Mallet and Company Inc v. Ada Lacayo

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
Nos. 20-3584, 21-1028, and 21-1029
_____________
MALLET AND COMPANY INC.
v.
ADA LACAYO; RUSSELL T. BUNDY ASSOCIATES,
INC. d/b/a Bundy Baking Solutions; SYNOVA LLC;
WILLIAM CHICK BOWERS
Russell T. Bundy Associates, Inc. d/b/a Bundy Baking
Solutions; Synova LLC,
Appellants in No. 20-3584
William Chick Bowers,
Appellant in No. 21-1028
Ada Lacayo,
Appellant in No. 21-1029
_______________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 2-19-cv-1409)
District Judge: Hon. Cathy Bissoon
_______________
Argued
April 16, 2021
Before: JORDAN, GREENAWAY, JR., and SCIRICA,
Circuit Judges.
(Filed: September 24, 2021)
_______________
Laura C. Bunting
Marla N. Presley [ARGUED]
Jackson Lewis
1001 Liberty Avenue – Suite 1000
Pittsburgh, PA 15222
Allison G. Folk
Jackson Lewis
6100 Oak Tree Boulevard, Suite 400
Cleveland, OH 44131
Counsel for Mallet and Company Inc.
Ada Lacayo
328 Michigan Avenue
Lower Burrell, PA 15068
Pro Se
2
Ronald L. Hicks, Jr. [ARGUED]
Carolyn B. McGee
Porter Wright Morris & Arthur
6 PPG Place – Third Floor
Pittsburgh, PA 15222
Counsel for Russell T. Bundy Associates, Inc.,
d/b/a Bundy Baking Solutions; Synova LLC
Nicholas J. Bell
Kathleen J. Goldman
Buchanan Ingersoll & Rooney
501 Grant Street – Suite 200
Pittsburgh, PA 15219
Counsel for William Chick Bowers
_______________
OPINION OF THE COURT
_______________
JORDAN, Circuit Judge.
Behind the breads, cakes, and other treats on our
grocery store shelves, there is a ferociously competitive market
for baking supplies, and that is the setting for this trade secret
and unfair competition case.
In 2019, Mallet and Company Inc. (“Mallet”) learned
that Russell T. Bundy Associates, Inc., doing business as
Bundy Baking Solutions (“Bundy”), was becoming its newest
competitor in the sale of baking release agents. Release agents
are lubricants that allow baked goods to readily separate from
the containers in which they are made. Bundy was already
well-known for other products it offered to the commercial
3
baking industry when it decided to launch a new subsidiary,
Synova LLC (“Synova”), to sell baking release agents. Synova
hired two of Mallet’s employees, both of whom had substantial
access to Mallet’s proprietary information. Taking some of
that information with them from Mallet to Synova, they helped
Synova rapidly develop, market, and sell release agents to
Mallet’s customers. Mallet sued, saying such progress would
have taken years to accomplish but for the misappropriation of
its trade secrets. Agreeing with Mallet, the District Court
issued the preliminary injunction now challenged on appeal,
restraining Bundy, Synova, and those employees (collectively,
“the Defendants”) from competing with Mallet.
While we appreciate the challenges inherent in disputes
involving trade secrets and requests for preliminary relief, the
injunction at issue is flawed and must be vacated. For the
reasons that follow, we will remand for further consideration
of what, if any, equitable relief is warranted and what sum
Mallet should be required to post in a bond as
“security … proper to pay the costs and damages sustained by
any party found to have been wrongfully enjoined or
restrained.” Fed. R. Civ. P. 65(c).
I. BACKGROUND
A. Factual Background
1. Mallet and the Defendant Employees
For over eighty years, Mallet has been in the business
of developing, manufacturing, and selling baking release
4
agents as well as the equipment used to apply such agents.1
Release agents are applied to commercial baking pans to
ensure the consistent release of baked goods over hundreds of
uses. They thus play a crucial role in large-scale baking
operations. While the ingredients used to create them –
mineral oils, vegetable oils, and lecithin – are commonly
known, developing a successful release agent is not as simple
as knowing a few of its components. There are “a wide range
of factors that have to be considered when formulating a
release agent,” including product performance, stability,
application, cost, availability, and packaging. (J.A. at 10984-
85 (Mallet2 Depo.).) And the efficacy of a release agent can
greatly depend on the customer’s product, pan condition,
storage conditions, and machinery used to apply the agent. As
a result, there are different kinds of release agents, each with
unique properties that may be further tailored to maximize
performance when used in the production of certain goods.
Still, competitors in the release agent market often manufacture
and sell identical or similar products.
Mallet proclaims itself “a service business delivering
value through the combination of high quality, consistent
products and the equipment to apply them.” (J.A. at 2232
(Mallet Website).) Prior to 2018, it manufactured about fifty
1
Mallet was acquired in 2016 by Vantage Specialty
Chemicals, Inc. and, though the record is not clear on this, now
appears to be a subsidiary operating under Vantage’s food
division.
