FALL 2008

Trade Secrets


Course No. 9200-704 (and 804)-801

ID No. 16545

MW 3:00 - 4:30 p.m.
Room L-134
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
Copyright © 2000, 2002, 2003, 2006, 2008   Jay Dratler, Jr.   For permission, see CMI.

Questions and Notes on Tsuetaki and Sundstrand

1.  Both of these cases involve preliminary injunctions.  Unlike so-called "permanent" injunctions, preliminary injunctions are granted before a full trial on the merits.  "Permanent" injunctions are not necessary perpetual, although they may be.  They are called "permanent" to distinguish them from preliminary injunctions and to reflect the fact that they are not merely temporary remedies granted only until a trial on the merits.

Preliminary injunctions are thus designed to serve only as temporary or transitional remedies.  Much of the doctrine governing them derives from this crucial point.

2.  The ordinary practice of the federal courts is to hold an evidentiary hearing before deciding whether or not to grant a preliminary injunction.  Such a hearing may last anywhere from a few minutes to two weeks or more.  To the extent admissible, the record of the hearing can be admitted later at trial on the merits, so that the parties need not repeat at trial introducing the same evidence and examining the same witnesses.  See Fed. R. Civ. P. 65(a)(2).

Intellectual property cases, including trade secret cases, often involve hearings on preliminary injunctions that are closer to two weeks in length than a few minutes.  Can you think of any reason why the parties would invest two weeks of time—comparable to the time required for a full trial—in fighting over a preliminary injunction?  If the parties make that kind of effort, is the hearing really any different from a full trial?

3.  Tsuetaki is unusual in that the trial court issued a preliminary injunction without holding a hearing.  The federal rules permit this procedure; they explicitly require a hearing only to extend a temporary restraining order (TRO) obtained ex parte, i.e., without the defendant's participation.  See Fed. R. Civ. P. 65(b).  Nevertheless, federal courts do not often issue preliminary injunctions without hearings.

Was the court right to do so in this case?  Was Novicky's story that he conceived the May 16 invention four days after leaving Syntex so inherently improbable that the court could reject it based on documentary evidence alone?  Is it possible that the court could judge his credibility from the transcript of his deposition, without live testimony?  If you were the judge, would you have held a hearing?

4.  While at Syntex, Novicky had made an invention disclosure (the November 15 disclosure), on which two patents later issued.  Doesn't it seem as if all the technology at issue in this case was the result of Novicky's own work?  Why couldn't Novicky, like Greenberg in Wexler v. Greenberg, cite this fact as a basis for avoid liability for misappropriating trade secrets?  Does this case suggest a legal precaution that every high-tech business that hires inventors like Novicky should take?

Under the federal common law of patents, an employer owns the inventions of any employee who was "hired to invent."  See, e.g., United States v. Dubilier Condenser Corp., 289 U.S. 178, 187, 53 S.Ct. 554, 77 L.Ed. 1114 (1933) (dictum); Standard Parts Co. v. Peck, 264 US 52, 58-60, 44 S.Ct. 239, 68 L.Ed. 560 (1924).  Even if the employee was not "hired to invent," the employer may have a nonexclusive "shop right" to use an invention made with the aid of the employer's money, facilities or resources.  See, e.g., Dubilier, supra, 289 US at 188-189, Gill v. United States, 160 US 426, 433, 16 S.Ct. 322, 40 L.Ed. 480 (1896).  See generally, Jay Dratler, Jr., Licensing of Intellectual Property § 3.04[7][a], [b] (Law Journal Press, 1994).  Did the Tsuetaki court rely on either of these federal-common-law doctrines in reaching its decision?

5.  In reviewing the district court's grant of a preliminary injunction, the Seventh Circuit in Tsuetaki uses the classic four-part test.  See Jay Dratler, Jr., Intellectual Property Law: Commercial, Creative, and Industrial Property § 13.01[1] (Law Journal Press, 1991) (discussing preliminary injunctions in intellectual property cases).  The plaintiff must show: (1) a likelihood of success on the merits; (2) irreparable harm (to the plaintiff) if the injunction is not granted; (3) a "balance of harms" favoring the plaintiff (i.e., that the plaintiff will suffer more harm pending trial if the injunction is denied than the defendant will suffer if it is granted); and (4) the public interest favoring the grant.  Which of these factors reflects the risk of uncertainty at the preliminary stage, i.e., the risk that the judge will make an error before all the facts are known at trial?  For which of these factors is that risk most important?  Might that risk, and therefore the relative importance of the factors, depend upon whether there is a hearing on the preliminary injunction and, if so, how complete it is?

6.  Defendants in Tsuetaki made two arguments relating to the substance of trade-secret law.  First, they argued, that since Syntex had not actually used the technologies at issue, they could not be its trade secrets.  In Fourtek, the court denied a remedy against one defendant that had not yet used the trade secret at issue.  Can you distinguish Fourtek from this case on the issue of use?

Second, defendants argued that the public disclosure that occurred when Novicky's patent issued destroyed trade secrecy by making the alleged trade secret publicly available.  The court also rejected this argument.  What were its reasons for doing so?  Were they particularly convincing in this case?

To which factor(s) in the traditional four-part test for preliminary injunctive relief (set out in Note 5 supra) do these arguments relate?  Did the court discuss and analyze all four of the traditional factors?  If it didn't, can you analyze and apply them?  Do they support or undermine the court's decision?

7.  The defendants' last-ditch maneuver in Tsuetaki was to challenge the scope of the injunction.  The federal rules require injunctions to be "specific in terms" and to "describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained[.]"  Fed R. Civ. P. 65(d).  In a way, you can think of the scope or breadth of an injunction as analogous to the amount of damages awarded: the broader the scope, the more the injunction cuts off defendants' activities and potential profits.  Should the facts that the injunction was based upon misappropriation of a patented invention and specific documents (the "Arapahoe process sheets") help the plaintiffs and the court in drafting a narrowly tailored injunction?

