Remedies for Trade Secret Misappropriation

• Author: Joanna H. Kim-Brunetti - Jeffrey K. Riffer - Gregory S. Bombard - Emily J. Friedman
• Pages: 161-204

161

CHAPTER 6

Remedies for

Trade Secret

Misappropriation

This chapter provides guidance about remedies that may be available

for trade secret misappropriation, including injunctions, damages, and

other forms of equitable relief. The Uniform Trade Secrets Act (UTSA)

has been adopted in one form or another by almost all of the states,

with the clear exception being New York, which remains a common

law jurisdiction that accepts guidance from the Restatements.

The remedies for trade secret misappropriation available under

the UTSA include injunctive relief, UTSA § 2; damages, U TSA § 3; attor-

neys’ fees, UTSA § 4; or any combination of these remedies, see UTSA

§ 3 cmt. (“[a] claim for actual damages and net profits ca n be com-

bined with a claim for injunctive relief”).1 Additional remedies may be

available for related causes of action not provided by the UTSA, such

as breach of a nondisclosure or noncompetition agreement2 or breach

of fiduciary duty. See UTSA § 6 cmt. (UTSA is “not a comprehensive

statement of civil remedies”). The Restatements also provide for dam-

ages, injunctive relief, or both. See

RESTATEMENT (THIRD) OF UNFAIR COM

-

PETITION

§§ 44- 45.

In 2016, the enactment of the Defend Trade Secrets Act (DTSA) pro-

vided plaintiffs with ready access to federal courts th rough a federal

claim of misappropriation of trade secrets that required essentially the

same proof elements as that under the UTSA . See 18 U.S.C. § 1832(c)

(“The district courts of the United States shall have origina l jurisdiction

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Guide to Protecting and Litigating Trade Secrets

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of civil actions brought under this section.”); § 1832(b)(1) (“An owner of

a trade secret that is misappropriated may bring a civil action under this

subsection if the trade secret is related to a product or service used in,

or intended for use in, interstate or foreign commerce.); see Chapter 5, at

section II, supra (proof elements for a misappropriation of trade secrets

claim). Previously, plaintiffs were limited to state courts unless diversity

of citizenship could be shown, which was not typically the case be tween

employers and former employees, o r unless other applicable federal law

claims could be shown, which had other, additional proof elements.

The remedies under the DTSA include all the remedies accorded by

the UTSA, including injunctions, damage s, and other forms of equita-

ble relief. The notable and controversial addition is an ex parte seizure

provision that allows federal courts to grant a seizure order without

notice in “extraordinary circumstances” where it is “necessar y to pre-

vent the propagation and dissemination of the trade secret.” 18 U.S.C.

§ 1836(b)(2). The DTSA was not intended to preempt or displace other

existing remedies under federal or state law. See 18 U.S.C. § 1838.

I. Injunctive Relief

An injunction is a court order, typically restraining a person or p er-

sons from committing specific acts.3 In the context of trade secrets,

an injunction will typical ly restrain future use of the trade secrets by

an individual or organization. A n injunction may also prohibit activi-

ties closely related to the use of the trade secret, such as solicitation

of customers, the identity of which were learned from a misappropri-

ated customer list, see, e.g., Morlife, Inc. v. Perr y, 66 Cal. Rptr. 2d 731,

740 (Cal. Ct. App. 1997) (enjoining roofing company from doing business

with customers on confidential customer list),4 the use of files contain-

ing the misappropriated trade secret information, see Sylmark Holdings

Ltd. v. Silicone Zone Int’l Ltd., 783 N.Y.S.2d 758, 774-75 (N.Y. Sup. Ct. 2004)

(enjoining the “designs or ideas produced, developed or derived from

the trade secrets”), or any other misuse or unauthorized disclosure of

trade secret information. See also 18 U.S.C. § 1836(b)(3) (expressly pro-

viding for federal injunctive relief in the context of a misappropriation

of a trade secret). Phrased another way, injunctive relief is fashioned

to prevent the misappropriating party from gaining an un fair market

advantage as a result of its misconduct. See, e.g., Hyde Corp. v. Huffines,

314 S.W.2d 763, 773 (Tex. 1958) (enjoining licensee from manufactur-

ing, in violation of license terms, a device described in inventor’s confi-

dential patent application). Injunctive relief is particularly appropriate

where the defendant’s outright illegal and unfair practices interfere with

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Remedies for Trade Secret Misappropriation

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and threaten the plaintiff’s property rights a nd business interests, and

damages will not afford an adequate remedy for long-term ha rm to such

interests. See Paradise Hills Assocs. v. Procel, 1 Cal. Rpt r. 2d 514, 518 (Cal.

Ct. App. 1991) (stating that an injunction is appropriate to enjoin “unlaw-

ful interference with business rights when the plaintiff proves that dam -

ages will not afford an adequate remedy”).

Misappropriation of trade secrets often arises in the context of an

employer-employee relationship, and a court may enjoin an employee

or former employee who has breached, or is very likely to breach,

a confidentia lity agre ement. See, e.g., American Credit Indem. Co. v.

Sacks, 262 Cal. Rptr. 92 (Cal. Ct. App. 1989) (preliminary injunction

should have issued to enjoin threatened use by a former employee of

former employer’s customer list); FMC Corp, v. Taiwan Tainan Giant

Indus. Co., Ltd., 730 F.2d 61 (2d Cir. 1984) (recognizing that an injunc-

tion may be appropriate for a former employee who sought to use a

customer list in breach of a confidentiality agreement); FMC Corp. v.

Varco Int’l, Inc., 677 F.2d 500, 505 (5th Cir. 1982).

For example, in FMC, a former employee was enjoined from divulg-

ing confidential information about his former employer’s swivel-joint

manufacturing process to the competitor that had hired him. The

court held that such information constituted a trade secret that he

had acquired during his work and had agreed not to divulge. Noting its

duty “to see that [the new employer] does not utilize trade secrets that

[the employee] has been forbidden to divulge,” the court also enjoined

the competitor from placing or maintaining the employee in a position

that posed an inherent threat of disclosure or use of the company’s

trade secrets. Id. at 504-505.5

PRACTICE TIP

There are two main types of injunctive relief: preliminary and permanent.

They differ in several important ways.

• Standard for issuance. A permanent injunction is awarded based upon

a final determination of the merits, while preliminary injunctive relief (a

preliminary injunction or a temporary restraining order) issues prior to a

final determination of the merits, based on a likelihood of success on the

merits and the presence of equitable factors. For a permanent injunction

to issue, the plaintiff must actually succeed on the merits of its claim.

• Duration. A temporary restraining order (TRO) will last until a prelimi-

nary injunction can be considered—typically a number of days—and

a preliminary injunction typically lasts until a final disposition of the

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