2
We refer to Mallet’s Federal Rule of Civil Procedure
30(b)(6) Deposition as “Mallet Depo.”
5
different release agents, including its “Vegalube Super P”
(“Super P”), which it calls “the premier and best-performing
baking release agent product in the market.” (J.A. at 2008
(Porzio3 Decl.), 11006 (Mallet Depo.).) Mallet contends that
it has “take[n] substantial time, research, and effort” to
formulate and perfect its release agents, including Super P.
(J.A. at 4332 (Ergun4 Decl.); see also J.A. at 2008 (Porzio
Decl.).) After developing a product in the laboratory,
additional work is needed to bring that product to scale and
optimize its performance at a customer’s facility. Mallet says
that its “competitive advantage … derive[s] from a unique
ability to solve customer problems by cohesively integrating
research and development, technical service, custom
packaging and manufacturing, and efficient distribution.”
(J.A. at 2220 (Mallet Website).) To safeguard that competitive
advantage, Mallet has put in place several measures to protect
its information, including nondisclosure and noncompetition
agreements with its employees, restricted access to its lab and
formulas, and password protection for its computer network.
Along with its release agent “formulas and [the]
processes used to make them[,]” Mallet considers the
3
Robert Porzio is the Senior Vice President of Sales and
Marketing for Vantage. In his role, he manages sales and
marketing and he is responsible for overseeing the profits,
losses, and overall performance for Vantage’s food business,
including Mallet.
4
Roja Ergun is the Food Technology Director for
Mallet.
6
following information to be its “confidential, proprietary, trade
secret information”:
specific products sold to customers or purchased
from suppliers; all information pertaining to
Mallet’s business with its customers and its
suppliers; Mallet’s sales data and cost data; the
body of knowledge about the development,
production, and application of Mallet’s release
agents and equipment, including the tailoring of
release agents and equipment for specific
customer challenges; information about the
internal business affairs of any customers,
suppliers, distributors, agents and contractors
doing business with Mallet; pricing information;
strategies; marketing information; and exclusive
relationships with certain suppliers of release
agent ingredients.
(J.A. at 1638 (Mallet’s Proposed Findings of Fact), 1937-38
(Topercer5 Decl.).) According to Mallet, “the trade secret in
question here is the overall body of knowledge that
connects … the development, production, application and
implementation of the release agent … coupled with Mallet’s
proprietary equipment, which go hand in hand with [a]
formulated solution.” (J.A. at 11000-01 (Mallet Depo.).)
5
Benjamin Topercer is the Chief Human Resources
Officer at Vantage and, in his role, supports human resources
functions for Mallet.
7
As sweeping as that statement is, Mallet does recognize
some limits on what it can claim as a trade secret. For example,
it does not consider its “product data sheets” to be trade secret
information, since those specification sheets are “produced and
provided to consumers of its products[.]”6 (J.A. at 10993
(Mallet Depo.).) It also agrees that some ingredients in baking
release agents – again, mineral oils, vegetable oils, and lecithin
– have been common knowledge in the industry for more than
thirty years, and that the components for release agents are
published in product data sheets, articles, and company
websites, and are therefore public knowledge, though the
precise ratios and processes for combining them are not. In
addition, Mallet acknowledges that “there are numerous
patents … that have been published … since at least the early
1900s that talk about the manufacturing and processes and
formulations that can be used to create bakery release
agents[.]” (J.A. at 10982 (Mallet Depo.).) It thus admits that
the contents of patents and other information generally known
in the industry about “various ingredients for use in bak[ing]
release agents” cannot be considered proprietary. (J.A. at
10990, 11000-01 (Mallet Depo.).)
Mallet further recognizes that its own patents disclose
“various formulas for the creation of the lubricants[,]”
“examples of blends and blend ratios[,]” and a “series of
different formulated release agents[.]” (J.A. at 10995-96,
6
Product data sheets are public product descriptions
that identify the “ingredients as well as the origins of those
ingredients for each of the baking release agents.” Mallet
distributes product data sheets to customers and utilizes them
as marketing materials at trade shows.
8
10999-11000 (Mallet Depo.).) Those patents publicize some
properties of each formulated release agent “based on various
tests that Mallet … had conducted,” including “viscosity,
stability, texture and other releasing characteristics.” (J.A. at
10999-11000 (Mallet Depo.).) While seeming to concede that
information in patents cannot – at least by itself – constitute
trade secrets, Mallet contends that even formulas in its patents
can be part of its trade secrets. It says that such formulas may
“form a part of the examples of the patent” and still be “part of
a trade secret.”7 (J.A. at 11001-02 (Mallet Depo.).) In
addition, it distinguishes the “particular formulation[s]” that its
patents cover from the “know-how” that Mallet has developed
over its eighty-year presence in the marketplace and that it
continues to utilize on an ongoing basis for the “formulation,
application[,] and implementation of [its] release agents for
customers.” (J.A. at 10974, 10999 (Mallet Depo.).) According
to Mallet, that know-how is a trade secret. And two of its
former employees, Ada Lacayo and William Bowers, had
substantial access to it.
a. Lacayo’s Employment with Mallet
Lacayo first worked for Mallet from 1997 to 2001 as a
Technical Services Manager. While in that role, she “managed
Quality Control laboratory employees, created specifications
7
At oral argument, for the first time, Mallet drew our
attention to a set of documents that it said are specific examples
of formulas it treats as proprietary. Having reviewed those
pages, and without the aid of any clarifying testimony in the
record, we remain at a loss to know whether they contain trade
secrets.
