Companies frequently wrestle with the decision of whether to seek a temporary restraining order (TRO) in trade secret and covenant not to compete cases. The hesitancy is understandable, since a request for an injunction adds a level of expense and commitment that does not accompany a conventional lawsuit.
As a result, after discovering a potential violation, companies will sometimes opt to send a cease and desist letter in the hope that it may cause a potential defendant to refrain from any further misconduct or lead to a settlement of the dispute. However, it is important to remember that there is a risk that any delay may be perceived by a court as a sign of a lack of urgency, importance or irreparable injury.
Two recent cases and a recent post by the Delaware Non-Compete Blog illustrate the consequences of delay. In a February 2, 2012 Order denying a plaintiff's TRO request in Digital Generation v. Boring, the Northern District of Texas reasoned that the plaintiff's "decision to wait 44 days after [the defendant's] termination before seeking a TRO suggests that the perceived risk to [plaintiff] is not immediate." (A copy of the opinion is attached below).
Similarly, last month in a patent case, Cephalon v. Sun Pharmaceuticals, the District Court of New Jersey denied a request for a TRO, holding that “[I]n light of the continued unwarranted delays in prosecuting this action, plaintiff has not demonstrated that it will suffer immediate and irreparable harm absent the entry of a temporary restraining order.” Unfortunately, the court's opinion does not provide much detail about the delays, presumably because of a protective order in the case that placed much of the relevant information and briefing under seal.
Finally, the Delaware Non-Compete Blog wrote an excellent post last week aptly named "Settlement Discussions Not An Excuse for Delayed TRO Application To Enforce Noncompete." According to the post, the Chancery Court was troubled by the fact that the plaintiff had waited four months after learning of the defendants' activities before seeking the TRO. The plaintiff argued the delay was due in part to its efforts to work out a standstill agreement with the defendants. As noted in the transcript excerpt below, the Chancery Court wasn't impressed:
"You can't have a problem in November and come running in here [in March], you know, two days after you file your papers, and say all of a sudden you need a TRO. We don't operate like that.
And the fact that you tried to … negotiate a standstill, that's great, but if you think that your rights are really being harmed to the extent that you say they are, you have to go on a parallel path to get some judicial relief. You haven't moved fast enough, and I'm not giving you a TRO."
From a litigator's standpoint, the issue of undue delay can greatly complicate a TRO request and may be the proverbial straw that breaks the camel's back. As I have written many times before, some courts already may be ambivalent about trade secret and non-compete cases and TROs in particular, since consideration of a TRO request is generally disruptive to the court's docket and schedule for that day. In addition, the bar for demonstrating irreparable injury in commercial and IP cases in federal court has been raised by the U.S. Supreme Court's decisions in eBay Inc. v. MercExchange LLC, 547 U.S. 388 (2006), and Winter v. NRDC, 555 U.S. 7 (2008), and district courts have applied that heightened standard in recent trade secret cases such as Amylin Pharm v. Eli Lilly & Co.
So what is the best course of action? In my experience, a cease and desist letter seldom resolves a dispute and, as the blog post above suggests, is rarely rewarded by the court. Consequently, a company needs to make a decision relatively quickly on whether the dispute at hand is indeed one worthy of seeking a TRO. If it is, the company should move aggressively for the TRO.
If, however, your client still wants to attempt to resolve things before bringing a TRO action, keep the defendant on a very short leash and impose a deadline. If you cannot secure an acceptable agreement, file your TRO request promptly after that deadline. This will preserve your ability to continue to negotiate a resolution, perhaps one brokered by the court, and refute the argument that your client has unduly delayed or lacks irreparable injury as a result.
