Companies frequently wrestle with the decision of whether to seek a temporary restraining order (TRO) in trade secret and covenant not to compete cases. The hesitancy is understandable, since a request for an injunction adds a level of expense and commitment that does not accompany a conventional lawsuit.
As a result, after discovering a potential violation, companies will sometimes opt to send a cease and desist letter in the hope that it may cause a potential defendant to refrain from any further misconduct or lead to a settlement of the dispute. However, it is important to remember that there is a risk that any delay may be perceived by a court as a sign of a lack of urgency, importance or irreparable injury.
Two recent cases and a recent post by the Delaware Non-Compete Blog illustrate the consequences of delay. In a February 2, 2012 Order denying a plaintiff’s TRO request in Digital Generation v. Boring, the Northern District of Texas reasoned that the plaintiff’s “decision to wait 44 days after [the defendant’s] termination before seeking a TRO suggests that the perceived risk to [plaintiff] is not immediate.” (A copy of the opinion is attached below).
Similarly, last month in a patent case, Cephalon v. Sun Pharmaceuticals, the District Court of New Jersey denied a request for a TRO, holding that “[I]n light of the continued unwarranted delays in prosecuting this action, plaintiff has not demonstrated that it will suffer immediate and irreparable harm absent the entry of a temporary restraining order.” Unfortunately, the court’s opinion does not provide much detail about the delays, presumably because of a protective order in the case that placed much of the relevant information and briefing under seal.
Finally, the Delaware Non-Compete Blog wrote an excellent post last week aptly named “Settlement Discussions Not An Excuse for Delayed TRO Application To Enforce Noncompete.” According to the post, the Chancery Court was troubled by the fact that the plaintiff had waited four months after learning of the defendants’ activities before seeking the TRO. The plaintiff argued the delay was due in part to its efforts to work out a standstill agreement with the defendants. As noted in the transcript excerpt below, the Chancery Court wasn’t impressed:
“You can’t have a problem in November and come running in here [in March], you know, two days after you file your papers, and say all of a sudden you need a TRO. We don’t operate like that.
And the fact that you tried to … negotiate a standstill, that’s great, but if you think that your rights are really being harmed to the extent that you say they are, you have to go on a parallel path to get some judicial relief. You haven’t moved fast enough, and I’m not giving you a TRO.”
From a litigator’s standpoint, the issue of undue delay can greatly complicate a TRO request and may be the proverbial straw that breaks the camel’s back. As I have written many times before, some courts already may be ambivalent about trade secret and non-compete cases and TROs in particular, since consideration of a TRO request is generally disruptive to the court’s docket and schedule for that day. In addition, the bar for demonstrating irreparable injury in commercial and IP cases in federal court has been raised by the U.S. Supreme Court’s decisions in eBay Inc. v. MercExchange LLC, 547 U.S. 388 (2006), and Winter v. NRDC, 555 U.S. 7 (2008), and district courts have applied that heightened standard in recent trade secret cases such as Amylin Pharm v. Eli Lilly & Co.
So what is the best course of action? In my experience, a cease and desist letter seldom resolves a dispute and, as the blog post above suggests, is rarely rewarded by the court. Consequently, a company needs to make a decision relatively quickly on whether the dispute at hand is indeed one worthy of seeking a TRO. If it is, the company should move aggressively for the TRO.
If, however, your client still wants to attempt to resolve things before bringing a TRO action, keep the defendant on a very short leash and impose a deadline. If you cannot secure an acceptable agreement, file your TRO request promptly after that deadline. This will preserve your ability to continue to negotiate a resolution, perhaps one brokered by the court, and refute the argument that your client has unduly delayed or lacks irreparable injury as a result.