Tag: Preliminary Injunction

Preliminary Injunctions and The Illinois Trade Secrets Act

Trade secrets cases provide fertile grounds for preliminary injunctions and temporary restraining orders.  Here are the black-letter basics:

– A preliminary injunction plaintiff must show: (1) irreparable harm, (2) likelihood of success on the merits, (3) the harm the plaintiff would suffer if the injunction is denied is greater than the harm inflicted on the defendants and (4) the injunction is in the public interest;

– To win a trade secrets case, the plaintiff must establish (1) that the information at issue is a trade secret, and (2) that the information was misappropriated and used in the defendant’s business;

– A trade secret is broadly defined as “information” that is (a) sufficiently secret to derive monetary value from not being generally known to others (who can obtain monetary value from its use); and (b) subject of efforts to maintain the information’s secrecy or confidentiality. See Illinois Trade Secrets Act, 760 ILCS 1065/2 (the ITSA);

– Six common-law trade secrets factors include

(1) extent to which the information is known outside of plaintiff’s business,

(2) extent to which the information is known by employees and others involved in plaintiff’s business;

(3) extent of measures taken by plaintiff to guard the information’s secrecy;

(4) value of the information to the plaintiff’s business and its competitors;

(5) the amount of time, effort and money expended by the plaintiff in developing the information; and

(6) the ease or difficulty with which the information could be properly acquired or duplicated by others;

– Misappropriation means acquisition or discovery by improper means or use of the secret;

– There is a presumption of irreparable harm in trade secrets misappropriation cases;

– Irreparable injury means harm that is difficult to quantify;

– The purpose of a preliminary injunction (in the trade secrets context) is not to punish; but to eliminate a litigant’s unfair advantage over another.

 

 

 

  

 

 

 

 

 

 

 

 


Record Company’s Injunction Attempt Against Rock Band Fails

Victory Records’ attempt to prevent the rock band A Day to Remember (ADTR) from releasing an album in the Fall of 2013 failed because it couldn’t establish the elements for injunctive relief under Illinois law.

In Woodard v. Victory Records, 2013 WL 5517926 (N.D.Ill. 2013), the defendant record company (“Victory” or the “Record Company”) sued to prevent the Florida pop-punk quartet from self releasing its Common Courtesy record.

The Court denied the Victory’s request to block the band’s album release.

To get a temporary restraining order, a plaintiff must show:

  • irreparable harm,
  • an inadequate remedy at law,
  • a likelihood of success on the merits;
  • the harm that will result if the injunction isn’t entered will outweigh harm to the opposing side if the injunction is entered.  *2.   

Victory established a likelihood of success on the merits.  “This is not a high burden.”  All the movant must show is a “better than negligible” chance of winning on the merits.

The crux of the dispute was the parties’ differing interpretations of the word “album” as it was used in the contract. 

The Court found the term ambiguous and each side’s interpretation was plausible.  ( *3).  Because each side’s reading of the contract had facial validity, the Record Company demonstrated a better than negligible chance of prevailing on the merits.

Irreparable harm denotes “likely” injury that is “real” and “immediate”, not “conjectural or hypothetical.”

The movant has to show money damages would not adequately remedy the harm suffered without an injunction.  ( *3).

Here, Victory couldn’t establish likely irreparable harm or an inadequate remedy at law because ADTR was a known quantity. 

ADTR had released several successful albums under the Victory label.  Because of this, Victory could gauge any lost profits resulting from ADTR’s independent album release. 

This ability to extrapolate the album’s likely profits from ADTR’s prior sales meant Victory had an adequate legal remedy (e.g. a suit for money damages) for breach of the recording contract. 

The Court also rejected Victory’s reputational harm argument – that if ADTR is allowed to self-release an album and the album is flawed and doesn’t sell, Victory’s reputation will suffer.  The Court held that since ADTR was perennially successful and had a wide fan base, it wasn’t likely that ADTR would intentionally (or not) release an inferior music product. (*4-5).

The balance of harms element also favored ADTR.  The Court applied a “sliding scale” analysis: the more likely a movant is to win, the less the balance of harms must weigh in the movant’s favor (and vice versa). (*2).

 Here, the Record Company had a lost profits breach of contract remedy if the band breached the recording contract.  In contrast, if ADTR was prevented from releasing its album with no end in sight to the underlying litigation, the band’s fan support could likely erode in an ultra-competitive industry (the music business) resulting in definite financial harm to the band.  (*5)

Take-aways:

Victory Records illustrates that injunctive relief is difficult to get where the moving party has a clear legal remedy.

 The Court found that past album sales provided a basis for lost profits and a sufficient legal remedy if the band breached the recording contract.

 

Facebook Announcement Doesn’t Equal Improper Client Solicitation: Mass. Court

In Invidia v. DiFonzo, 30 Mass. L.Rptr 390 (2012), a hair salon sued a former stylist for breaching a non-compete and non-solicitation clause in her employment agreement.  The Court examined whether the new employer’s posting a job change on defendant’s Facebook page and “friending” former clients was improper solicitation.

The employment contract contained a non-compete spanning two years and 10 miles and a two-year non-solicitation clause.  After she resigned, the defendant went to work for a competing salon less than two miles away.  Her new employer then posted an announcement on its Facebook page, promoting defendant’s new affiliation with the competing salon. 

The plaintiff saw the Facebook activity and sued.  The Court denied the request for injunctive relief because plaintiff failed to show a likelihood of success on the merits or irreparable harm.

Rules/Reasoning:

A preliminary injunction plaintiff must show (1) likelihood of success on the merits; (2) irreparable harm if the injunction is denied; and (3) the risk of irreparable harm to the movant outweighs similar risk of harm to the opposing party.  *2. 

Massachusetts courts scrutinize non-competition agreements because they often result from unequal bargaining power.  A covenant not to compete is enforceable only if it’s necessary to protect a legitimate business interest, is reasonably limited in time and space, and supported by the public interest.  *4.

The Non-Compete Provision

The salon plaintiff failed to show that it was likely to succeed on the merits on the noncompete because it was questionable whether a two-year/10-mile restriction was necessary to protect plaintiff’s interest and because plaintiff failed to show that its “legitimate business interest” – the goodwill which plaintiff claimed it lost – belonged entirely to plaintiff.  *5.  

The Court noted that in the hairdressing business, goodwill often belongs to the individual stylist rather than the salon.  That is, customers likely patronize a salon for a specific hairdresser; not because they like the salon itself. 

The Court also found the plaintiff failed to show irreparable harm, since plaintiff could clearly quantify its damages.  The Court pointed out that plaintiff offered evidence of the number of clients that it lost since defendant left (90) and the average dollar amount spent ($87.16) by each lost client.  This militated against a finding of irreparable harm.  *5.

The Non-Solicitation Clause

Turning to the non-solicitation clause, the Court found that the Facebook announcement of defendant’s affiliation with the new salon (by that salon) did not equate to active solicitation.*5.  

Nor did the defendant’s sending  friend requests to eight clients of plaintiff amount to a breach of the non-solicitation provision. 

The employer did however have some circumstantial evidence in support of its solicitation argument.  It offered documents at the injunction hearing that demonstrated that some 90 salon clients had cancelled (without rescheduling) appointments in the two-plus months since defendant’s departure. *6.  Yet the Court wasn’t prepared to find this a breach of the anti-solicitation provision.  The Court stressed that no current or former clients testified that defendant contacted them and solicited their business.

Take-aways: A third party’s passive Facebook posting and direct Facebook friends requests are not enough to establish solicitation for preliminary injunction purposes.  Instead, there must be direct evidence of active solicitation to merit injunctive relief.