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If You Don't Protect Your Trade Secrets Now, You Will Hate Yourself Later

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In this series of blog posts, we have examined the use of injunctive relief in state and federal courts in response to employees who have misappropriated confidential information and trade secrets, who have solicited clients and employees, or who have violated non-compete agreements.

In our last three posts, we identified best practices for ensuring that a company's house is in order, including the use of narrowly tailored restrictive covenant agreements (Part I); adopting a company culture and behaviors that protect its information (Part II); and why and when to seek injunctions and temporary restraining orders (Part III). In this, our fourth and final blog post in the Watch Your Assets series, we discuss the use of key injunction strategies.

A.  Who to Sue?

One of the first and most important decisions to make when seeking an injunction is who will be named as a defendant--the former employee alone or the employee and his or her new employer.  Suing the employee alone can be an effective "divide and conquer" strategy. That is, by suing the employee alone, the new employer is forced to decide whether it wants to inject itself into the proceedings or take a hands-off "wait-and-see" approach.

Generally, if the new employer has been complicit in some wrongdoing (e.g., has assisted with the misappropriation of confidential information) or has a significant monetary interest in seeing an employee avoid a non-compete (e.g., a sales employee with a significant book of business), it will team up with the employee and provide legal and other assistance. Many employers in these circumstances will also step back and suspend an offer of actual employment and tell the employee he or she must resolve the matter themselves before employment may begin.

Conversely, suing the new employer at the outset can force that employer and the former employee onto the same team, which will mean that the former employee may have company-provided legal representation and other resources available that would not have been available otherwise. It is important to think through each of these scenarios and outcomes before filing a lawsuit.

As part of the process, employers should perform due diligence about the potential adverse company, including its appetite for lawsuits, involvement in restrictive covenant cases, its outside counsel (which may inform, at least by general reputation, its level of aggressiveness), etc.

B.  Timing is Everything

As a general rule, seeking injunctive relief, especially a temporary restraining order (TRO), requires an employer to act as soon as it sees any realistic threat to its interests.

Thus, there is usually a significant amount of work required in a short period of time to gather the facts and relevant documents; examine any legal weaknesses with the contracts or claims; develop the necessary affidavits and exhibits; draft the complaint and injunction pleadings; and schedule and conduct an injunction hearing.

Of course, there are times when it makes sense to avoid a TRO and simply file a complaint with a request for a preliminary injunction, such as when there are potential enforcement issues with an agreement or other problems that can affect your ability to demonstrate a likelihood of success on the merits. In those instances, it may make sense to file a complaint with a request for a preliminary hearing but not set the hearing to put the other side back on its heels and allow you to examine the situation in more detail or try to negotiate a resolution.

Of course, taking a wait-and-see approach can be fatal to an award of temporary injunctive relief, because the other side will argue that the wait is proof of the lack of a threat of imminent harm or an otherwise adequate remedy at law.

Further, while sending a cease and desist letter prior to filing suit and waiting for a response saves expense and may possibly lead to an early compromise, there is significant risk that the former employees and competitors will take advantage of the notice period to prepare and file a declaration action in another jurisdiction before the company has an opportunity to file suit. This gives them the strategic benefit of choosing the venue and of controlling the language of the action.

The best approach is dictated by considerations of available monetary resources, likelihood of success, judgment of the litigation preparedness, and willingness of the other side, etc.

C.  Notice--Who, When, and How?

In order to secure an injunction, the requesting party will have to demonstrate to the court that it has made reasonable attempts to notify the other side that it is going before the court to seek equitable relief. This is generally not a problem with a preliminary injunction hearing, as these are usually set with the full participation of the court and the other party (who is typically already represented by counsel that has been identified in early stages of the case).

However, a TRO hearing is generally decided on very short notice without the appearance or participation of the other side, which is why the court will usually require the requesting party to provide a bond that will protect the other side from damage from an improperly issued injunction.

