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Challenging a Trade Secret Injunction? Better Come Loaded For Bear

Posted in Intellectual Property Litigation, IP, Labor & Employment, Trade Secrets

One of the most common forms of relief sought in trade secret litigation is an injunction preventing the defendants from using or disclosing the plaintiff’s trade secret information.  Although temporary restraining orders and/or preliminary injunctions may be obtained that are in place during the lawsuit, a permanent injunction is entered after trial and typically has no set time period for expiration.  There are various statutes that allow a defendant to seek to modify or dissolve a trade secret injunction at a later date, including a showing that the information that is the subject of the injunction is no longer entitled to trade secret protection.  The recent decision in Global Protein Products, Inc. v. Le (Cal. 6th App. Dist.) helps illustrate the high hurdle a defendant must clear in order to obtain such relief.James Kachmar

Global Protein Product (“GPP”) claimed that it had trade secrets, including a proprietary formula and process for treating iceberg lettuce in order to prolong its shelf life.  Defendant Le was a scientist who was employed by GPP for a few years beginning in 2000.  After he left GPP, Le formed West Coast Ag, LLC (“WCA”) and began competing with GPP.  In 2005, GPP sued Le and WCA alleging, among other things, a claim for trade secret misappropriation.  GPP claimed that its trade secrets combined information from another inventor’s 1997 patent for making “a zein film in pure water” and to which it added a specific organic acid that resulted in a formulation that could extend the shelf life of lettuce for at least a week.  GPP later learned from one of its customers that Le and WCA had recently contacted it to promote a new product that apparently contained this same organic acid as used in GPP’s product.

The trial court granted GPP a temporary restraining order and later a preliminary injunction preventing Le and WCA from disclosing and/or using GPP’s trade secret information as well as from attempting to solicit GPP’s customers using GPP’s trade secret information. After approximately six months of further litigation, the parties apparently entered into a settlement by which GPP and Le/WCA agreed to a stipulated permanent injunction similar to the terms set forth in the earlier preliminary injunction.

In late 2013, GPP’s CEO met with a representative of Inn Foods, Inc. and its parent company, VPS Companies, Inc., to discuss GPP’s products. During the course of those discussions, GPP learned that Le had apparently developed and/or sold a similar product after settling the 2005 lawsuit with GPP, which appeared to be in violation of the stipulated permanent injunction.

In July 2014, GPP moved for an order to have Le and WCA held in contempt for allegedly violating the permanent injunction.  In response, Le and WCA conducted discovery to oppose GPP’s motion and in mid-2016, filed a motion to modify or dissolve the stipulated permanent injunction. Le and WCA claimed that they had discovered new facts that citric acid was the previously undisclosed organic acid used in GPP’s product and that this information was not trade secret since it had been previously disclosed in an earlier patent.  They also claimed that citric acid was widely used in the industry for food preservation methods. The Court denied Le and WCA’s motion to dissolve the injunction.

Three months later, after further discovery, Le and WCA again moved to modify or dissolve the stipulated permanent injunction claiming that an additional component used in GPP’s product, sodium benzoate, was also well known and extensively used in the food preservation industry and that it, too, had previously been disclosed in a prior patent.  Le and WCA supported their renewed motion by filing a declaration from a patent attorney who opined that the information contained in the prior patent and patent application, along with several articles discussing the use of sodium benzoate for preserving lettuce, led to the conclusion that GPP’s claimed trade secret information had in fact never been a trade secret.  The Court again denied the renewed motion on the grounds that it did not meet the requirements for dissolving the permanent injunction. Le and WCA appealed the denial of the renewed motion.

Although the appellate court held that such an order was not directly appealable, it decided to treat the “appeal” as a petition for a writ of mandate, i.e., an order telling the lower court to set aside its ruling. The appellate court began by reviewing the applicable legal standards, such as section 533 of the California Code of Civil Procedure, which allows a court to modify or dissolve an injunction “upon showing that there has been a material change in the facts upon which the injunction… was granted” as well as the California Uniform Trade Secret Act which allows an injunction to be terminated “when the trade secret has ceased to exist.”  (Cal. Civ. Code §3426.2(a).)  The appellate court noted that it would review the lower court’s ruling for “abuse of discretion” and that they would “presume that the trial court’s order is correct and imply findings that are necessary to support the judgment.”

The appellate court then turned to the contentions raised by Le and WCA.  They claimed that GPP’s prior disclosure of its unidentified organic acid, such as in the previous patent, eliminated any commercial advantage that GPP could enjoy “because a technical person versed in food preservation practices could easily reverse engineer GPP’s trade secret.”   While the appellate court agreed with the general principle that “publication of a trade secret destroys it,” the appellate court held that the trial court could have reasonably concluded that even with the publication of a patent, the information related to GPP’s product could still enjoy trade secret protection.  The Court noted that the claimed trade secret information was “a proprietary formula and process for treating field cored iceberg lettuce,” i.e., the trade secret was not merely limited to the identity of the components used but also included the proprietary formula and process for treating lettuce.  Thus, the Court concluded that there was sufficient evidence to support the trial court’s implied finding that the trade secret remained valid.

The Court continued by reasoning that the mere disclosure of the component ingredients, such as sodium benzoate, did not by itself reveal the process by which GPP’s trade secret product was applied and used.  Furthermore, while the earlier patent described the process to create a generic formula as well as specifically describing preparations of other types of similar products for applications such as seafood, Le and WCA did not articulate which preparation alleged to be in the patent disclosed GPP’s trade secret. In addition, the subsequent patent application did not contain any information that would disclose the nature of GPP’s trade secret and in fact, the Court noted that this application did not even “contemplate the invention of a product that extends shelf life.” Rather, there was nothing in that patent application that appellants could cite to that expressly discussed “extending the shelf life of cut lettuce.” The appellate court held that the trial court properly concluded that GPP continued to have information that deserved trade secret protection and had properly denied the motion to dissolve it.

The GPP case is a good reminder that once a permanent injunction is entered on a trade secret misappropriation claim, it is extremely difficult to get it set aside. A defendant faces a significant hurdle in coming forward with “new facts or evidence” to try to get that injunction modified and/or set aside.