United States: T-R-NO: Nevada District Court Denies Motion For TRO Despite Evidence Of Mass Download Of Company Files And Steps Taken To Cover Tracks

Last Updated: November 5 2018
Article by Michael D. Weil

Our readers have seen enough of our blog posts to be familiar with the classic ex-employee trade secrets theft scenario: employee downloads confidential files to his personal computer; employee attempts to cover his tracks with deletions of those files; employee resigns from the company to work for a competitor. When such a classic case results in litigation, the plaintiff company typically succeeds in obtaining injunctive relief against the ex-employee. We posted about one successful preliminary injunction motion last year. A recent district court decision out of the District of Nevada, however, shows that a motion for TRO on seemingly slam-dunk facts is never guaranteed. This decision highlights two important takeaways for litigators: (1) if your client is facing imminent business harm, seek an injunction immediately; and (2) in the Ninth Circuit, there is no presumption of irreparable harm, even if the evidence shows trade secret misappropriation or a breach of the employee's confidentiality agreement.

In support of its TRO motion, the plaintiff company Zitan Technologies (an investment firm and self-proclaimed algorithmic trading company) submitted evidence showing the following pertinent facts:

  • the defendant, a quantitative researcher at Zitan for three years, signed a confidentiality agreement that contains language that Zitan is entitled to injunctive relief based upon theft of trade secrets or a breach of the confidentiality agreement;
  • while working from home (which he typically did), the defendant downloaded numerous files to his personal computer via his Dropbox account;
  • the defendant subsequently deleted source code, data files, and command history from his work computer and from company servers;
  • the defendant resigned from the company shortly thereafter; and
  • after receiving a letter from Zitan demanding that he immediately preserve and return all company trade secrets, the defendant deleted certain trade secrets from his personal devices.

Those facts, among others also consistent with showing highly-questionable behavior, did not carry the day for Zitan. Finding that Zitan failed to show a likelihood of irreparable harm, the court focused on certain key facts. First, despite the foregoing evidence, Zitan did not show that the defendant was actively using, selling, profiting, or doing anything wrong with the stolen files. Notably, Zitan introduced no evidence that the defendant was working for a competitor or personally benefiting from the use of the downloaded information. Second, Zitan unreasonably delayed seeking a TRO. After sending the demand letter to the defendant, Zitan engaged in a five-month negotiation with the defendant on an appropriate protocol for the forensic investigation of the defendant's devices and accounts. The court noted that Zitan's decision to conduct lengthy negotiations, instead of immediately seeking relief, was inconsistent with its claim that defendant's conduct caused, or was likely to cause, irreparable harm. This goes to the first important takeaway: if the defendant's theft of trade secrets is likely to cause imminent harm to your company, gather as much evidence as possible, as soon as possible, and seek an injunction promptly.

As to the legal standard of a TRO, the court made clear that a plaintiff seeking a TRO must prove that it either suffered irreparable harm or will likely suffer such harm. The "inherent possibility" of irreparable harm, which likely would be satisfied with the facts above, is insufficient to obtain a TRO. The court also emphasized, as noted in the second important takeaway, that Ninth Circuit law does not presume irreparable harm even if there is evidence of trade secret theft or a breach of a confidentiality agreement.

The court's TRO denial did not get rid of Zitan's case. Zitan still has an active claim for trade secret misappropriation, among other claims, against the defendant and undoubtedly will continue to develop its evidence against the defendant. However, the court's order took the wind out of Zitan's sails and prevented Zitan from obtaining an early TRO order that would have been undeniably valuable in litigation (and in resolution).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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