The tactical advantages associated with an ex parte hearing are many, not the least of which is the absence of any opposition to the motion. However, before the court will grant a TRO (and, in some jurisdictions, before it will even allow a hearing on a TRO), it will want to be satisfied that the requesting party made reasonable attempts to provide notice to the other side.

Courts are also adept at seeing attempts to game the system, such as a call to the other side from the courthouse steps when the company has been aware of the new employment for days or weeks. In general, a requesting party will want to show that it has provided at least 24 hours notice of the hearing or have a credible explanation about why it could not do so (e.g., the former employee has a copy of a trade secret formula that it is shopping to competitors or is out of town meeting with the company's biggest client in an attempt to pirate the business). Proof of attempts to provide notice of a hearing should be put in an affidavit that is submitted to the court with the injunction pleadings showing the calls, mail, service of pleadings, or other provisions of notice.

D.  Costs--Injunctive Relief Is Expensive

Securing injunctive relief can be very expensive because it requires the requesting party and its attorneys to work full speed on very short notice to review documents and interview witnesses, perform the necessary legal research, draft a complaint and a motion for an injunction with supporting affidavits and exhibits, and prepare for a hearing.

A preliminary injunction hearing usually operates like a mini (or sometimes full) trial on the merits where the parties will present live testimony, have an opportunity to cross-examine witnesses, provide opening and closing arguments, and argue the merits of the motion.

As with a regular trial, the parties will have to invest a significant amount of time, effort, and financial resources, including taking crucial employees away from their daily tasks to focus on the injunction hearing, to make a convincing argument.

As with any other expenditure of company resources, companies should engage in a significant cost-benefit analysis before committing to the injunction process. This can be difficult because these situations are usually highly emotional, which can temporarily cloud judgment.

E.  Venue--Familiarity with Local Courts, Rules, and Judges Is Key

Deciding where to sue and seek injunctive relief can be one of the most important decisions a company can make when seeking injunctive relief. Ultimately, the decision to award injunctive relief is made by a judge.

So, knowing and understanding the local judiciary can be the difference between getting an injunction or not. If federal jurisdiction is available, based either on the diversity of the parties or the existence of a federal claim with original jurisdiction, there may be a tactical advantage to suing in federal court where the judges may be more capable of managing complex facts and legal theories.

However, federal courts can be more reluctant to provide ex parteTROs and can be slower to schedule preliminary injunction hearings. Whereas in state court, you may be able to go before a judge simply by waiting in the halls of the courthouse until one will see you.

There may also be tactical advantages in forcing the other side to deal with removal or remand issues, and federal courts are widely perceived as controlling the parties and the discovery process better and being less patient with uncooperative counsel and frivolous arguments.

Ultimately, a good understanding of the local courts, judges, rules, and practice is critical when deciding when and where to seek injunctive relief.

F.  The Documents Should Never Be an Afterthought

Courts have very little time--even less than the parties in putting the documents together--to review, evaluate, and decide a TRO injunction motion and its underlying complaint.

Thus, the most critical element of success for obtaining injunctive relief is for the company to present clear, persuasive, and focused documents to the court, including the complaint and memorandum in support. The documents should marshal all of the key facts and law in persuasive, easy, and consumable bites for the court so that it (and its law clerk) has very little to do to understand and agree with the company's position.

Filing the best possible papers at the beginning of the suit also furthers the company's ability to win the credibility contest that is always front and center as the court makes initial determinations.

John C. Glancy is a shareholder in the Greenville office of Ogletree Deakins, and he co-chairs the firm's Unfair Competition and Trade Secrets Practice Group. Tobias E. Schlueter is a shareholder in the Chicago office of Ogletree Deakins, and he is on the Steering Committee for the firm's Unfair Competition and Trade Secrets Practice Group.

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About this Entry

This page contains a single entry by John C. Glancy published on January 8, 2013 11:22 AM.

Papa John's Lessons from $250 Million in Text Message Class Action was the previous entry in this blog.

The Wrong Way to Control Your Franchisee's Menu Pricing is the next entry in this blog.

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