For over two decades, New York Federal and state courts have followed the doctrine that irreparable injury is presumed when seeking a preliminary injunction in a trade secrets case. When a company sought to enjoin others from misappropriating its trade secrets, the courts have presumed actual, imminent, irreparable injury when there has been proof of misappropriation. On that basis, courts have granted injunctive relief without proof of irreparable harm. Now a Federal court has challenged that presumption.

The U.S. Court of Appeals for the Second Circuit recently decided Faiveley Transport Malamo A.B. v. Wabtec Corp., which effectively does away with this presumption. Following Faiveley, the presumption of irreparable injury no longer applies in cases where the trade secrets are simply being used by the misappropriator for commercial purposes. Instead, the presumption will apply only if, without an injunction, "a misappropriator of trade secrets will disseminate those secrets to a wider audience or otherwise irreparably impair the value of those secrets."

This decision makes it much more difficult to obtain an injunction in trade secrets cases, as it requires plaintiffs to demonstrate actual evidence of imminent, irreparable damage.

The Faiveley Court found that courts and litigants had been citing a 1984 case as the source of the irreparable injury presumption; however, such reliance on the 1984 case had been, in the Court's judgment, a misinterpretation, and the presumption should never have existed at all. Instead of a presumption of irreparable injury, a rebuttable presumption of irreparable harm may only be warranted in cases where there is a risk that the secrets at issue will be disseminated to a larger audience. The Court found that misappropriators of trade secrets often have just as much of a profit interest in protecting the confidentiality of the information at issue as the original owners, and that the owners might only suffer loss of sales, an injury which should be fully compensable - not by injunction - but by money damages.

In Faiveley, the Court decided not to apply the presumption because (i) the monetary loss may have been calculable and compensable as money damages, and (ii) the misappropriators were not disseminating the trade secrets to the public, but treating the secrets with the same confidentiality as their own proprietary information.

While Faiveley is a Federal case and is only binding on Federal courts within the Second Circuit, New York state courts are likely to follow suit. New York state courts generally follow decisive decisions of the Second Circuit applying New York law and had followed the previous Second Circuit decisions which led to the irreparable injury presumption.

As the law governing trade secrets enforcement is now unsettled, we recommend that your policies and procedures covering the confidentiality and protection of your trade secrets be reviewed and if necessary updated to provide better protection. Please call if you would like to discuss this or any other matter.