Opening with a tribute to the iconic New York City subway system, complete with citations to sources as diverse as Leonard Bernstein and The Bonfire of the Vanities, the Second Circuit Court of Appeals earlier this week vacated and remanded a preliminary injunction barring a braking system manufacturer from disclosing proprietary drawings and other information to the New York City Transit Authority during the contracting process.
In 1993, SAB Wabco (Faiveley Transport Malmo AB’s predecessor-in-interest) entered into a license agreement with then-sister company Wabco (Wabtec’s predecessor-in-interest) that gave Wabco the authority to use SAB Wabco’s “know-how,” including manufacturing data, specifications, designs, plans, and trade secret information. Among other information, this included details related to BFC TBU, described by the court as “a unique air brake system designed to stop trains quickly and smoothly, if not always quietly.”
When the agreement terminated at the end of 2005, Wabtec began to develop its own line of BFC TBU through reverse-engineering, and in 2007 was awarded a sole source contract to provide the braking system for the Transit Authority’s overhaul of a certain class of subway cars. Faiveley sought a preliminary injunction in federal district court, asserting that the BFC TBU information constituted trade secrets that Wabtec was misappropriating by manufacturing the braking system and disclosing information to the Transit Authority during the contracting process. The district court granted the injunction.
On appeal, however, the Second Circuit held that although the district court had not erred in finding that Faiveley was likely to succeed on the merits of its misappropriation claim, there was no evidence of irreparable harm and, thus, no basis for entry of a preliminary injunction. Most notably, the court made a point of correcting the misapplication of the law by some district courts that had erroneously read Second Circuit precedent as meaning that a presumption of irreparable harm automatically arises upon the determination that a trade secret has been misappropriated. Instead, the court clarified that, although a rebuttable presumption of irreparable harm may arise where there is a danger that the trade secrets will be disseminated to a “wider audience” or their value otherwise impaired, no such presumption is warranted where “a misappropriator seeks only to use those secrets—without further dissemination or irreparable impairment of value—in pursuit of profits” because such harm can be compensated with money damages.
Thus, the Second Circuit found that no injunction was merited here because the evidence showed only that Wabtec had used Faiveley’s proprietary information to gain a competitive advantage, but had not disseminated any trade secrets and, indeed, was treating the information with the same confidentiality given its own proprietary information. Because there was no risk that Wabtec would further disclose or irreparably harm Faiveley’s trade secrets, the court vacated the injunction and remanded the matter to the district court. This decision serves as an important reminder of the facts that must be alleged and established to prove irreparable harm when seeking temporary or preliminary injunctive relief for trade secret misappropriation.