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When is an Injunction Issued to Block Disclosure of a Trade Secret?

WEINER LAWInsightsIntellectual PropertyWhen is an Injunction Issued to Block Disclosure of a Trade Secret?

Intellectual Property Trade Secrets Tuesday, April 25, 2023

One of the first issues that arises in a misappropriation of trade secrets lawsuit is whether an injunction will be available to a plaintiff as the party trying to avoid disclosure of its information. Under both federal and state law, an injunction that prohibits the the use or disclosure of trade secrets is a remedy available under statutory and common law.

Injunctions and Seizure Orders Under Trade Secrets Law

If the court determines that an injunction is warranted, it can impose preliminary restraints in the form of either a short-term temporary restraining order or a preliminary injunction that will remain in place while the lawsuit is underway. At the conclusion of the case, the court may issue a permanent injunction.Trade Secret Attorneys | New Jersey | New York

The seizure orders that are available under federal law are very rare, having been issued in only a handful of cases. An injunction, however, may prohibit the defendant from disclosing or using the trade secrets and, in some cases, may restrict the defendant from engaging in certain activities or working in certain positions where it would be likely or “inevitable” that the trade secret would be used or disclosed.

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In most cases, trade secrets are pursued under either the Uniform Trade Secrets Act, adopted in nearly all states (New York being a notable exception) or under its federal analogue, the Defend Trade Secrets Act. An injunction may also be available under older common law, but given the breadth of the statutory protections, one rarely sees a common law claim on its own.

Misappropriation of Trade Secrets: Elements Necessary to Secure an Injunction

The first element in seeking an injunction to protect a trade secret from use or disclosure is to demonstrate that the information a party seeks to protect is indeed a trade secret. This means that the information derives economic value from its not being generally known and that the owner of the information took reasonable efforts to maintain its secrecy.

The information must be secret, It is not generally known to the public, readily accessible to others and cannot be easily replicated or If the information is readily accessible through other means or if it can be easily replicated or reverse-engineered, it is less likely to be deemed a trade secret.

Prove that the Information is Valuable, Secret and Protected

The information must be valuable to the owner because it secret. It needs to confer some sort an economic benefit to its owner as a result of it not being know to others, providing some competitive advantage or source of revenue.

The owner of the information must take reasonable steps keep the information secret. The steps necessary to protect the information vary depending on the nature of the secret and the needs of the business. Reasonable steps might include security measures, such as locking file drawers, restricting restricting access to certain locations, and creating security layers in computer and data systems. It may also involve contractual measures such as having employees and contractors execute non-disclosure agreements.

The owner of a trade secret seeking to secure an injunction must show that the trade secret has been misappropriated or that misappropriation is immiment in that the information was wrongfully acquired, was disclosed, or is being used without the owner’s authorization. or that such misappropriation is imminent. The wrongful conduct may be through outright theft, breach of a contract or non-disclosure agreement or acquisition in any other way that is not authorized.

Establishing the Element of Irreparable Harm

The plaintiff seeking an injunction must prove that it will suffer “irreparable harm” without an injunction, which is harm that cannot be adequately remedied by an award of monetary damages alone. The nature of trade secrets is such that the unauthorized disclosure or use of a trade secret will create irreparable harm. Once a secret is not longer secret, the value is lost.

The Uniform Trade Secrets Act specifically provides for the issuance of an injunction. As adopted in New Jersey,N.J.S.A. 56:15-3, for example, the UTSA provides that:

a. Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

b. In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.

c. In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

The federal Defend Trade Secrets Act likewise provides for the issuance of an injunction to prevent irreparable harm, but it also permits a court to order the civil seizure of property in extraordinary cases without notice to the offending party, when “necessry to prevent the propagation or dissemination” of a trade secret. This has occurred in only a handful of cases. The requirements are strict.

Seizure of Property Under Federal Law

To issue the order, the court must find that “it clearly appears from specific facts” that an ordinary injunction “would be inadequate … because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order.” The other elements required include that

  • the trade secret was misappropriated by improper means or that a conspiracy to misappropriate is underway;
  • the defendant has actual possession of the secret; and
  • “the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice.”

Before issuing injunctive relief, a court will also consider the balance of hardships between the parties. This requires the judge to weigh the potential harm to the owner of the trade secret if the injunction is not issued against the potential harm to the defendant if the injunction is issued.

The court will also consider the public’s interest in whether an injunction is issued.

And, finally, the court will consider the amount of a bond that must be posted by the plaintiff to cover the costs to the defendant if the injunction should not have been issued. The bond secures payment to the defendant for the costs it incurs by being subjected to the injunction.

Jay R. McDaniel