Fifth Circuit Reverses Trade Secrets Denial of Preliminary Injunction, Highlighting Importance of Actual Evidence of Irreparable Harm

The U.S. Court of Appeals for the Fifth Circuit recently emphasized the importance of marshaling specific evidence of the potential harms a plaintiff may suffer when considering a preliminary injunction for potential disclosure of trade secrets. On April 3, 2023, in Direct Biologics L.L.C., v McQueen, et al., the court reversed a district court’s refusal to enter a preliminary injunction, and directed the lower court to reconsider the issues. 

The plaintiff, Direct Biologics, is a biotechnology company that develops and manufactures pharmaceutical products. The defendants were Adam McQueen, a former senior executive at Direct Biologics, and his new employer, Vivex Biologics, a direct competitor of the plaintiff. Direct Biologics sought a preliminary injunction compelling McQueen to comply with a non-compete agreement, which would have prevented him from working for Vivex Biologics, and to return and stop using confidential and trade secret information that he had allegedly taken. The district court denied the preliminary injunction motion on the basis that Direct Biologics had not demonstrated that it would suffer irreparable harm if the injunction was not granted.

On appeal, the Fifth Circuit reversed. The court first found that the district court correctly refused to apply a Texas law that creates a presumption of irreparable harm where a “highly trained employee is continuing to breach a non-competition covenant.” Despite that statutory standard, the court concluded that the plaintiff was still required to provide some independent evidence of harm. But the court of appeals also found that the district court erred by concluding that any harm from future disclosure of trade secrets could be compensated by money damages. The court of appeals therefore reversed and remanded the case with direction to consider the potential effects of such disclosure.

Analysis

This case demonstrates that both trade secret plaintiffs and defendants should think carefully about the specific potential harms in their cases. Plaintiffs cannot always rely on a presumption that a former employee working for a competitor will be enough to justify an injunction — even if the employee was a senior executive with knowledge of key information. And defendants cannot always simply claim that an injunction should be denied because of the possibility of damages for any future misconduct. Instead, all parties should be prepared to put forward specific evidence to show actual harm or the lack of it.