In an interesting trade secret case out of New York Supreme Court, Airvana Network Solutions Inc, a Massachusetts broadband network company, has won a preliminary injunction against Ericsson in a trade secrets lawsuit that seeks more than $330 million from the Swedish telecommunications network equipment maker. On Tuesday, Manhattan State Supreme Court Judge Barbara Kapnick enjoined Ericsson from using certain hardware based on Airvana’s design unless it secures a software license from Airvana. (A PDF of the opinion can be found below and Law360 has reported on the case fairly extensively).
Airvana, founded in 2000 by former Motorola executives, had supplied Ericsson and predecessor Nortel Networks Inc. with hardware and software used to run large wireless data networks. Under the terms of its agreement with Nortel, Airvana gave Nortel responsibility over the hardware, so long as Nortel used Airvana’s software and paid royalties on any hardware that might be built based on Airvana’s designs. Ericsson acquired much of Nortel’s wireless equipment business in North America through Nortel’s bankruptcy in 2009, including Nortel’s obligations under the agreement with Airvana
In June 2010, Ericsson began working with a joint venture partner, LG Electronics, to develop software that would run on Ericsson’s version of the hardware. Several months later, Ericsson told Airvana that it no longer needed Airvana’s software because it was developing an alternative solution that would not be based on Airvana’s hardware designs.
Airvana alleged that the hardware developed by both Nortel and Ericsson was based on design documents Airvana had transferred as part of their agreement and that the hardware misappropriated the trade secrets of Airvana.
Overcoming Obstacles to Irreparable Injury: Most of Judge Kapnick’s opinion addresses the parties’ varying interpretations of the agreement and whether Ericsonn’s software was based on the design of the Airvana software, but her analysis of irreparable injury is the most significant part of the opinion. As those in New York know, proving irreparable injury in the context of a license agreement is very difficult because of New York’s embrace of the Second Circuit’s flawed opinion in Faiveley Transport Malmo AB v. Wabtec Corporation, 559 F.3d 110 (2d Cir. 2009). As readers of this blog may remember, Faiveley essentially held that a former licensee could misappropriate trade secrets so long as it did not disclose them, a ruling that has been inexplicably followed by New York courts.
It appears that Airvana was able to avoid the deadly embrace of Faiveley by arguing that it would go out of business in the absence of injunctive relief ordering payment of royalties by Ericsson. Of course, the loss of a plaintiff’s enterprise is the quintessential example of irreparable injury, since a monetary judgment has little or no value to a company that has been forced out of business. However, proving irreparable injury still can be difficult since license disputes by their nature have readily calculable damages by virtue of their previous royalty stream.
The Takeaway: Never underestimate the power of the “going out of business” claim, even in a licensing dispute. Ericsson attempted to argue that Airvana’s financial predicament was largely of its own “irresponsible” over-leveraging, an argument that seems to have fallen flat. Surprisingly, it does not appear, at least from the opinion, that Ericsonn argued that the damages were readily calculable by virtue of the $330 million demand in the complaint.