An injunction in a trade secret case should generally end when the trade secret does. But new empirical research by Professor Lynda Oswald sheds new light on the actual lifetime of these injunctions. The results are surprising. Oswald finds that in the vast majority (~80%) of cases in her dataset, courts simply grant an open-ended injunction without a fixed term. While defendants could in theory move to dissolve the injunction when the trade secret ceased to exist, Oswald found no evidence this happened. In effect, the injunctions appear to have remained in effect indefinitely.
Lynda Oswald is the Louis and Myrtle Moskowitz Research Professor of Business and Law at University of Michigan's School of Business. Professor Oswald's article, An Empirical Analysis of Permanent Injunction Life in Trade Secret Misappropriation Cases, has now been published in the Iowa Law Review.
How long do injunctions in trade secret cases last? Oswald's new study contributes important new data to answering this question.
Importantly, Oswald's study follows on a prior study by Professor Elizabeth Rowe, at University of Virginia. Rowe's findings suggested that, when courts did issue an injunction after a finding of liability, they rarely took care to tailor the injunction or to calculate a particular term length. Rowe found it was "not uncommon" for courts to simply issue "permanent" (open-ended) injunctions. Rowe's article also gives invaluable insights into courts' application of eBay in trade secret cases, suggesting at least some courts have started to ask whether there would be "irreparable harm" if an injunction does not issue. I blogged on Rowe's study in a prior post, Elizabeth Rowe: Does eBay apply to trade secret injunctions?
How Long Are Injunctions Supposed to Last?
Backing up, when a defendant is found liable for misappropriating a trade secret, a court issues a "permanent" injunction that prevents the defendant from using or disclosing the trade secret or, in the case of a "production injunction," prevents the defendant from marketing a competing product, period.
A note on terminology: An injunction issued after a merits decision is called a "permanent" injunction to distinguish it from a "preliminary" injunction issued before the merits. But the word "permanent" doesn't necessarily mean "perpetual." A "permanent" injunction can be fixed-duration (e.g. two years) or open-ended with no fixed term.
The question is: how long should a "permanent" injunction last? One year? Twenty years? Forever? There is no fixed statutory term specified in either the Defend Trade Secrets Act or the Uniform Trade Secrets Act.
Historically, there were three approaches for calculating the term of permanent injunctions.
1. Under the "Shellmar Rule," an injunction could last forever, even if the trade secret was already public or was made public by the time the court was crafting the remedy. In Shellmar, the trade secret had been revealed in patents, so the defendant argued it should enjoy "the rights of the general public to the patent disclosure," but the court upheld that an injunction preventing the defendant from using or disclosing the information it had misappropriated because the defendant, through its "inequitable conduct," had "precluded" itself from enjoying the same rights as the general public. (Shellmar, 108). Whether the information was secret, in other words, was less important than recognizing, and punishing, the bad acts the defendant took vis a vis the plaintiff.
2. Under the "Conmar Rule," in contrast, an injunction would generally end once the trade secret became public or otherwise ceased to exist. For example, if the plaintiff came to court seeking an injunction because a former employee took trade secrets, but the secrets were by now publicly disclosed in patents, then the plaintiff couldn't get injunctive relief. This is what happened in Conmar itself. As the court put it, "[s]ince the specifications of the patents in suit disclosed the first six secrets and part of the seventh, that much of the secrets upon issue of the patents fell into the public demesne; and, prima facie, the defendants were free to use them." (Conmar, 155).
3. Under the Winston Research approach, injunctions can last beyond the life of the trade secret in order to eliminate any ill-gotten "head start" the defendant might have obtained from gaining illicit access to the plaintiff's information. For example, in Winston Research, former employees took trade secrets relating to a tape recording device and were able to start manufacturing competing products sooner than legitimate competitors could have. They got a "head start" over all the innocent companies that didn't misappropriate trade secrets. The court upheld a two-year injunction, even though the trade secrets were by now public. "Denial of any injunction at all," the court wrote, "would leave the faithless employee unpunished where, as here, no damages were awarded; and [defendants and their new employer] would retain the benefit of a headstart over legitimate competitors who did not have access to the trade secrets until they were publicly disclosed." The two-year term was chosen to approximate the time it would have taken "a legitimate ... competitor to develop a successful machine after public disclosure of the secret information[.]" (Winston Research, 142).
The modern statutory regime rejected the Shellmar rule, and adopted a mix of the Conmar and Winston Research rules.