9
and qualified new vendors, and developed nutritional
information for products, among other things.” (J.A. at 2423
(Lacayo Decl.).) After a few years away from the company –
during which she did not work with baking release agents –
Lacayo returned to Mallet in 2006 to work as the Director of
Lab Services until 2014, when she became the Director of
Technical Services in the Sales and Marketing group.
Lacayo’s job responsibilities spanned all aspects of
Mallet’s release agent business, from product development and
quality control to customer-specific applications and technical
support. Through her director positions, she obtained
extensive access to Mallet’s technical information. That
information allowed her to analyze ingredient interactions,
create over two dozen new product formulas and processing
methods, and perform “economic justifications and case
studies to substantiate improvements.” (J.A. at 4737 (Lacayo
Resume).) In addition, Lacayo played a key role in quality
control, running onsite tests for customers, troubleshooting
issues, and recommending changes to improve product
performance. Along with educating individual customers,
Lacayo promoted Mallet’s products, solutions, and machinery
more generally. She “wrote and designed manuals,
instructional programs, marketing materials, [and]
presentations,” which she “delivered … to diverse audiences in
English and Spanish.” (J.A. at 4737 (Lacayo Resume).) She
also participated in trade shows, “[m]anaged the Latin
American machinery and product introduction program,” and
“[c]onducted seminars on product lines.” (J.A. at 4737
(Lacayo Resume).) Lacayo was, as she describes herself, a
“product portfolio and applications expert” for Mallet. (J.A. at
4737 (Lacayo Resume).) And as a result of her extensive
exposure to all sides of Mallet’s business and the “know-how
10
[she] gleaned from Mallet over decades[,]” she was widely
known by “the customer base of the baking industry[.]” (J.A.
at 2004 (Porzio Decl.).)
Given the extent to which she was engaged in Mallet’s
business, the company insisted that, as a condition of her
employment, Lacayo execute a nondisclosure and
noncompetition agreement. According to that agreement,
Lacayo could “not disclose any information regarding
[Mallet’s] affairs” during or after her employment.8 (J.A. at
8
The scope and validity of that agreement is not before
us now. To the extent Mallet seeks relief for disclosure or use
of non-trade secret information that it contends is contractually
protected under the nondisclosure agreement, that is an inquiry
for the District Court to resolve in the first instance. In
deciding to impose the injunction now at issue, the District
Court tied the reasonableness of Lacayo’s noncompetition
agreement and the irreparable harm deriving from her breaches
of that agreement to Mallet’s trade secrets. (See J.A. at 19 ¶ 8
(“Lacayo’s three-year restrictive covenant was reasonably
tailored to protect trade secrets given her work with Mallet’s
formulas, its most secret information.”); J.A. at 35 ¶ 82 (“The
irreparable harm Mallet would suffer without injunctive relief
is varied and evident. Lacayo … [is] actively working for a
direct competitor in [a] high-level position[] in which [she]
ha[s] used and disclosed Mallet’s trade secrets in violation of
[her] covenant[].”).) Since consideration of Lacayo’s alleged
nondisclosure agreement breaches was limited to her alleged
disclosure and use of Mallet’s trade secrets, we limit our
discussion to trade secrets and do not separately consider
Lacayo’s contractual obligations.
11
1950.) She also agreed not to “directly or indirectly” work for,
“engage in, or be connected with, any business competitive
with [Mallet’s] business” in any capacity for three years after
her employment with Mallet ended. (J.A. at 1950.)
b. Bowers’s Employment with Mallet
Bowers began working for Mallet in 1978. Except for
two brief stints away from the company, he was employed by
Mallet until January 2019. Over that forty-year period, Bowers
worked in sales and ultimately became Mallet’s Director of
National Accounts. Throughout his long tenure with Mallet,
Bowers gained access to its trade secrets and worked with some
of its most valued customers. He understood how to provide
service to Mallet’s customers and was privy to information
about Mallet’s sales strategies and the “types of [product
application equipment] Mallet might use for some
customers[.]” (J.A. at 5668-70 (Bowers Depo.).) Bowers also
worked closely with Mallet’s research lab to improve product
performance and with its customers to test products and resolve
complaints.
