In some instances of unfair competition or trade secret theft, litigation can be unavoidable. When it happens, startups involved are often not aware of the speed with which a case can move to conclusion, and the little amount of time there can be for preparation.
One of the most critical stages in a case of trade secret or unfair competition litigation is the hearing in which a judge decides whether to grant a temporary restraining order—or “TRO.” A TRO is an emergency injunction that is administered to prevent a party from taking advantage of his or her illegal activities. In effect, a startup is asking the court to make the other party stop doing what they’re doing regarding the startup’s intellectual property.
The TRO process starts with the filing of a complaint that may contain a cause of action for “conversion” (theft), fraud, breach of contract, or violations of state and federal trade secret laws. With a TRO at issue, parties typically will be heard before a judge in short order—in days or even hours after the lawsuit is filed, as this TRO hearing may resolve the entire case.
A request for a TRO is governed by the same standards that apply to the issuance of a preliminary injunction. A party seeking a temporary restraining order or a preliminary injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure must demonstrate four elements:
- a substantial likelihood of success on the merits;
- a substantial threat of irreparable injury if the injunction is denied;
- that the threatened injury outweighs any prejudice the injunction might cause the defendant; and
- that the injunction will not disserve the public interest.
Injunctive relief, especially in the preliminary stages of litigation, is an extraordinary remedy. It requires unequivocal proof of the need for relief. Courts are to grant injunctive relief only be where the movant has “clearly carried the burden of persuasion.”
“Irreparable Injury” Required
One of the requirements of a TRO’s issuance is the judge must find that the alleged wrongdoer’s actions will cause “irreparable injury” to the party seeking the TRO. This means that the harm being done can’t be remedied later by a damages award.
When it comes to a claim of unfair competition, a TRO is usually sought to require the immediate return of the misappropriated trade secret or to enjoin (or stop) the alleged wrongdoer from soliciting the other party’s customers or employees. A startup may have an uphill battle in proving “irreparable injury” because most wrongs can be rectified later with money damages. As courts have said, to grant a TRO, it must truly be circumstances where “the bell cannot be unrung.”
Preliminary relief may be warranted where a startup:
- shows a combination of probable success on the merits and the possibility of irreparable harm; or
- raises serious questions on such matters and shows that the balance of hardships tips in favor of an injunction.
The Ninth Circuit stated that “[t]hese two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases.” With both, the party must show a “fair chance of success on the merits” and a “significant threat of irreparable injury” absent the issuance of the requested injunctive relief. These two elements are typically proven to by declarations filed with the TRO complaint. These statements must precisely detail how the wrongdoer engaged in unfair competition—which can be difficult given that it must be conducted in a short time period and the fact this type of activity is secretive.
If a TRO is granted, the unfair competitive activities must cease immediately, the stolen trade secrets returned, and the competitive damage to the startup is contained or stopped. Any other issues in the case are usually settled between the parties. But when a TRO is denied, the court’s ruling can effectively debilitate the startup’s case totally… and the other party is able to continue the activities that are injurious to the startup. And when a TRO is denied, it may make little sense for the startup to continue pursuing litigation against the alleged wrongdoer.
TROs in California
In California, a startup initiating an action for unfair competition activities should also understand that a court may view the claim with some suspicion when a startup brings such an action against a former employee: The TRO petition may in effect be an attempt to restrain legitimate competition by the former employees, which in prohibited in the state.
Again, a TRO is said to be an “extraordinary remedy,” and a startup seeking one in an unfair competition claim should assume that the judge to be circumspect in granting the request.
A startup should work with an experienced intellectual property attorney to understand the specifics of TROs in trade secret violations and unfair competition. Attorney Michael Ahmadshahi focuses on patents, intellectual property, copyright, and trade secrets in Irvine, California. The Ahmadshahi Law Offices are also located in Beverly Hills and Sherman Oaks. Call us toll free at (800) 747-6081 or direct at (949) 260-4997 or email [email protected] and let us help you with your TRO questions and the IP strategy for your startup.