Second Circuit Vacates Injunction and Refines Analysis of Whether Irreparable Harm May be Found When Trade Secrets Have Been Misappropriated
Many New York attorneys, when seeking a preliminary injunction against a party that has misappropriated their clients’ trade secrets, will argue that a presumption of irreparable harm to their clients automatically arises upon the determination that a trade secret has been misappropriated, citing Ivy Mar Co. v. C.R. Seasons, Ltd., 907 F. Supp. 2d 547, 567 (E.D.N.Y. 1995). A recent decision of the U.S. Court of Appeals for the Second Circuit, however, holds that misappropriation of trade secrets does not automatically lead to irreparable harm. The aggrieved party only faces irreparable harm if the misappropriator will disseminate the secrets to a wider audience or otherwise irreparably impair the value of the secrets.
In Faiveley Transport Malmo AB v. Wabtec Corporation, __ F.3d __, 2009 WL 636020 (2d Cir. March 9, 2009), Wabtec had manufactured subway brakes under a contract with Faiveley and its predecessor from 1993 through 2005. Faiveley alleges that after expiration of the contract, Wabtec impermissibly continued to use Faiveley’s proprietary information (including various technical specifications, designs, plans, and patents) to produce subway brakes for the New York City Transit Authority. The District Court granted an preliminary injunction enjoining Wabtec from disclosing Faiveley’s proprietary information to the Transit Authority.
On appeal, the Second Circuit vacated the injunction because Faiveley had not demonstrated that it faced irreparable injury. Although the Second Circuit agreed that Wabtec had misappropriated trade secrets, it held that misappropriation alone does not give rise to a presumption of irreparable harm, noting:
Where a misappropriator seeks only to use those secrets - without further dissemination or irreparable impairment of value - in pursuit of profit, no such presumption is warranted because an award of damages will often provide a complete remedy for such an injury. Indeed, once a trade secret is misappropriated, the misappropriator will often have the same incentive as the originator to maintain the confidentiality of the secret in order to profit from the proprietary knowledge.
The Court went on to note in dicta that even where irreparable injury has been shown, only a narrowly drawn preliminary injunction that protects the trade secret from further disclosure or use may be appropriate, and admonished courts in all cases to strive to avoid unnecessary burdens on lawful commercial activity.