As a condition of his employment, Bowers entered into
a nondisclosure agreement prohibiting him from disclosing or
using Mallet’s trade secrets except in furtherance of Mallet’s
interests.9
9
Although Bowers did enter into a noncompetition
agreement with Mallet when he initially joined the company in
1978, he did not have one in place at the time of his departure
in 2018, and Mallet has not pleaded the existence of such an
agreement in its complaint. As with Lacayo’s nondisclosure
and noncompetition agreement, see supra note 8, Bowers’s
12
2. Bundy, Synova, and the Baking Release
Agent Industry
Founded in 1964, Bundy is a privately-held company
with twenty-six facilities worldwide and a large customer base.
It operates under several brands and is “dedicated to offering
products and services in the industrial baking business[.]”
(J.A. at 2409-10 (R. Bundy10 Decl.).) Bundy manufactures and
sells baking pans and coatings, offers commercial food
services, provides pan cleaning and recoating services, buys
and resells pre-owned bakery equipment, and offers mixers and
processing equipment for sale. Touching off the present battle,
Bundy has added baking release agents to its list of product
offerings. According to the Defendants, several of Bundy’s
customers wanted “to see some alternatives brought to the
[release agent] marketplace” and requested that Bundy enter
the market. (J.A. at 13331 (R. Bundy Hearing Testimony); see
also J.A. at 2411 (R. Bundy Decl.).) That led to the creation
of the most recent Bundy brand, Synova.
nondisclosure agreement is relevant now only to the degree
that it overlaps with his obligation not to misappropriate
Mallet’s trade secrets, so it is not treated separately. (See J.A.
at 35 ¶ 82 (“The irreparable harm Mallet would suffer without
injunctive relief is varied and evident. … Bowers [is] actively
working for a direct competitor in [a] high-level position[] in
which [he] ha[s] used and disclosed Mallet’s trade secrets in
violation of [his] covenant[].”).)
10
Robert Bundy is the president of Synova.
13
Synova was formally “created on April 27, 2017 and
launched on May 15, 2019 to manufacture and distribute
external baking release agents and oils.” (J.A. at 2410
(R. Bundy Decl.).) Between its creation and its launch,
Synova’s President, Robert A. Bundy, was “engaged in
business development[,] … looking for as much information
on as many topics as [he] could get” on the baking release agent
industry. (J.A. at 3628-29 (Bundy/Synova Depo.).) Along the
way, he sought information from and recruited Lacayo and
Bowers.
But first, Mr. Bundy approached Shane Zhou, a former
Mallet employee. He wanted Zhou to help design Synova’s
production facility. He asked Zhou for “the type and general
formula” for ten products – and more specifically, whether
those products “are pan oils, greases, etc. and some
information about the quantities of the different base
ingredients” – to “help [him] size some of the bulk tanks and
piping.” (J.A. at 1894 (R. Bundy Email).) On January 4, 2018,
Mr. Bundy offered Zhou a position as Synova’s Lab Director
and agreed to indemnify Zhou “for any non-compete and/or
legal action that may result from [his] becoming an employee
of Synova.” (J.A. at 4283-84 (Offer Letter).) Synova
withdrew its offer when Zhou sought only to become a
consultant but still wanted the same indemnification. Shortly
thereafter, on January 22, 2018, Mr. Bundy interviewed and
hired Lacayo as Synova’s Lab Director, while she was still
employed with Mallet. Around the same time, he reached out
to Bowers, who was also then with Mallet, asking him if he
“would be comfortable … helping [Synova] gather some
information about the oils that [its] future customer base will
require.” (J.A. at 2023 (R. Bundy Email).) Specifically,
Mr. Bundy sent Bowers a questionnaire that Synova had put
14
together to use as “a data collection form” that would help
Synova understand “what the customer order patterns will look
like[,]” since it was new to the business. (J.A. at 2023-24
(R. Bundy Email).) “That data would be very helpful” while
Synova was “still designing the process[,]” and Mr. Bundy
“wanted to see if [Bowers] thought [the questionnaire] was the
right idea[.]” (J.A. at 2023-24 (R. Bundy Email).)
a. Lacayo’s Employment with Synova
Although Lacayo secretly interviewed and accepted a
position with Synova on January 22, 2018, she remained
employed with Mallet until February 12, 2018. When she did
finally announce that she was leaving Mallet, Lacayo
concealed her employment with Synova and informed Mallet
that she was instead leaving to take care of her mother.
Just three days before her interview with Synova, on
January 19, 2018, Lacayo copied 1,748 files onto a USB drive.
Those “bulk copied files were stored across four main (root)
folders” titled: “Mallet Lab Methods, MRO Project, Supplier
Approval Program, and Supplier Information.” (J.A. at 6105
(Price11 Decl.).) She also emailed information, including
screenshots of two formulas, from Mallet’s files to her private
Gmail account. On February 28, 2018, when she was no longer
employed with Mallet, Lacayo emailed to herself a spreadsheet
with technical data from Mallet’s research.
11
Paul Price is a digital forensic expert for Mallet, who
was asked to determine if any of Mallet’s data had been
transferred to Lacayo’s devices, including those she used while
working for Synova.
