Media Room

dedicated, diverse counsel helping you reach your goals

 

The Perils of Delaying Your TRO Request

 
by John Marsh 20. March 2012 11:40

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)

 

HP v. Cisco: Cisco's General Counsel Criticizes HP for Lawsuits against Former Employees Who Have Joined Cisco

 
by John Marsh 24. November 2011 11:00

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.

 

Wal-Mart Moves to Hold Whistleblower in Contempt

 
by John Marsh 27. May 2011 15:30

The Wall Street Journal, The New York Times and numerous other media reported yesterday that Wal-Mart is pursuing contempt charges against a former employee, Bruce Gabbard, whom it contends recently posted Wal-Mart's confidential documents and trade secrets on his website in violation of a 2007 permanent injunction order. In response, Gabbard has filed a lawsuit in Oklahoma contending that Wal-Mart is harassing him and improperly trying to force him to return to Arkansas.
 
There is quite a history here. Gabbard, a former member of Wal-Mart's Threat Research and Analysis team, was terminated by Wal-Mart in 2007 for allegeldy monitoring phone conversations between a New York Times reporter and Wal-Mart employees and intercepting pager communications. Gabber later told The Wall Street Journal how Wal-Mart snooped on workers, critics and stockholders and that he was essentially scapegoated by Wal-Mart.

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. 

 

Sears and Limited Brands Race to Courthouse over New Exec

 
by John Marsh 18. May 2011 15:00

Sears' Lands' End unit is sparring with Limited Brands' Bath & Body Works over the hire of senior executive Nicholas P.M. Coe as Bath & Body Works' new CEO last week. The dispute is shaping up to be a fairly contentious one, as Coe has filed a preemptive lawsuit challenging the enforceability of his non-competition agreement in Wisconsin, while Sears has now filed a lawsuit in Cook County, Illinois seeking to enforce that same agreement and claiming that Limited Brands and Bath & Body Works have intentionally interfered with that agreement.
 
According to Coe's lawsuit in Iowa County, Wisconsin, Bath & Body Works is not a competitor of Sears or Lands' End because (1) neither of his former employers sells personal care products, and (2) Bath & Body Works does not sell apparel, appliances, electronics or automotive services, unlike Sears and Lands' End. In contrast, Sears claims in its lawsuit that Limited Brands is a direct competitor and that Limited Brands is one of the companies specifically listed in Coe's non-compete agreement as a company for whom Coe is prohibited from working.
 
The proverbial "race to the courthouse" is particularly common in trade secret cases, especially in high profile disputes over senior executives because the choice of forum and law may prove critical in the context of a temporary restraining order. In these cases, the party that can get the first ruling tends to prevail. For example, in the dispute between former executive David Donatelli and EMC two years ago, the parties each filed lawsuits within hours of the other in an effort to seize the more advantageous forum. EMC ultimately prevailed upon a Massachusetts court to limit Donatelli from performing any work for his new employer's storage device unit, although he was allowed to continue working for his new employer, HP. By the time Donatelli was able to get his case considered by the California court, however, it was too late; as that court elected to defer to the ruling by the Massachusetts court under principles of comity.
 
It will be interesting to see who can get a court to rule first, as that may prove to be the decisive ruling in both cases. 

About John Marsh

John Marsh Hahn Law AttorneyI’m a Columbus, Ohio-based attorney with a national legal practice in trade secret, non-compete, and emergency litigation. Thanks for visiting my blog. I invite you to join in the conversations here by leaving a comment or sending me an email at jmarsh@hahnlaw.com.

Disclaimer

The information in this blog is designed to make you aware of issues you might not have previously considered, but it should not be construed as legal advice, nor solely relied upon in making legal decisions. Statements made on this blog are solely those of the author and do not necessarily reflect the views of Hahn Loeser & Parks LLP. This blog material may be considered attorney advertising under certain rules of professional attorney conduct. Regardless, the hiring of a lawyer is an important decision that should not be based solely upon advertisements.

BlogRoll

Download OPML file OPML