Preliminary Injunction Employee

					              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; and
    4.   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 Injunctions
eBay – 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 Injunctions
eBay – 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 Relief
Winter 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 Relief
Winter
• “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 Injunctions
Ninth 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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