15
Around that time, Mallet discovered that Lacayo had
sent emails containing Mallet’s formulas from her Mallet email
account to her personal Gmail account just before she resigned.
It consequently sent Lacayo a cease-and-desist letter,
demanding that she honor her obligation not to work for a
competitor, immediately return all of Mallet’s data, and stop
using or disclosing Mallet’s confidential information. Lacayo
responded that she had not shared Mallet’s information and
that she would destroy all Mallet information in her possession.
She continued to conceal that she was working for Synova,
saying that she was “taking some time off.” (J.A. at 4571
(Lacayo Depo.); see also J.A. at 1941-42 (Topercer Decl.).)
During discovery in this case, “over 1,000 documents”
containing “metadata associated with Mallet” were found on
Lacayo’s Synova computer, with 649 of those documents
having “a Mallet logo … [branded] on the face of the
document.” (J.A. at 6109-10 (Price Decl.).) Another “108 files
that are an exact match for documents on” Lacayo’s Mallet
computer were found on her Synova computer. (J.A. at 6106
(Price Decl.).) Digital forensic evidence indicates that Lacayo
not only copied those documents but also used them,12
12
Price explained that “use” of a Mallet document
involved copying the document from Lacayo’s USB drive – on
which she had originally copied documents from her Mallet
computer – to her Synova computer and then editing that
document “some time later. What that means is the document
was opened, changes were made, and those changes were
saved on the date shown as ‘File System Last Modified Date.’”
(J.A. at 6110 (Price Decl.).)
16
including a Mallet release agent formula and associated pricing
information, while working for Synova.
The purloined documents, however, are not the whole
of the problem Mallet has with Lacayo. It says that “the value
she brings [to a competitor] goes far beyond any particular
formula she may have provided” or any documents she may
have stolen. (J.A. at 10988 (Mallet Depo.).) “It’s really the
know-how that she brings” to Synova that Mallet says it is
worried about. (J.A. at 10988 (Mallet Depo.).) After
“work[ing] for Mallet for” so long, Lacayo “has quite a lot of
know-how that went with her to the Bundy organization[,]”
including information about “the formulation, application and
implementation of release agent” products that Mallet had
“developed over the course of its 80 years.” (J.A. at 10972-74
(Mallet Depo.).) And that know-how, it says, “would be
impossible to erase from her mind.” (J.A. at 10973 (Mallet
Depo.).)
In January 2018, Synova was in the earliest stages of its
existence, and while “[t]he development of the release agents
had already begun,” it had not completed a final product. (J.A.
at 3578, 3626 (Bundy/Synova Depo.).) Synova had “identified
the archetypes of ingredients that would be required and
broadly [knew] the ratios of those ingredients.” (J.A. at 3581
(Bundy/Synova Depo.).) But it was still in the research and
development process and had not yet conducted “any internal
product testing on a release agent[.]” (J.A. at 3578
(Bundy/Synova Depo.).) As Mr. Bundy explained, “that was
part of the reason to hire someone with a good science
background[,]” like Lacayo. (J.A. at 3578 (Bundy/Synova
Depo.).) Less than ten months after joining Synova, Lacayo
had formulated a lineup of release agents, which Synova
17
marketed as direct replacements for Mallet’s release agents.
Indeed, in internal correspondence it explicitly described its
new formulas as “Synova=Mallet.” (J.A. at 6032-34 (Lacayo
Email).) Lacayo provided oil blend recipes to Synova, built
Synova’s processes and programs, and touted her ability to
match a Mallet product for a customer.
b. Bowers’s Employment with Synova
Bowers was not burdened with a sense of loyalty either.
After learning that Bundy was considering entry into the
baking release agent marketplace, and while he was still
employed with Mallet, Bowers began sharing information with
Mr. Bundy about the release agent business generally and
about Mallet’s business specifically. He forwarded to
Mr. Bundy internal emails about Mallet’s customers, its
pricing, its overall performance, and problems that customers
were experiencing with Mallet. He later said he did so to “save
[Mr. Bundy and Synova] some legwork.” (J.A. at 5714
(Bowers Depo.).)
When he resigned from Mallet, Bowers forwarded
Mallet’s customer and product information to his wife’s
email account and wiped clean all of his Mallet electronic
devices. He admitted that if Mallet had the opportunity to
search his personal email account, it could find emails about
Mallet’s business dealings with customers, tech sheets, and
pricing.
On January 23, 2019, Synova hired Bowers as its
Business Development Manager. His position with Synova,
similar to his previous position with Mallet, centered on selling
release agents. But he joined Synova in a more limited
18
capacity. His role was to “com[e] in, mak[e] the introductions,
and [the Bundy reps] took it from there.” (J.A. at 5715-16
(Bowers Depo.).) Bowers “was just [t]here to help things get
off the ground.” (J.A. at 5716 (Bowers Depo.).)
