Federal Circuit Reverses Grant Of Preliminary Injunction Enjoining Use Of Alleged Trade Secrets As Abuse Of Discretion | A&O Shearman
On June 17, 2024, the United States Court of Appeals for the Federal Circuit (“CAFC”) issued a precedential opinion reversing a decision from the United States District Court for the District of Massachusetts in Case No. 1:23-cv-11780-FDS, Judge F. Dennis Saylor, IV, granting a preliminary injunction enjoining defendant EOFlow’s use of alleged trade secrets. Insulet Corp. v. EOFlow, Co. Ltd., __ F.3d __ (Fed. Cir. June 17, 2024). In its decision, the CAFC found that the district court had abused its discretion in weighing the equitable factors governing preliminary injunctions and in defining the set of information eligible for trade secret protection.
Insulet and EOFlow are competing medical device manufacturers that make insulin pump patches. In 2017, EOFlow began developing its next-generation product, EOPatch 2. Around that time, four former Insulet employees joined EOFlow. In early 2023, reports surfaced that Medtronic, a larger competitor of Insulet, had started a diligence process to acquire EOFlow. Soon thereafter, Insulet sued EOFlow in the U.S. District Court for the District of Massachusetts for violations of, among other things, the Defend Trade Secrets Act (“DTSA”), seeking a temporary restraining order and a preliminary injunction to enjoin all technical communications between EOFlow and Medtronic in view of its trade secret claims.
On August 29, 2023, the district court issued a temporary restraining order and, on October 4, 2023, granted Insulet’s request for a preliminary injunction. In support thereof, the district court found that there was “strong evidence of misappropriation” because EOFlow hired former Insulet employees who retained “Insulet’s confidential documents” that “fall within the statutory definition of trade secret,” and that irreparable harm to Insulet crystallized when EOFlow announced an intended acquisition by Medtronic, which “would be a source of capital for EOFlow” and would increase competition with Insulet. The resulting preliminary injunction enjoined EOFlow “from manufacturing, marketing, or selling any product that was designed, developed, or manufactured, in whole or in part, using or relying on the Trade Secrets of Insulet.” EOFlow appealed.
The CAFC began its analysis by reciting the established prerequisites for issuance of a preliminary injunction: (1) a likelihood of success on the merits; (2) no adequate remedy at law such that irreparable harm will be caused without the injunction; (3) the harm is greater than the injury the defendant will suffer if the injunction is granted; and (4) the injunction will not harm the public interest.
The CAFC then addressed each of EOFlow’s arguments on appeal, starting with the argument that the district court abused its discretion by failing to even consider whether Insulet’s DTSA claim was time-barred under 18 U.S.C. § 1836(d) in assessing the likelihood of success on the merits. The CAFC agreed with EOFlow that a potential time bar is a material factor deserving significant weight, and that ignoring this factor was an abuse of discretion.
The CAFC next agreed with EOFlow that the district court further abused its discretion by granting a preliminary injunction in which “trade secret” was overbroadly defined as “any and all information or materials that were marked ‘confidential’ by Insulet and (b) any and all CAD files, drawings, or specifications created by Insulet, whether or not they were marked confidential.”
According to the CAFC, this definition was improper because it failed to account for certain restrictions on what qualifies as a “trade secret” information under the DTSA, including that the owner took reasonable measures to keep the information secret and that the information derived independent economic value from not being generally known or readily ascertainable. For example, noted the CAFC, the district court failed to consider what information within its broad definition of trade secret might be obtainable by reverse engineering, particularly given the evidence of public availability of Insulet’s competing products and related patent disclosures.
Last, the CAFC agreed with EOFlow that the district court’s findings on the public interest and irreparable harm also constituted an abuse of discretion. With respect to the public interest, the CAFC concluded that the district court provided no meaningful analysis at all. With respect to irreparable harm, the CAFC interpreted the district court opinion as asserting that a strong showing on likelihood of success meant that the plaintiff did not also have to establish irreparable harm. This, noted the CAFC, was an error of law. Even absent this error, the CAFC noted that neither a generalized fear of a larger competitor nor any theoretical sale that can be remedied with damages constitutes a cognizable irreparable harm.
Accordingly, the CAFC reversed the district court’s decision granting a preliminary injunction and remanded.
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