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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Preliminary Injunction Issued By Nebraska Federal District Court To Level The Playing Field in Trade Secrets Dispute

Posted in Practice & Procedure, Trade Secrets

A federal district court in Nebraska recently issued a significant preliminary injunction preventing trade secret misappropriation and unlawful competition in a contentious dispute between two freight companies.  West Plains, L.L.C. v. Retzlaff Grain Co., Case No. 8:13CV47 (D. Neb., Feb. 26, 2013).

A group of freight forwarders employed by CT Freight allegedly resigned en masse and went to work for start-up RFG Logistics, a CT competitor. Before resigning, they allegedly communicated their intentions with each other and with some CT customers, and supposedly they secretly downloaded to their personal computers CT’s marketing information (which they maintained was publicly available). Their departure allegedly decimated CT’s freight forwarding department. The employees were bound by a trade secret confidentiality policy and, while employed by CT, a prohibition against competing, but they did not commit to post-employment non-competition or non-solicitation obligations.

CT sued the ex-employees in a Nebraska federal court and moved for a preliminary injunction. The court ruled that CT’s compilation of marketing data was a protected trade secret under Nebraska law even if the data itself was not. In the court’s view, in order to preserve the status quo and preclude unfair competition, a 60-day preliminary injunction against use of the compiled information would enable CT to rebuild its department and allow RFG to acquire the purloined information from public sources. The resulting playing field would be leveled without foreclosing competition indefinitely.

According to the court, as a result of their pre-resignation conduct, the defendants and their new employer achieved a competitive advantage at CT’s expense because their “departure with CT Freight’s Confidential Information [left CT] without the personnel to meet its customers’ needs, while providing RFG Logistics with both the personnel and the information necessary to compete immediately for CT Freight’s business.” Consequently, CT demonstrated a likelihood of success on its claims for misappropriation and breach of the duty of loyalty. CT also showed that there was a threat of irreparable harm because of the absence of an easy or quantifiable remedy.

Balancing the harm and protecting the public interest was somewhat more problematic. There was no operative non-competition or non-solicitation agreement. A lengthy injunction would disable the individual defendants from competing for customers with whom the defendants previously had relationships. Further, although the resignations hindered CT from handling its prior volume of business immediately, it had notified its customers that it was working to mitigate the harm. The court reasoned that an injunction of limited duration “gives due regard to both CT Freight’s interests and the public interest in free competition.”

This case teaches that the victim of a misappropriation of trade secrets may be able to obtain a preliminary injunction against anti-competitive use of the data despite the absence of non-compete and non-solicitation agreements. However, a court might make the injunction period shorter than it typically would be if the parties had entered into a written agreement.