In our September 2008 KLIP Alert, spurred by the U.S. Supreme Court’s 2006 decision in eBay Inc. v. MercExch., L.L.C., we predicted that the trend away from presuming irreparable harm in infringement cases (a prerequisite to obtaining an injunction) would continue to spread beyond patent cases to trademark cases. Shockingly, it now appears that even trade secret cases are being caught up in this trend. The U.S. Court of Appeals for the Second Circuit just ruled that even if trade secret misappropriation is proved (or, in the context of a preliminary injunction, is likely to be proved), an injunction will issue only if irreparable harm is also proved. Before eBay and its progeny, success (or likelihood of success) on the merits was generally sufficient alone to presume irreparable harm and obtain an injunction.

While the granting of permanent injunctions in patent and trademark infringement cases had been fairly routine until eBay; in trade secret cases, preliminary and permanent injunctions were even more the foregone conclusion because of the danger that a trade secret, once disclosed outside of a confidentiality arrangement, is lost forever. In trade secret cases, therefore, once misappropriation was shown (or a likelihood of success), irreparable harm was automatically presumed and both disclosure and use would be enjoined during the pendency of the action and permanently thereafter, without a detailed showing of actual irreparable harm.

In Faiveley Transport Malmo AB v.Wabtec Corp., 08-5126-cv (2d Cir. Mar. 9, 2009), a lively decision that squeals poetic about New York City subway train brakes, the Second Circuit found that, in the context of a trade secret case, a preliminary injunction should not be granted without a showing that there is a danger that the misappropriator will actually disseminate the trade secrets. This is the situation even where it is likely that misappropriation will ultimately be shown in the preliminary injunction context.

Under the facts before it, the Second Circuit reasoned that any loss due to misuse of the trade secrets is likely fully compensable by money damages because the alleged misappropriator in that case was unlikely to disclose the trade secrets to others. Accordingly, the Second Circuit (without even citing to the eBay case), reversed the District Court’s grant of a preliminary injunction and held that where a misappropriator seeks only to use the misappropriated trade secrets in pursuit of profit, without further dissemination or other irreparable impairment of their value, no presumption of irreparable harm is warranted because an award of damages can provide a complete remedy.

What does this mean for you?

The Second Circuit’s decision in Faiveley Transport is an important data point suggesting that, in the intellectual property context, the presumption of irreparable harm will continue to be eroded in the post-eBay world, particularly given the influence of the Second Circuit. Also, we note the undesirable possibility that Faiveley Transport might be read to encourage use of misappropriated trade secrets, since the risk of injunction is substantially reduced if the misappropriator maintains the confidentiality of the stolen trade secrets. The authors, however, expect that the courts (including the Second Circuit itself ) will come to narrowly construe Faiveley Transport as limited to its facts and will continue to generally presume irreparable harm (and issue injunctions) where a likelihood of success on the merits is shown in trade secret cases. To do otherwise, would turn trade secret law on its head.