U S C § 1114(1) (a) (2006)15 U.S. C. § 1114(1) (a) (2006).

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The Four Prong Test

A district court may grant a preliminary injunction only if the movant establishes the following: (1) a substantial likelihood of success on the merits of the underlying caselikelihood of success on the merits of the underlying case, (2) the movant will suffer irreparable harm in the absence of an injunction, (3) the harm suffered by the movant in the absence of an injunction would exceed the harm suffered jby the opposing party if the injunction issued, and (4) an injunction would not disserve the public interest.

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Likelihood of Success on the Merits of the Trademark Infringement Claims

To prevail on a claim of trademark infringement, plaintiffs mush establish: (1) that they possess a valid mark, (2) that the defendants used the mark (3) that the defendants’ usethe defendants used the mark, (3) that the defendants use of the mark occurred “in commerce,” (4) that the defendants used the mark “in connection with the sale… or advertising of any goods,” and (5) that the defendants used g y g , ( )the mark in a manner likely to confuse consumers. See 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400, 406-07 (2d Cir. 2005).

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Use in Commerce

Invisible meta-tags used to lure internet search engines using a trademark is a “use in commerce” of the trademark North American Medical Corporation v Axiomtrademark. North American Medical Corporation v. Axiom Worldwide, Inc. (9th Cir. April 7, 2008)

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Likelihood of Confusion

Seven factors are relevant when determining whether a likelihood of confusion exists:

( ) f ff’ ( )(1) the strength of the plaintiff’s mark; (2) the similarity between the plaintiff’s mark and the allegedly infringing mark; (3) the similarity between the products and services offered by the plaintiff and defendant; (4) the similarity ofoffered by the plaintiff and defendant; (4) the similarity of the sales methods; (5) the similarity of advertising methods; (6) the defendant’s intent, e.g., does the defendant hope to gain competitive advantage bydefendant hope to gain competitive advantage by associating his product with the plaintiff’s established mark; and (7) actual confusion.Alliance Metals, Inc. of Atlanta v. Hinely Indus., Inc., 222 , y , ,F.3d 895, 907 (11th Cir. 2000).

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False Advertising

Section 43(a) of the Lanham Act provides in part:

(1) Any person who, on or in connection with any goods for services, or any container for goods, uses in commerce

any word, term, name, symbol, or device, or any combination thereof, of any false designation of origin, false or misleading description of fact or false orfalse or misleading description of fact, or false or misleading representation of fact, which –

(B) in commercial advertising or promotion, i t th t h t i ti litimisrepresents the nature, characteristics, qualities, or

geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or isaction by any person who believes that he or she is or is likely to be damaged by such act. 15 U.S.C. § 1125(a) (2006).

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Elements of False Advertising

(1) the ads of the opposing party were false or misleading, (2) the ads deceived, or had the capacity to deceive, consumers (3) the deception had a material effect onconsumers, (3) the deception had a material effect on purchasing decisions, (4) the misrepresented product or service affects interstate commerce, and (5) the movant has been – or is likely to be – inured as a result of the false yadvertising.

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Irreparable Harm

Irreparable Harm in False Advertising Case

• Where the challenged advertising makes a misleading ’comparison to a competitor’s product, irreparable harm

is presumed. But if the false advertising is non-comparative and makes no direct reference to a competitor’s product irreparable harm is not presumedcompetitor s product, irreparable harm is not presumed.

Irreparable Harm in Trademark Infringement Cases

• It is generally recognized in trademark infringement g y g gcases that (1) there is not an adequate remedy at law to redress infringement and (2) infringement by its nature causes irreparable harm.

Is Irreparable Harm Presumed After the eBay case even in Lanham Act Cases?

• Perhaps not North American Medical Corp v Axiom

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• Perhaps not, North American Medical Corp. v. Axiom Worldwide (9th Cir., 2008).

Copyrights

Injunctions in Copyright Cases

The Copyright Act of 1976 authorizes courts to grant "temporary and final injunctions on such terms as [they] may deem reasonable to prevent or restrain infringementmay deem reasonable to prevent or restrain infringement of a copyright." 17 U.S.C. § 101 et. seq.