8.  Although the Sundstrand courts denied the preliminary injunction, that case was also unusual, in three respects.  First, the Federal Circuit says the district court "entered a stipulated TRO[.]" (emphasis added).  This means the defendant agreed to a TRO.  Why did the defendant do that?

Second, the TRO lasted for five months, although the federal rules impose a ten-day limit, at least on ex-parte TROs, subject to extension.  See Fed. R. Civ. P. 65(b).  Why did the plaintiff need so much time to prepare for the preliminary injunction hearing, and why did the defendant agree to grant that much time?  Was that agreement a good litigation tactic?

The third unusual factor in this case was plaintiff's claim that "thousands" of trade secrets were at risk.  Remember Wohlgemuth, the space-suit guy?  In his case the court accepted a similar claim and granted a permanent and perpetual injunction.  Why the difference here?  Did the procedural stage of the litigation and the remedy requested have anything to do with the Sundstrand court's decision?

9.  In reviewing the district court's denial of a preliminary injunction, the Sundstrand court applied an alternative test for preliminary injunctions, which depends on "a combination of probable success and the possibility of irreparable injury or that serious questions are raised and the balance of hardships tips sharply in [the plaintiff's] favor."  How different is this test from the traditional four-part inquiry stated in Note 5 supra?  Does it leave out any of the four traditional four factors?  If so, does it focus on the most important ones?  Does it constrain or extend district courts' discretion to "balance the equities"?

10.  What about Litton's likelihood of success at trial?  On these facts, is the Federal Circuit right in upholding the district court's finding that the case was a "toss up"?  What facts best support Litton's case?  the defendant's?  Is the plaintiff's likelihood of success at trial an important factor in deciding whether or not to grant a preliminary injunction?  If so, what should the court weigh when the case is a "toss up"?  Does the rule the court chose to apply suggest an answer?

11.  Now look at the question of irreparable harm, which is one of the four traditional factors and appears in the first branch of the alternative rule.  As the court suggests, in preliminary injunction hearings, "irreparable harm" refers to the harm the plaintiff will suffer until trial if the court does not grant the preliminary injunction.  Was the plaintiff's case for irreparable harm a strong one?  Did its assertion of "thousands" of trade secrets help it on this point?  Its taking five months and requesting eight months to identify them?  Is the court right to suggest that Litton's harm is not irreparable because it could be compensated in damages?  Is Litton right when it asserts that the harm is the risk of disclosure of its trade secrets to the public?  Is Sundstrand likely to disclose Litton's secrets to the public under the circumstances?  Is there any hard evidence that Sundstrand has done so?

12.  Next look at the "balance of harms," or what the court calls "the relative hardship."  Under the circumstances, when the decision on the merits is a "toss up," isn't this factor decisive?  If you are a conscientious judge, don't you want to minimize the harm to both parties than a possibly erroneous decision may cause pending trial?  How does the balance of harms relate to that goal?

Was the court right to say that the balance of harms sharply favored Sundstrand, the defendant in this case?  What facts so suggested?  Were there any facts that suggested the contrary?  How do you rate Litton's litigation strategy?  Was it smart to request an injunction requiring that Litton look over every disclosure by Sundstrand to its customers and to the federal government, which had to approve Sundstrand's products?  Did that request affect the balance of harms?  Is one lesson of this case that judges do not like overreaching?

Suppose that, instead of asking for a "let us look over your shoulder" injunction, Litton had simply asked the court to enjoin Sundstrand from disclosing listed trade secrets without obtaining assurances of confidentiality from the party or parties to whom they were disclosed.  How would that have changed the balance of harms?  Might it have affect the ultimate decision?

13.  In an effort to persuade the court to overturn the denial of the preliminary injunction below, Litton cites Tsuetaki.  Is that case a good analogy?  Can you articulate precise factual points of analogy or distinction?

14.  The Sundstrand court finally discusses the "status quo" rule for preliminary injunctions, i.e., that they are suppose to preserve the "status quo."  Is this a useful conceptual rule?  What is the status quo that they are supposed to preserve?  Can't the plaintiff manipulate the "status quo" by determining when to bring suit?  As among the three rules for preliminary injunctions—(1) the traditional four-part test, (2) the alternative test that this court used, and (3) the "status quo" test—which best explains the result in this case?  Which most closely relates to the central goal of a district court attempting to decide whether to grant or deny an injunction?

15.  To some extent, the risk of harm to the parties is always asymmetrical in preliminary injunction cases.  If the court finds at trial that denying a preliminary injunction was in error, the court can attempt to make the plaintiff whole by awarding damages and prejudgment interest, for the defendant's wrongful conduct in the interim. But if the court grants a preliminary injunction in error and dissolves it after trial, what is the defendant's remedy for the harm due to the wrongful injunction in the interim?  Can the plaintiff be charged with responsibility for a judicial act—i.e., the judge's good-faith but erroneous grant of the preliminary injunction?

The defendant may ask the court to require the plaintiff to post an "injunction bond" as a condition of granting a preliminary injunction.  See Fed. R. Civ. P. 65(c).  Then the defendant may recover damages against the bond if the preliminary injunction is dissolved.  Although the Rule seems to provide for such a bond in mandatory terms, the defendant may neglect to request one, or the amount of the bond may be too small to cover the defendant's losses due to an erroneous injunction in the interim.  Is so, the defendant will not be able to recover its interim losses , at least in the federal courts.  See Coyne-Delany Co. v. Capital Development Board, 717 F.2d 385, 393-394 (7th Cir. 1983).

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