Federal Circuit Reverses Trade Secret Misappropriation Injunction

On June 7, the Federal Circuit reversed a preliminary injunction order in a trade secret misappropriation case, finding lower courts failed to properly evaluate the likelihood of success on the merits and the balance of harms. In a PatentlyO article, Dennis Crouch highlights the high bar for obtaining a preliminary injunction. 

The Federal Circuit said that lower courts must evaluate each of the four injunction factors:

• Likelihood of success on the merits
• Irreparable harm
• Balance of hardships
• Public interest

The case, Insulet Corp. v. EOFlow, Co., centers around former employees leaving to join a competitor. Crouch says that it illustrates why many employers moved toward contractual non-compete agreements because it’s hard to draw the line between exercising the freedom to change jobs and the misappropriation of knowledge gained by accessing a former employer’s secrets. 

The parties compete in the wearable insulin pump market. Insulet sued EOFlow and several former Insulet employees in Massachusetts federal court, alleging trade secret misappropriation under the federal Defend Trade Secrets Act (DTSA). Insulet sought a preliminary injunction preventing EOFlow from manufacturing or selling any products developed using Insulet’s trade secrets. The defendant admitted to reverse engineering which led to substantial similarities between products.

The district court granted the preliminary injunction finding strong evidence of misappropriation because EOFlow hired former Insulet employees who retained Insulet’s confidential documents, and irreparable harm would occur if EOFlow was acquired by a larger competitor.

The Federal Circuit held that the Massachusetts court analysis did not address the statute of limitations defense, defined trade secrets too broadly, and did not sufficiently assess the potential for irreparable harm and the public interest.

Read more of Today’s General Counsel‘s coverage of trade secrets here, here, and here.