Preliminary injunctive relief in non-copyright cases is governed by the traditional four factor preliminarygoverned by the traditional four-factor preliminary injunction test, which asks: (1) whether the plaintiff is likely to succeed on the merits; (2) whether the plaintiff will suffer irreparable injury if the injunction is not granted; (3)irreparable injury if the injunction is not granted; (3) whether the balance of hardships tips in the plaintiff's favor; and (4) whether granting the injunction would be in the public interest. p

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If the copyright owner demonstrates a likelihood of success, courts are virtually unanimous in dispensing with the need to show irreparable injury The presumption hasthe need to show irreparable injury. The presumption has even been applied to telephone white pages and the page numbers of West's court reporters. Various courts have found both the defendant's solvency and the defendant's yinsolvency to favor the plaintiff.

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Courts always weigh the balance of the hardships in favor of the copyright plaintiff if it has demonstrated a likelihood of success on the merits The Second and Ninth Circuitsof success on the merits. The Second and Ninth Circuits, the most important in copyright cases because together they are resident to the publishing, music, software and acting community rarely require hardship to the defendant g y y q pto be balanced at all if the plaintiff can show that it is likely to succeed on the merits of its claim. Even the remaining circuits, which nominally consider this factor in all cases, generally "tip the balance of hardships in the plaintiff's favor to the extent that it has shown a likelihood of success on the merits.“

Courts hold that it is "virtually axiomatic that the public interest can only be served by upholding copyright protections." Courts reaching the four-factor test generally

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find a showing of probable success on the merits to be virtually conclusive in favor of granting an injunction.

A prima facie case of copyright infringement requires that the plaintiff prove that it owns a valid copyright and that the defendant has infringed the copyright by violating one ofdefendant has infringed the copyright by violating one of the exclusive rights enumerated in the Act. Plaintiff is entitled to rely on the presumption of validity that attaches to its copyright registration. The requirement that the py g g qplaintiff prove infringement can be satisfied by sufficient similarities between the two works to raise an inference of copying (and therefore of infringement). Where plaintiffs have made a prima facie showing of likelihood of success, in fact, some courts hold that it is reversible error to deny a preliminary injunction.

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Defendants can rebut the plaintiff's prima facie case at the preliminary injunction hearing by raising the validity of the plaintiff's copyright and the scope of the protection itplaintiff s copyright and the scope of the protection it should receive. Defendants can contest the inference of copying, or argue that the portions copied were not themselves protectable; and statutory defenses such as p ; yfair use.

Other provisional remedies available to copyright plaintiffs besides preliminary injunctions include ex parte temporarybesides preliminary injunctions include ex parte temporary restraining orders pursuant Rule 65 of the Federal Rules of Civil Procedure and pretrial seizure of infringing goods before trial, which have the same effect as an injunction , jprohibiting distribution or sale. This is a common practice to prevent sales of unauthorized T-shirts, for example, before rock concerts.

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Franchise Relationships

Injunction in Franchise Relationships

• May be to enjoin franchisee from operating or from not observing standards.

f f• May be to enjoin franchisor from terminating or not renewing franchise agreement or underlying lease.

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Injunction By Franchisor

A franchise agreement licenses a trademark. Post-termination operation of a franchise under the formerly licensed marks is trademark infringementlicensed marks is trademark infringement.

A franchise agreement may also contain an in-term or post-termination non-compete agreement. Absent a state statute prohibiting the enforcement of those covenantsstatute prohibiting the enforcement of those covenants, both may be enforced by injunction.

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Franchisors generally argue that the status quo, as the last peaceable status of the parties, should be defined as the time before the franchisee engaged in the conduct thattime before the franchisee engaged in the conduct that allegedly violated the non-compete covenant. If successful in making this argument, the franchisor likely will have much more success in obtaining a preliminary injunction g p y jbecause courts look more favorably upon prohibitive injunctions.

A former franchisee defending against a preliminaryA former franchisee defending against a preliminary injunction, on the other hand, generally wants to preserve the status quo by preventing termination of its business and will argue that the status quo includes continuing to g q gengage in the conduct that the franchisor seeks to prevent.

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When a court decides whether or not to issue a preliminary injunction, it does not conduct a full trial on the merits. Findings made by a court at the preliminary injunctionFindings made by a court at the preliminary injunction stage are not binding on the trial court. Additionally, an agreement to submit disputes to arbitration does not prevent a court from issuing a preliminary injunction prior p g p y j pto the initiation of arbitration proceedings in order to preserve or restore the status quo. The most difficult franchise case for the court is where the franchisee changes its image and name, but remains in the same location in a similar business.