At that point, Synova’s facility was still under
construction but it was already testing with a prospective
customer an early version of its new Supra 130 product, a
release agent Synova marketed as a direct competitor of
Mallet’s Super P. Over the next couple of months, Synova
completed five successful product test runs with several of
Mallet’s top customers, placing Synova in a position to gain
immediate market penetration. And that gain was realized
when those test runs in fact led to business for Synova. As a
result of Lacayo’s success in bringing several products to
market, along with Bowers’s concentrated efforts to sell to
companies whose accounts he had serviced at Mallet, Synova
was able to make its competitive debut before the construction
of its baking release agent production facility was fully
completed.
B. Procedural Background
After discovering that Lacayo was working for Synova
in violation of her noncompetition agreement, Mallet filed this
lawsuit. It brought claims for trade secret misappropriation
under both federal and state law, inevitable disclosure,
conversion, and unfair competition against the Defendants;
breach of contract and breach of fiduciary duty against Lacayo
and Bowers; and tortious interference with contractual
relations and aiding and abetting breach of fiduciary duty
against Bundy and Synova. Based on those claims, Mallet
19
sought to preliminarily enjoin the Defendants from engaging
in any competition against it.
The District Court promptly acted upon Mallet’s
application for emergency relief, denying a motion for a
temporary restraining order, granting limited discovery, and
entering an order governing the preliminary injunction
proceedings. It twice granted extensions of the expedited
proceedings, first in response to a joint motion and then for the
benefit of Bowers, who was only informed nine days before
discovery ended, during his deposition, that Mallet intended to
amend its motion for preliminary injunction to seek injunctive
relief against him.13 After dealing with multiple discovery
disputes, the District Court presided over a preliminary
injunction hearing where it took testimony, admitted 181
exhibits, and ultimately considered more than 10,000 pages of
evidence. It then decided that Mallet was entitled to injunctive
relief on most of its claims.14
Adopting many of Mallet’s proposed findings of fact,
with the injunction order in turn incorporating certain factual
findings by broad reference to the ranges of paragraph numbers
listed in Mallet’s proposed order, the Court determined that
Mallet had demonstrated a likelihood of success on the merits
13
Mallet initially sought to preliminary enjoin Bundy,
Synova, and Lacayo. Bowers was not added as a defendant
until January 29, 2020.
14
The District Court concluded that it was unnecessary
to address Mallet’s claims for inevitable disclosure and
conversion.
20
for several of its claims, including its trade secret
misappropriation claims. Specifically, the District Court found
that “[a]t least some of the Mallet information in question,
possessed by Defendants, satisfies the trade secret
definition(s),” including, “among other things, highly sensitive
details about how Mallet produces, markets and sells its release
agents[.]” (J.A. at 25.) The Court listed thirteen categories of
Mallet information it deemed “protected materials,” as
follows:
Mallet’s formulas; customer purchase orders
demonstrating Mallet’s pricing; identification of
customers experiencing difficulty with Mallet’s
products; internal discussions of “actual major
problems” at customer locations; internal
discussions of how Mallet would address issues
with its products; internal discussions of
customers’ preferences and complaints; Mallet’s
completed organic certifications; identification
of Mallet’s supply source for product
ingredients; Mallet’s internal manuals and
procedures showing how Mallet’s lab is
operated; pricing and volume data; information
about Mallet’s equipment; Mallet’s training
materials showing how Mallet markets and sells
its products; and a compilation of Mallet’s
product specification sheets.
(J.A. at 25-26.) The Court then held there had been “a
misappropriation of Mallet’s trade secrets[,]” based on “[t]he
timing of Bowers’s and Lacayo’s sending Mallet information
to themselves – around the time they agreed to work for
Bundy/Synova[.]” (J.A. at 28.) It also concluded that Bundy
21
and Synova had “acquired a substantial volume of Mallet’s
confidential and trade secret information and [had] done
nothing to stop use of this data, even after litigation
commenced.” (J.A. at 29.) And it found that “[a]ctively
concealing plans to form a competing company; using
employee status to copy documents onto external storage
drives; the existence of information taken close to or
immediately following resignations on the new company’s
computers; and failure to return devices used during former
employment are all factors showing the substantial threat of a
defendant disclosing trade secrets.” (J.A. at 30.)
The District Court determined that such actual and
threatened misappropriation would irreparably harm Mallet,
absent an injunction. The Court reasoned that “Lacayo and
Bowers are actively working for a direct competitor in high-
level positions in which they have used and disclosed Mallet’s
trade secrets in violation of their covenants.” (J.A. at 35.) And
“[e]ven without Lacayo and Bowers, Bundy/Synova would
continue to have access to and use Mallet’s information.” (J.A.
at 35.) So, according to the District Court, “[t]he harm
Bundy/Synova will visit on Mallet if it is not enjoined will be
long-term given that Bundy/Synova is targeting Mallet’s
customers.” (J.A. at 35.) And that “harm to Mallet is
magnified” since Synova’s “portfolio of release agents to
replace Mallet products” is “expanding[.]” (J.A. at 35.)