Under the Uniform Trade Secrets Act, injunctions are not available if the trade secret is already public when the plaintiff requests relief. If the information is still a trade secret at the time the court issues the injunction, but the information later becomes public or the trade secret otherwise "has ceased to exist," then the defendant has the right to apply to the court to terminate the injunction. This is the Conmar part of the rule: Injunctions are generally not appropriate if the trade secret has already entered the public domain and is free for everyone else to use. If a trade secret has entered the public domain, the defendant has the same right as other members of the public to use that information.
However, if the defendant has secured an unfair head start due to the misappropriation (e.g. they were able to move towards the manufacturing stage more quickly), then the court can enjoin the defendant for a bit longer to deprive them of any ill-gotten advantage. This is the Winston Research part of the rule: courts may grant a "head-start" or "lead-time" injunction in order to deprive the defendant of a head start it obtained over innocent competitors who did not misappropriate trade secrets.
Here is the relevant text. Section 2(a) of the Uniform Trade Secrets Act provides:
"Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation."
Here is a concise explanation of the UTSA's approach from Professor Richard Dole himself, who, along with being a law professor, was one of the drafters of the Uniform Trade Secrets Act in the 1970s:
"The Uniform Trade Secret Act adopts a combination of the Conmar Rule and the Winston Rule. It states that the court may issue an injunction to stop actual or threatened misappropriation. The injunction shall be dissolved if the trade secret ceases to exist, but the court can extend the injunction to eliminate an unfair advantage the defendant obtained. ... [Meanwhile,] an injunction against a prior misappropriator that is sought after a trade secret has become generally known should terminate at the same time. "
(Dole, 188-189, 200-201) (my emphasis added). I highly recommend Dole's article on this subject as well.
The Defend Trade Secrets Act (DTSA) is sparser and, in my opinion, too sparse. It does not make clear injunctions are supposed to end when the trade secret ceases to exist or that the defendant has a right to move to dissolve the injunction when the trade secret has ceased to exist.
Instead, the DTSA simply states in 18 U.S.C. § 1836(b)(3)(A), that
"In a civil action brought under this subsection with respect to the misappropriation of a trade secret, a court may— (A) grant an injunction— (i) to prevent any actual or threatened misappropriation ... on such terms as the court deems reasonable[.]"
That said, the DTSA says more than the UTSA about employees, stating that the order cannot "prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows..." You can see discussion of this provision in my prior post on "inevitable disclosure" injunctions and 18 U.S.C. § (b)(3)(A)(i)(1)(I).
Enter Oswald: How Long Do Injunctions Actually Last?
In her remarkable new study, Oswald asks: How long do trade secret injunctions actually last?
Oswald explains that, under the modern Conmar/Winston Research approach, a trade secret is supposed to end when it's no longer a trade secret, with the potential exception for a slightly longer injunction to eliminate an ill-gotten a head start.
However, Oswald astutely observes that, at an administrative level, courts actually have two viable options, both of which are acceptable under the text of the UTSA and DTSA.
Option (1): Estimate the Lifetime of the Trade Secret Up Front
The first option is to try to "estimate the approximate life" of the injunction "up front" by figuring out when the trade secret is likely to end, and then issue a defined-life injunction. " (Oswald, 2196).
This can be difficult, expensive, and time-consuming, and risks being inaccurate. Generally, both parties have to bring evidence and give their estimates for when the trade secret would become public or could lawfully be developed by legitimate competitors. The plaintiff usually argues it will be a long time; defendant usually argues it will be quick. The court has to pick who is right or chose some time period in between. See, e.g., See G.E. v. Sung, 843 F. Supp. 776, 780-81 (D. Ct. Mass. 1994).
Option (2): Issue Permanent Injunction Until Defendant Proves Trade Secret No Longer Exists Or Could Be Lawfully Developed
The second option is to "issue an open-ended injunction and allow the misappropriator to petition for modification or termination of the injunction when circumstances change."(Oswald, 2196). This seems to be approach Professor Dole favored. "With respect to trade secrets that remain secret," he wrote, "an injunction can last until a defendant can prove that it legitimately can replicate the trade secret. If a defendant cannot prove this, for example due to lack of resources, an injunction without an express limit upon its duration is appropriate." (Dole, 200-201).
Oswald then asks: What do courts actually do?
Prof. Oswald's initial dataset consisted of 161 federal trial court cases in which injunctions were issued after a finding of liability between January 1, 2009 through December 31, 2022. The study includes UTSA as well as DTSA claims. After Oswald culled the cases for various reasons, she was left with a final dataset of 53 cases. (Oswald, 2213-2214).