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The irreparable injury sought to be prevented by the preliminary injunction generally must be something more than a loss of business or customers such as damage tothan a loss of business or customers, such as damage to goodwill or intellectual property or loss of the ability to franchise the former franchisee’s territory, that will occur unless the former franchisee ceases its activities immediately.

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Likelihood of Success on the Merits

The franchisor should claim that the injunction it seeks is merely preservative of the status quo because the last peaceable uncontested state was before the formerpeaceable, uncontested state was before the former franchisee took the actions that allegedly breached the restrictive covenant. The former franchisees will want to argue both that the status quo is the current state of affairs g qand that the franchisor is not likely to succeed on its claim that the former franchisee is operating a business in breach of the restrictive covenant in the franchise agreement, generally because the restrictive covenant is unreasonable.

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Balance of Harms

• In the franchise context, this factor involves the fconsideration generally of any irreparable harm

claimed by the franchisor balanced against any potential harm to the former franchisee in the event that it is forced to close down its business and particularlyit is forced to close down its business, and particularly of the extent of this harm to the former franchisee if it is later found not to be in breach of any restrictive covenantcovenant.

Public Interest

• The Court reaches this issue generally when the other elements are satisfied. This element generally deals with health and safety of the customers, or its right of the customers not to be deceived as to the relationship

ith th f hi

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with the franchisor.

Proving Customer Confusion and Loss of Goodwill as Irreparable Harm

One way of establishing irreparable injury is to argue that a franchisee’s breach results in customer confusion, thereby causing a distinct injury to the franchisor’s brandcausing a distinct injury to the franchisor s brand, trademark, and goodwill. For example, in Atlanta Bread Co. International, Inc. v. Nine Star Enterprises, Inc., the court held that a franchisor established irreparable harm presulting from customer confusion when the terminated franchisee operated a deli in the building where he had operated the franchise and continued to sell the franchisor’s products. The court noted that until the former franchisee ceased operation, the franchisor lost control of its trademark and reputation. These harms, according to th t ld t b di d ith t dthe court, could not be remedied with monetary damages.

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The De-identifying Franchisee

In Bennigan’s Franchising v. Swigonski, the court held that the franchisor failed to show irreparable harm when the former franchisee while continuing to operate a casualformer franchisee, while continuing to operate a casual dining restaurant in the location where he had operated the franchised restaurant, removed all of the franchisor’s marks and substantially decharacterized the restaurant. yThe Bennigan’s court also emphasized the fact that the former franchisee’s restaurant was 210 miles from the closest franchised restaurant; it was unlikely that customers would be confused.

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Irreparable Harm By Direct Interference

A direct interference with customer relations does, however constitutes irreparable harm. In Certified Restoration Dry Cleaning Network L L C v Tenke CorpRestoration Dry Cleaning Network, L.L.C. v. Tenke Corp., the court held that the franchisor would suffer irreparable harm because the former franchisee directly interfered with customer relations by providing the same services that the y p gfranchised business provided to the same customers. Because the former franchisee’s new business was based entirely on retaining customers with which it had developed relationships while a franchise, the court held that the franchisor was suffering an irreparable loss of fair competition and incalculable damages.

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Inability to Refranchise and Harm to Existing Franchisee Relationships

A franchisor that can demonstrate that it has been unable to establish new franchisees in the former franchisee’s territory due to a breach of a restrictive covenant likely willterritory due to a breach of a restrictive covenant likely will be able to establish irreparable injury. The same can be said when a franchisor can show that a former franchisee’s breach of a restrictive covenant has harmed the franchisor’s relationships with other franchisees and its ability to enforce existing franchise agreements. Again, however the franchisor’s allegations of harm cannot be too remote or speculative. A simple claim that a franchisor has faced difficulties refranchising a territory should be supported by specific allegations tying the difficulty to the f f hi ’ ll d b hformer franchisee’s alleged breach.

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Likelihood of Success on the Merits

Franchisors can generally establish a likelihood of success on the merits when there is no challenge to the enforceability of the restrictive covenant and the formerenforceability of the restrictive covenant and the former franchisees are blatantly in breach. A court held that a franchisor established a likelihood of success on the merits where the former franchisees were operating pizza stores p g pat the same locations that they had operated their pizza store franchises; the new stores had menus nearly identical to the menus of the franchised stores; and the former franchisees continued to use the franchisor’s marks, signs, and related materials.