Additionally, the District Court concluded that, “[w]ithout
injunctive relief, [the] Defendants’ actions will disrupt
Mallet’s business, harm its relationship with customers and
cause loss of market position, reputation and customer
goodwill.” (J.A. at 35.)
22
Balancing Mallet’s irreparable harm against the harm
that the Defendants would suffer from an injunction, the
District Court found that “[t]he nature of the relief Mallet
requests is proportionate to the severity of [the] Defendants’
wrongful acts and the potential harm[,]” particularly where
“[i]t took Mallet years to develop some of its key products,”
“Synova has made comparable products within a few months
of Lacayo joining the Company[,]” and Mallet has
demonstrated “that th[o]se comparable products benefited
from Mallet’s trade secrets” that “Bundy/Synova purposefully
sought out from Mallet’s current and former employees.” (J.A.
at 36.)
After concluding that a preliminary injunction was
warranted, the District Court ordered the Defendants enjoined
from the following activities (among others):
• “using Mallet’s confidential, proprietary and/or trade
secret information in any respect” (J.A. at 42);
• “directly or indirectly formulating, manufacturing,
distributing or selling products competitive to Mallet
products, including any release agents and related
equipment[,]” “working in the industry of release agents
and associated equipment (in any capacity including,
but not limited to, working as a marketer, agent,
consultant, contractor or distributor) using Mallet’s
protectable information[,]” and “directly or indirectly
soliciting any Mallet customers for marketing, testing or
the sale of release agents, oils or equipment in any
regard” (collectively, a “production ban”) (J.A. at 44);
23
• “soliciting and/or unlawfully interfering with the
business, employment or contractual relationship
between Mallet and its agents, employees and/or
independent contractors who have access to Mallet’s
confidential, proprietary and/or trade secret
information” (J.A. at 44);
• “directly or indirectly disseminating any marketing
materials, client communications (written or verbal), or
other documents comparing Bundy and/or Synova
products to any Mallet products.” (J.A. at 45.)
It also prohibited Lacayo and Bowers from engaging in the
following activities:
• “working, directly or indirectly, in any capacity
(including, but not limited to, working as an employee,
independent contractor, marketer, agent, or consultant),
for Bundy, Synova or any person or entity that is
competitive with Mallet” (J.A. at 40);
• “contacting Bundy’s and/or Synova’s employees,
officers, directors, leadership, consultants or any other
persons in a fiduciary relationship with Bundy and/or
Synova or any parent, subsidiary or affiliate of Bundy
and/or Synova” (J.A. at 40-41);
• “directly or indirectly contacting or soliciting Mallet’s
customers.” (J.A. at 45.)
24
The injunction order did not elaborate on what information
constitutes trade secrets.15
In setting the amount of the bond that Mallet would have
to post to secure the preliminary injunction, the District Court
found the “Defendants’ proposal, in excess of $20 million, [to
be] astronomical by comparison” to Mallet’s proposal of
providing a $500,000 bond. (J.A. at 45 n.2.) And it reminded
the parties that it had “expressly advise[d] that it would
‘summarily … adopt the [bond proposal] it believe[d to be]
most reasonable, appropriate and consistent with’” its ruling.
(J.A. at 45 n.2 (third alteration in original).) The District Court
subsequently set the bond amount at $500,000. The injunction
order went into effect immediately after Mallet posted the bond
and was to “remain in full force and effect until the [District]
Court’s ruling on permanent injunctive relief.” (J.A. at 45.)
Bundy and Synova asked the District Court to stay the
injunction, pending an appeal. The following day, they also
moved for clarification on the scope of the injunction order’s
production ban since its terms “do not specify” whether the
production ban “appl[ies] only to the commercial baking
industry[.]” (J.A. at 1856.) Although the commercial baking
industry is the sole industry that Mallet services, Bundy and
15
The District Court issued two orders associated with
the preliminary injunction, one being the decision to grant
Mallet’s request for injunction relief and the other consisting
of the terms of the injunction and the bond amount. For
purposes of simplicity, we refer to those orders in the singular
as one injunction order. December 15, 2020 is when the
second order issued.
25
Synova sought assurance “that they [were] permitted to operate
outside of” that business. (J.A. at 1858.) They did so, they
said, “out of an abundance of caution to avoid” contempt
violations and “in an effort to maintain their compliance with”
the injunction order. (J.A. at 1857.)
That same day, the District Court denied the motion for
clarification. (J.A. at 56.) But, in the order of denial, the Court
did in fact clarify that producing release agents for “other
industries, such as processed meats, pharmaceuticals,
construction and other industrial applications” would violate
the injunction. (J.A. at 56.) It explained that the “Defendants’
potential use of [Mallet’s] trade-secret and/or confidential
information to pursue other industrial applications would be
inconsistent with the terms, spirit and intent of the detailed
factual findings and legal conclusions reflected in the merits-
ruling.” (J.A. at 56.) The District Court also denied the motion
to stay, but we stayed the injunction in part,16 while considering
this appeal.