What happened in these 53 cases?
Courts usually chose the second option. "Courts in only about twenty percent of the study’s dataset opted for the first choice." Courts in nearly 80% of cases issued open-ended injunctions with no end date.
To quote Oswald, "forty-two of the fifty-three cases in the dataset resulted in a permanent injunction without a specified life. Only eleven of the cases involved injunctions with a duration that could be measured in finite periods of months or years."
She also found "[t]wo of the cases resulted in perpetual injunctions" that apparently could not be dissolved. (Oswald, 2215-2216).
Finally, Oswald observes that to her knowledge, in none of the cases in her dataset did a court "terminate or modify a permanent injunction upon a showing of changed circumstances or a cessation of secrecy." (Oswald, 2234).
Conclusions & Some Observations
Oswald concisely states her conclusion thus: "The study demonstrates that true perpetual permanent injunctions are vanishingly rare. ... However, almost eighty percent of the cases in the dataset resulted in a permanent injunction with no temporal constraints ... which in practical terms equates to a perpetual injunction[.]" (2231).
Another way to look at Oswald's findings is that, in practice, courts are effectively adopting a version of the Shellmar rule, which has supposedly been overruled. Courts tend to simply issue permanent injunctions.
Oswald finds this "startling: What is said in doctrine was seldom what was applied in practice by courts." (2236). To me, this is a familiar pattern in trade secret law. Courts make decisions. The parties adapt, and sometimes they do not take the steps that would seem to be in their best interest. This could be due to lack of resources, or even laziness or ignorance of the law. But I also think there are often secret motivations behind the scenes that we just don't see. As Oswald observes, in some cases, it's probably just not worth it for defendants to argue for a shorter injunction, because the information isn't valuable anymore; and, on the flip side, sometimes it's probably not worth it for the plaintiff to complain when the defendant violates the injunction. (Oswald, 2234).
I also want to make a few observations that could moderate Oswald's findings and make them slightly less "startling."
First, this is not actually a Shellmar rule. Unlike under Shellmar, plaintiffs cannot get an injunction if the trade secret is not secret by the time of the remedy. To quote Dole (who, again, was a drafter of the UTSA's text, pursuant to the text of UTSA Section 2(a), "a fortiori, an injunction against a prior misappropriator that is sought after a trade secret has become generally known should terminate at the same time." (Dole, 200). Unlike under Shellmar, even if the information was initially still secret when the remedy was crafted, defendants can move to dissolve the injunction if the trade secret later becomes public or otherwise ceases to exist. To quote Oswald, the UTSA provides a "safety valve" by giving the defendant "the right to seek termination or modification of the injunction upon changed circumstances ... The existence of this right helps ensure that the injunction will not persist for an inequitable time period[.]" (Oswald, 2233)
Second, it is not clear to me what type of injunction was at issue in the cases Oswald reviewed. True, in 42 of 53 of the cases in her dataset, courts did not put an express time limit on the injunction, and defendants apparently never moved to dissolve the injunction. But was this merely a "non-use" and "non-disclosure" injunction, which would only prevent the defendant from using or disclosing the specific misappropriated information? Or was this a full-on "production injunction" injunction, which would have enjoined the defendant from manufacturing the competing product altogether? If the injunctions were only non-use and non-disclosure injunctions, then Oswald's findings would not be as alarming. On the other hand, if these were production injunctions (or even "no-work" injunctions for particular individuals), the impact would be far greater. The defendants' decisions not to seek to terminate the injunctions would seem curious indeed. See G.E. v. Sung, 843 F. Supp. 776, 779-80 (D. Ct. Mass. 1994) (discussing distinction between non-use/non-disclosure and production injunction).
Finally, I will just point out that, today, there is far less need for a Conmar Rule than there used to be. When Conmar was decided, courts applied the common law. It was possible for a person be found liable for trade secret misappropriation even if the "trade secret" was not actually secret. For instance, in one notorious case, discussed here by Jeanne Fromer, the secret (a pattern for a pump) had been revealed in patents and in the plaintiff's own products at the time the defendant "misappropriated" it. Today, due to stricter secrecy standards, and the requirement a trade secret not be "readily ascertainable through proper means," such a defendant should not be enjoined at all.
Of course, this does not mean there won't be cases where defendants are enjoined, and then one or two months later the information becomes public. Here, we would think that defendants would at least sometimes have a motivation to move to terminate the injunction. Oswald's study has a clear practical lesson: In those cases, it's the defendant's burden to make that motion. Lawyers should make sure their clients know their rights.