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Balance of Harms

The balance of the hardship will tip in favor of the former franchisee when the former franchisee is operating a business and has contractual obligations as a result Forbusiness and has contractual obligations as a result. For example, in Athlete’s Foot Brands, LLC v. Whoooahh, Inc., the balance of the hardship was in favor of the franchisee because the franchisee was operating a business and had p gsigned a multiyear lease. The franchisor, on the other hand, was not even attempting to open a location in the area covered by the restrictive covenant.

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Public Interest

A franchisor has a strong argument that enforcement of a restrictive covenant is in the public interest because the public has an interest in protecting the intellectual propertypublic has an interest in protecting the intellectual property and business systems of the franchisor.

The franchisee will argue that the public has an interest in not enforcing unreasonable restraints on competition andnot enforcing unreasonable restraints on competition and in ensuring that the public interest is served and not subject to franchisor-created monopolies. Franchisees also may point out that the public has a significant interestalso may point out that the public has a significant interest in ensuring that any restrictive covenants that are enforced are only enforced to the extent that they are reasonable.

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Conclusion

The case law is highly fact specific on the issue of irreparable harm. The disposition may also vary based on the state law overlay of the contracts and attitudesthe state law overlay of the contracts and attitudes concerning covenants not to compete.

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publication without professional counsel Copyright © 2010 Nixon Peabody LLP All rights reservedpublication without professional counsel. Copyright © 2010 Nixon Peabody LLP. All rights reserved.

Preliminary Injunctions and TROs in Commercial Litigation

Strategies to Obtain or Oppose Emergency Motions

Robert W. CapobiancoPartner, Atlanta OfficeJackson Lewis LLPJackson Lewis LLP(404) [email protected]

About the PresenterRobert W. Capobianco is a Partner in the Atlanta, Georgia office of Jackson Lewis LLP.

At Jackson Lewis and prior firms, Mr. Capobianco has represented employers in all f l li i i i l di d i i ll i types of employment litigation, including trade secret, restrictive covenant, collective,

and class action litigation. Mr. Capobianco has also prepared enforceable restrictive covenants for employers in states throughout the country. Mr. Capobianco has represented management in collective bargaining and has provided counseling and assistance regarding labor issues. Before joining Jackson Lewis, Mr. Capobianco g g j g , ppracticed with Elarbee Thompson and Freeman Mathis & Gary, representing management in labor and employment matters.

Mr. Capobianco has been recognized for his representation of employers in restrictive t d l t litig ti i Ch b USA Additi ll M C bi covenant and employment litigation in Chambers USA. Additionally, Mr. Capobianco

has been selected as a Rising Star in Georgia’s Super Lawyers in 2006, 2007, 2009, and 2010. He is a frequent speaker and author on legal and practical issues relevant to the employment relationship, particularly regarding ways in which employers can protect their trade secrets and utilize enforceable restrictive covenants.

Mr. Capobianco was the 2009-2010 Chair of the Atlanta Bar Association’s Labor & Employment Section and a member of the Labor & Employment Section of the Georgia State Bar Association. He is admitted to practice law in the State of Georgia.

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Mr. Capobianco received his B.A. with high honors from Rutgers University, and he earned his J.D. from Emory University.

STRATEGIC CONSIDERATIONS AND KEY PROCEDURAL HURDLES

STRATEGIC CONSIDERATIONS – TRADE SECRETS

Trade secrets litigation often overlaps with other forms of

litigation, particularly patent litigation.

However, the standards in these two types of actions are

very different, and thus each has different strategy

considerations.

Most importantly, the focus in trade secrets litigation is

secrecy; the focus in patent litigation is diligence in

asserting the owner’s rights.

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STRATEGIC CONSIDERATIONS – TRADE SECRETS (cont.)

First key task – defining the trade secret

Does the governing law afford trade secret protection to the

interest my client seeks to protect?

• What is a trade secret?

- Generally, a trade secret can be any information of

economic value that a proprietor has used diligent efforts

to keep secret.

• For example California law defines a trade secret as • For example, California law defines a trade secret as

information that

(1) derives independent economic value, actual or potential,

from not being generally known to the public or to other from not being generally known to the public or to other

persons who can obtain economic value from its disclosure or

use; and

(2) Is the subject of efforts that are reasonable under the

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(2) Is the subject of efforts that are reasonable under the

circumstances to maintain its secrecy.

