United States: Federal Circuit Reverses Denial Of Preliminary Injunctions For Trade Secret Theft

Core Laboratories LP v. Spectrum Tracer Services, LLC

Addressing the denial of an emergency request for preliminary injunction while a case was stayed pending appeal, the U.S. Court of Appeals for the Federal Circuit reversed a district court's denial of a preliminary injunction, finding that the lower court erred in denying the injunction that would prevent the use of plaintiff's proprietary software and customer lists. Core Laboratories LP v. Spectrum Tracer Services, LLC, Case No. 2013-1263 (Fed. Cir. Aug. 7, 2013) (Newman, J.)

Plaintiff Core Labs and defendant Spectrum Tracer both provide services in the oilfield hydraulic well fracking industry. Spectrum was founded by two former Core Labs employees, also named defendants. Core Labs sued defendants for misappropriation of trade secrets for the alleged theft of customer lists and certain software related to fracking services. After the case was transferred, Core Labs added patent infringement causes of action. Core Labs then moved for a preliminary injunction seeking to prevent defendants' use of Core Labs' trade secrets. The district court denied the motion, finding that Core Labs had not shown irreparable harm that could not be remedied monetarily. The case was then stayed pending completion of a re-exam.

While the case was stayed, a Spectrum employee whistleblower notified Core Labs that she was given a copy of a Core Labs Excel spreadsheet that contained Core Labs' proprietary information related to providing fracking services, and was asked by Spectrum to implement the proprietary information in a similar Spectrum spreadsheet. In response, Core Labs filed an emergency motion requesting an injunction preventing Spectrum from using the Excel sheet. The court denied the request, and Core Labs appealed.

The Federal Circuit heard the appeal of the denial of the request based on trade secret theft because there were two patents being asserted in the case.

On appeal, the Federal Circuit ruled that Texas state law applied because the trade secret claims were originally brought in Texas. Under Texas law, harm to a plaintiff is presumed when a defendant possesses trade secrets and is in a position to use them. Further, the Supreme Court has found that the economic value of trade secrets lies in the competitive advantage over others that the trade secret holder enjoys by virtue of its exclusive access to the data, and disclosure or use of the data by others would destroy that competitive edge.

Core Labs argued that the newly discovered information from the whistleblower was a significant change in the case such that an emergency motion was warranted. In addition, Core Labs rebutted the district court's denial of the preliminary injunction for lack of irreparable harm by providing evidence that its business has been injured by defendants' use of Core Labs' proprietary information. Core Labs showed it had lost nearly $1 million in business, and that Spectrum had successfully recruited some of Core Labs' clients. The Federal Circuit noted that Texas courts have found that these types of competitive injuries derived from misappropriated proprietary information warrant injunctive relief. Considering the four factors for granting a preliminary injunction and the facts that supported Core Labs' likelihood of success at trial, the Federal Circuit reversed the district court's denial of the preliminary injunction, and remanded to the district court to implement the injunction and to review the case to determine if the stay should be lifted for the non-patent claims.

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