Remedies for Trade Secret Misappropriation

• Pages: 159-194

CHAPTER 6

Remedies for

Trade Secret

Misappropriation

This chapter provides guidance about relief that may be available

for trade secret misappropriation, including injunctions, damages,

and other forms of equitable relief. We focus on procedures in the

federal and state courts of three jurisdictions: California, New

York, and Texas. California has adopted the Uniform Trade Secrets

Act (UTSA), while New York and Texas are common law jurisdic-

tions that accept guidance from the Restatement.

The remedies for trade secret misappropriation available under

the UTSA include injunctive relief, UTSA § 2; damages, UTSA § 3;

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

see UTSA § 3 cmt. (“A claim for actual damages and net profits can

be combined with a claim for injunctive relief. . . .”).1 Other rem-

edies are available for causes of action not addressed by the UTSA,

such as breac h of a nondisclosure or noncomp etition agreement or

breach of fiduciary duty. See UTSA § 6 cmt. (UTSA “not a compre-

hensive statement of civil remedies”). The common law also gener-

ally provides for “damages, injunctive relief, or both.” IBP, Inc. v.

Klumpe, 101 S.W.3d 461, 472 (Tex. App. 2001). See also Restatement

(Third) of Unfair Competition §§ 44-45.

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Guide to Protecting and Litigating Trade Secrets

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I. Injunctive Relief

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

sons from committing specific acts.2 In the context of trade secrets,

an injunction will typically restrain future use of the trade secrets

by an individua l or organiz ation. An injunc tion may also pro-

hibit activities closely related to the use of the trade secret, such as

solicitation of customers the identity of which were learned from a

misappropriated customer list, see, e.g., Morlife, Inc. v. Per ry, 66 Cal.

Rptr.2d 731, 740 (Cal. Ct. App. 1997) (enjoining roofing company

from doing busi ness with customers on confidential customer

list), the use of files containing 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), or any other use or disclo-

sure of trade secret information. Phrased another way, injunctive

relief is fashioned to prevent the misappropriating party from gain-

ing an unfair 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 manufacturing, in violation of license terms, a device

described in inventor’s confidential patent application). Injunct ive

relief is particularly appropriate where the defendant’s outright

illegal and unfair practices interfere with and threaten the plain-

tiff’s property rights and business interests and damages will not

afford an adequate remedy for long-term harm to such interests.

See Paradise Hills Assocs. v. Procel, 1 Cal. Rptr. 2d 514, 518-19 (Cal.

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

“unlawful interference with business rights when the plaintiff

proves that damages 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 confidentiality agreement. See, e.g., American Credit

Indem. Co. v. Sacks, 262 Cal. Rptr. 92 (Cal. Ct. App. 1989) (prelimi-

nary injunction should have issued to enjoin threatened use by a

former employee of former employer’s customer list); 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 divulging confiden-

tial information about his former employer’s swivel-joint manu-

facturing 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

Remedies for Trade Secret Misappropriation

161

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 504-505.3

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 suc-

cess 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 preliminary injunction can be considered—

typically a number of days—and a preliminary injunc-

tion typically lasts until a final disposition of the case.

A permanent injunction provides final relief that will

last indefinitely or as long as the court determines it is

needed.

• Notice requirements. A TRO may issue on an ex parte

bas is, w ith li ttle or no n otice to th e oppo sing part y, whil e

a preliminary injunction, which lasts until the final dis-

position of the case, cannot be issued without notice to

adverse party. See Fed. R. Civ. P. 65(b). A fu ll evidentiar y

hearing is generally involved, often with substantial dis-

covery to support the briefing.

Procedurally, a plaintiff will often seek a TRO for the period

up to the hearing on the preliminary injunction and a prelim-

inary injunction for the pendency of the litigation, with the

goal of concluding the litigation with a permanent injunction.

Under the UTSA, injunctive relief may be granted for actual or

thre atened m isappr opriat ion,4 UTSA § 2(a), and the same is true