Cal. Civ. Code § 3426.1


Second key task – determine the scope of the trade secret

• Is the trade secret a traditional subject of protection, such

as a customer list? as a customer list?

• In what form or forms does the secret exist (e.g.,

electronic, paper, other)?

• Can the trade secret be reasonably defined for purpose of

litigation without revealing it?

• Defining the trade secret too narrowly risks failing to Defining the trade secret too narrowly risks failing to

include vital information; defining the secret too broadly

risks making secrecy too difficult to prove.

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Second key task – preserve evidence of both the trade

secret and the misappropriation

R i i f ll l i f h f • Review circumstances for tell-tale signs of theft:

Emails, download, data breaches, unusual data accesses;

Deletions from software or server, or damaged hardware;

Falsehoods by the misappropriator;

Consider using forensic expert;

Control chain of custody if necessary. y y

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Third Key Task: Consider alternative or additional avenues

of redress:

C i i l i• Criminal prosecution

Risks revelation of the trade secret to the general public

• Computer Fraud & Abuse Act (“CFAA”), 18 U.S.C. § 1030 et

seq.

Has both civil and criminal provisions

Requires proof of unauthorized access or “exceeding equ es p oo o u aut o ed access o e ceed g

authorized access” to a computer. See American Family

Mutual Ins. Co. v. Rickman, 554 F. Supp.2d 766 (N.D. Ohio

2008).

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Fourth Key Task: Seek appropriate injunctive relief

• Non-use and /or return of the trade secret;

• Prohibition of solicitation of customers and employees;

• Preservation of evidence by opposing side;

• Ask for expedited discovery; p y;

• Ask for protective order.

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STRATEGIC CONSIDERATIONS – NONCOMPETE LITIGATION

First key task: Determine if the noncompetition covenant is

enforceable

D h h bl hi d • Does the agreement have reasonable geographic and

temporal limitations?

• Can the court “blue pencil” the agreement?

Courts in most states can; states that are exceptions include

Georgia, Nebraska, and Wisconsin

Generally, courts will blue pencil the agreement to effectuate

the intent of the parties

On the other hand, courts will decline to blue pencil if the

agreement suggests overreaching by the drafter, as

evidenced by such issues as a lack of geographical or

temporal limits.

If the court blue-pencils, will the resulting agreement

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effectuate the client’s goals?

STRATEGIC CONSIDERATIONS – NONCOMPETE LITIGATION (cont.)

Key second task: Determine desired forum

• State vs. federal

• Does the agreement contain a choice of law provision?

• Does a valid contractual forum selection clause control?

In federal court, a forum selection clause is typically deemed

enforceable as “a manifestation of the parties preference for

a convenient forum.” Jumara v. State Farm Ins.Co., 55 F.3d

873, 880 (3rd Cir. 1995).

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STRATEGIC CONSIDERATIONS – NONCOMPETE LITIGATION (cont.)

Third key task: Deciding when to apply the brakes

• Settlement may be in the best interests of both sides

before injunctive relief is granted or deniedbefore injunctive relief is granted or denied;

• Consider reaching a compromise – including a new but

less onerous restrictive covenant – to resolve the case

before fees mount.

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Defending Against Motions for Emergency Injunctive Relief

DEFENDING AGAINST EMERGENCY INJUNCTIVE RELIEF

General strategy considerations:

• Does the information qualify as a trade secret?

Did h h i f i i fid i l Did the opponent treat the information in a confidential

manner?

Has the information been provided to others in the past?

Is it generally available to the public?

Is the information generally available from other sources?

(See TGC Corp. v. HTM Sports, B.V., 896 F. Supp. 751 (E.D.

Tenn. 1995) (finding information ascertainable from another

source is not a trade secret))

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DEFENDING AGAINST EMERGENCY INJUNCTIVE RELIEF (cont.)

Did the employee accused of misappropriation have the

information before joining the plaintiff company?

Note: this argument may not apply if the original information

has been further developed or engineered by the plaintiff.

Does a monetary remedy provide full relief? (See Campbell

Soup v. Giles, 47 F.3d 467 (1st Cir. 1995) (affirming denial of

injunctive relief because the plaintiff could in theory be made

whole through an award of damages))

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