Trade Secret Misappropriation Preliminary Injunction Reversed

By Dennis Crouch

The Federal Circuit has reversed a preliminary injunction order in a trade secret misappropriation case, finding that the district court abused its discretion by failing to properly evaluate the likelihood of success on the merits and the balance of harms. Insulet Corp. v. EOFlow, Co., No. 2024-1137 (Fed. Cir. June 17, 2024). The appellate court held that the district court’s analysis was deficient in several key respects, including not addressing the statute of limitations defense, defining trade secrets too broadly, and not sufficiently assessing irreparable harm and the public interest.

This classic trade secret case involves former employees left to join a competitor.  As free humans, they are permitted to take their skill and wisdom to the new jobs, but are forbidden from misappropriating trade secret knowledge.  That line drawing is particularly difficult, and one reason why many employers moved toward contractual non-compete agreements. The case is also complicated because the defendant here admit to reverse engineering that apparently lead to some substantial similarities between the products.

The decision highlights a high bar for obtaining a preliminary injunction, even in trade secret cases involving competitors where we previously may have assumed irreparable harm.  The Federal Circuit here explained that lower courts are required to individually evaluate each of the four injunction factors – likelihood of success on the merits, irreparable harm, balance of hardships, and public interest. Conclusory assertions of competitive harm are insufficient to show irreparable injury.  For trade secret claims in particular, the alleged trade secrets must be defined with specificity. But, this proof is often difficult at the preliminary injunction stage of a case when the particular knowledge used by the defendant has not been fully discovered.

The Federal Circuit has been seen as largely supporting strong trade secrecy rights. However, this decision may put a damper on forum shopping attempts.

Insulet and EOFlow are competitors in the wearable insulin pump market. Insulet sued EOFlow and several former Insulet employees in the District of Massachusetts, alleging trade secret misappropriation under the federal Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836. Insulet sought a preliminary injunction to prevent EOFlow from manufacturing or selling any products developed using Insulet’s trade secrets.

The district court granted the preliminary injunction, finding that Insulet was likely to succeed on the merits of its trade secret claim (at least in part). The court determined that there was strong evidence of misappropriation because EOFlow hired former Insulet employees who retained Insulet’s confidential documents. It also found that irreparable harm to Insulet would occur if EOFlow was acquired by Medtronic, a larger competitor.  The Federal Circuit had jurisdiction over the appeal because the complaint also alleges patent infringement claims, and the Federal Circuit has exclusive appellate jurisdiction over appeals of cases that include a patent claim or compulsory-counterclaim even if the patent issue is not being appealed.

On appeal, the Federal Circuit held that the district court abused its discretion in several ways.  As EOFlow’s attorney Adam Gershenson (Cooley) explained at oral arguments: “The district court’s vague, unsupported ruling contradicts Supreme Court precedent, the federal rules, and the Defense Trade Secrets Act.”

First, the court failed to address EOFlow’s argument that Insulet’s claims were barred by the DTSA’s three-year statute of limitations under 18 U.S.C. § 1836(d). As the appellate court explained, “if the three-year statute of limitations for filing a DTSA claim had expired, Insulet’s claims would be time-barred and therefore would have no chance of success.”  Recognizing that trade secret claims are typically quite difficult to discover, Congress built a discovery rule into the statute of limitations with the three-year SOL being triggered by the date in which the misappropriation is discovered or should have been discovered based upon reasonable diligence.  The parties are arguing before the district court about whether this time period has passed.

Second, the district court defined “trade secrets” too broadly, generally discussing “confidential information” rather than applying the statutory definition in 18 U.S.C. § 1839(3). The DTSA requires that the owner take reasonable measures to keep the information secret and that the information derive independent economic value from not being generally known or readily ascertainable through proper means.  On this point, the plaintiff will need to identify the particular information that was misappropriated and show that it was trade secret information protected by the DTSA.

Third, the district court did not adequately assess whether the alleged trade secrets could have been (or were) obtained through reverse engineering of Insulet’s publicly available OmniPod device. “If information is ‘readily ascertainable through proper means’ such as reverse engineering, it is not eligible for trade secret protection.” (quoting Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974)). The lower court also erred in not considering Insulet’s patent disclosures as another potential source of public knowledge about the OmniPod.