Order Denying Digital Generation's Motion for TRO.pdf (161.98 kb)
Tags: trade secrets, delay, TRO, temporary restraining order, covenant not to compete, irreparable injury
Injunctions | IP Litigation | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets
Cisco's General Counsel, Mark Chandler, has taken the unconventional step of writing a blog post criticizing Hewlett-Packard for repeatedly suing former employees who have joined Cisco over the past two years. This post follows, and apparently details, the recent lawsuit filed by HP filed against its former Chief Technologist, Paul Perez, who joined Cisco on November 14 (for more on the litigation, see my recent post). HP had sought to enforce a non-compete in Texas after Perez had filed an action in California challenging the enforceability of that same non-compete.
According to Chandler's post, Perez has prevailed -- emphatically -- in the two lawsuits thus far. Chandler reports that Perez's Texas attorney was able to derail an effort at an ex parte temporary restraining order that was hurriedly scheduled in advance of a pending hearing in the California action on the very same issue. Cisco's legal department had reached out to HP to resolve the dispute before the California hearing, advising HP's legal staff that Cisco had put safeguards in place to protect HP's trade secrets (as HP had done earlier this year to insulate itself in a dispute with IBM, about which I also recently posted).
Instead of responding to that olive branch, HP apparently sought an "emergency" TRO conference without notice to Perez or Cisco even though the California hearing was scheduled to begin in two hours. When Perez's Texas attorney saw HP's filing online, he appeared before the Texas court unexpectedly to report that "the matter was already in front of a California court, with HP fully represented." Chandler noted that "the judge in Texas was not impressed by HP’s effort to get her to act without a hearing," that "she refused to proceed" on HP's TRO request, and later that day "the California judge issued an order allowing [Perez] to begin his new career at Cisco."
This resounding win and resulting post are both getting a fair amount of coverage. The Wall Street Journal's Law Blog, the San Francisco Chronicle, the San Jose Business Journal, and technology blogs like All Things Digital have all reported on Chandler's post. I have not been able to access either court's ruling but, given the attention this case is receiving, I will do a post later once I have the opportunity to review them.
The lesson here is ex parte requests are rarely granted and even more rarely appreciated by courts. This is especially true when the court learns that the other side has counsel and has expressed an interest in trying to work things out. In these high profile disputes, this aggressive approach can backfire and result in not only a legal but public relations coup for the other side.
Tags: Cisco, Mark Chandler, General Counsel, HP, Hewlett Packard, trade secrets, non-compete, ex parte, Texas, California, IBM, Visentin, TRO, temporary restraining order, blog post, safeguards, emergency
General | Intellectual Property | IP Litigation | Non-Compete Enforceability | Restrictive Covenants
Several months later, Wal-Mart secured a temporary restraining order against Gabbard that prevented him from further disclosing trade secrets and confidential company information. Gabbard also was ordered to turn over two computer hard drives that Wal-Mart believed contained its documents to a local prosecutor. Wal-Mart ultimately secured a permanent injunction that required Gabbard to return any other trade-secrets or confidential information.
This dispute resurfaced recently when Gabbard apparently posted what Wal-Mart believed to be confidential documents on a website in violation of the permanent injunction. Gabbard has denied that he violated any order and that the documents were provided to him after the orders were entered. His lawsuit contends that Wal-Mart is trying to compel him to sign a non-disclosure agreement and chill his First Amendment rights.
Contempt proceedings are pretty serious matters and one can only presume that Wal-Mart is pretty confident that the order was violated. I will see if I can track down the pleadings and the website that is alleged to have contained the confidential documents to evaluate whether the costs of this litigation outweigh the substantial national publicity it seems to be generating. In the meantime, this case could turn out to be a good example of what has come to be known as the "Barbara Striesand effect" -- a phrase that was coined after the famous diva loudly protested Google Earth's efforts to photograph her home, leading of course to even more unwanted internet traffic and interest.
Tags: Wal-Mart, trade secrets, whistleblower, temporary restraining order, permanent injunction, Barbara Streisand effect
General | Intellectual Property | IP Litigation | Trade Secrets
Tags: Non-Compete, Sears, Lands' End, Limited Brands, Bath & Body Works, Coe, EMC, Donatelli, trade secrets, temporary restraining order, race to the courthouse
General | Intellectual Property | IP Litigation | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets
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