Fourth, the Federal Circuit found that the district court’s irreparable harm analysis was flawed. The alleged harm was based on a potential acquisition of EOFlow by Medtronic, not the use or disclosure of trade secrets. But “neither a generalized fear of a larger competitor nor any theoretical sale that can be remedied with damages constitutes a cognizable irreparable harm.”  The court’s finding that Insulet would lose market share and face price competition was speculation that was unsupported  by the evidentiary record.  Further, Medtronic acquisition deal is apparently dead, rendering this justification for the preliminary injunction moot.

Finally, the Federal Circuit criticized the district court for only cursorily addressing the public interest factor, stating that it “s[aw] little impact one way or the other.” A more thorough analysis was required under Supreme Court precedent. See Winter v. NRDC, Inc., 555 U.S. 7, 26 (2008) (district court must meaningfully assess balance of equities and public interest).

The Federal Circuit emphasized that it was not deciding the ultimate merits of Insulet’s trade secret claims, only that Insulet had not established a likelihood of success and the other preliminary injunction factors based on the current record. The case now returns to the district court for further proceedings.

11 thoughts on “Trade Secret Misappropriation Preliminary Injunction Reversed

  1. 3

    OT but the latest issue of “The Economist” lead article is about the growth of science in China. Reporting that China’s R&D spending has increased 16-fold since 2000, to $668 billion, particularly in applied research. Noting numerous examples. Is this leading to comparable such increases in U.S. and EPO as well as national patent application filings?

    1. 3.1

      If I recall correctly, the US side saw decreased filings (but I could be misremembering or perhaps only remembering a COVID effect).

      1. 3.1.1

        Yes, US filings are down. We are turning into a Marxist/Totalitarian country.

        Even scarier is if Biden raises the tax on capital gains, which will dry up venture capital.

        The issue: we are on the verge of another revolution with AI enabling the reindustrialization of the USA if we win.

        Note that China is using patent to encourage innovation as corrupt politicians take the Google bucks to destroy our patent system.

    2. 3.2

      Are you asking whether the U.S. government is spending increased amounts of money to support scientific R&D?

      Dear sir, please let’s leave the communist activities in China, where they belong. The next you know you’ll be talking about improving public education and burning the Ten Commandments.

      1. 3.2.1

        Rather mixed emotions with any type of government involvement in funding of projects.

        One only has to look at the disaster of Fauci and the inherent power (and corruption due to power) that occurs when purse strings are controlled by an unaccountable government agency (or person).

        That being said, fundamental and basic research may not see funding from the private sector.


          “the disaster of Fauci”


          Aaron Rogers called. He’s ready for you to crawl back into his rectum.


            Fauci’s mischief is no laughing matter.

    3. 3.3

      Found this in a quick search: “Chinese inventors have also been filing more international patent applications (PCT) than the United States in recent years. In 2023, Chinese inventors filed about 14,000 more international patent applications than the United States, which came in second place.”
      I would be surprised if those Chinese PCT applications did not all designate the U.S. But I did not see direct numbers on how many U.S. applications or patents are assigned to Chinese companies, or their rate of increase.

  2. 2

    Since the Fed. Cir. only gets trade secret issues when the complaint also alleges patent infringement, the good points made by that Court here are not binding on the vast majority of trade secret cases that are tried and appealed in other courts. But perhaps worth citing, I would think?

    What kind of injunctions based on trade secrecy law, if any, are even available after a product is launched is an interesting question. As the Court noted, “If information is ‘readily ascertainable through proper means’ such as reverse engineering, it is not eligible for trade secret protection.” (quoting Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974)). [Likewise, published applications or patents.] Even if the product-copying-competitor had walked off with the blueprints of the reverse-engineerable copied product before it launched, are not both damages and the term of any injuction limited to the competitive product launch time that gave to the product copiers?
    If this was an insulin pump, the FDA approval process for competition might slow down competition better than trade secrecy even though it encourages exact copying.

  3. 1

    There’s a lesson; hold back on those patent claims if you don’t want to face the CAFC rather than a regular circuit court on an early appeal.

    I wonder what wisdom old cases may hold about the balance between a legitimate trade secret and an illegitimate restraint on person’s learning of a craft in a narrow field.

    Surely being able to buy a thing on the open market and reverse engineer it changes that balance.

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