16
Specifically, we immediately stayed paragraphs one
through four, ten through eleven, and fourteen of the
preliminary injunction, which enjoined Lacayo and Bowers
“from working, directly or indirectly, in any capacity … for
Bundy, Synova or any person or entity that is competitive with
Mallet”; contacting anyone in a fiduciary relationship with
Bundy, Synova, or any parent, subsidiary, or affiliate of them;
and accessing any Bundy or Synova electronic systems; and
which enforced a production ban against the Defendants; and
prohibited the Defendants from “directly or indirectly
disseminating any marketing materials, client
communications … , or other documents comparing” Bundy
26
II. DISCUSSION17
Federal Rule of Civil Procedure 65(d) mandates that
“[e]very order granting an injunction” set forth the reasons why
an injunction is warranted, “state its terms specifically[,]” and
and Synova products with Mallet products. (J.A. at 40-41 ¶¶ 1-
4, 44 ¶¶ 10-11, 45 ¶ 14.)
17
The District Court had original jurisdiction over
Mallet’s federal trade secret misappropriation claim pursuant
to 18 U.S.C. § 1836(c) and 28 U.S.C. § 1331. The District
Court had supplemental jurisdiction over Mallet’s state law
claims under 28 U.S.C. § 1367. The Defendants have
contended that the District Court lacked jurisdiction because
Mallet failed to prove that the Defendants misappropriated a
protectable trade secret. But that is a merits argument, not a
jurisdictional one, and we reject it.
We have jurisdiction over the Defendants’ interlocutory
appeal under 28 U.S.C. § 1292(a)(1). “When reviewing a
district court’s grant of a preliminary injunction, we review the
court’s findings of fact for clear error, its conclusions of law de
novo, and the ultimate decision granting the preliminary
injunction for an abuse of discretion.” Bimbo Bakeries USA,
Inc. v. Botticella, 613 F.3d 102, 109 (3d Cir. 2010). “Despite
oft repeated statements that the issuance of a preliminary
injunction rests in the discretion of the trial judge[,] whose
decisions will be reversed only for ‘abuse,’ a court of appeals
must reverse if the district court has proceeded on the basis of
an erroneous view of the applicable law.” Kos Pharms., Inc.
v. Andrx Corp., 369 F.3d 700, 708 (3d Cir. 2004) (alteration in
original) (quoting Apple Comput., Inc. v. Franklin Comput.
Corp., 714 F.2d 1240 (3d Cir. 1983)).
27
articulate “in reasonable detail” the conduct it enjoins. While
“[t]he degree of particularity required” to satisfy the Rule’s
specificity provisions will “depend[] on the nature of the
subject matter[,]” Ideal Toy Corp. v. Plawner Toy Mfg. Corp.,
685 F.2d 78, 83 (3d Cir. 1982), those provisions are not mere
technicalities. Schmidt v. Lessard, 414 U.S. 473, 476 (1974).
They are designed to serve two vital functions: first, “to
prevent uncertainty and confusion on the part of those faced
with injunctive orders, and [thus] to avoid the possible
founding of a contempt citation on a decree too vague to be
understood”; and second, to ensure that sufficient information
is placed on the record so that “an appellate tribunal [will]
know precisely what it is reviewing.” Id. at 476-77. Failure to
“satisfy the important requirements of Rule 65(d)” will
typically result in an injunction’s vacatur. Id. at 477; see also
Kos Pharms., Inc. v. Andrx Corp., 369 F.3d 700, 712 (3d Cir.
2004) (“When reviewing an order that does not adequately
support the resolution of a motion for preliminary injunction,
we may vacate and remand for additional findings[.]”).
That is the result required here. We fully appreciate the
challenges inherent in expedited proceedings. Nevertheless,
when an injunction lacks sufficient specificity to permit
meaningful appellate review, there needs to be another effort
at crafting the contours of the order. Because the District Court
did not identify with specificity the information it found to be
Mallet’s trade secrets, we are not in a position to make an
informed decision as to whether Mallet is likely to prevail on
its trade secret misappropriation claims. And, notwithstanding
the existence of other claims that the District Court concluded
Mallet was likely to prevail on, there is no remaining basis to
uphold the Court’s decision to grant injunctive relief since its
28
irreparable harm determination appears to depend entirely on
the Defendants’ misappropriation of Mallet’s trade secrets.18
We will accordingly vacate the injunction order and
remand for reconsideration. In doing so, we outline a few
matters to be considered when identifying allegedly
misappropriated trade secrets. We also discuss the permissible
scope of an injunction and the limits of a district court’s
discretion when determining the associated amount of a bond.
A. A preliminary injunction predicated on trade
secret misappropriation must adequately
identify the allegedly misappropriated trade
secrets.
To prove eligibility for a preliminary injunction, there
is a well-established four-part test. The moving party must
demonstrate, first, a likelihood of success on the merits, and
second, that “it is more likely than not to suffer irreparable
harm in the absence of preliminary relief.” Reilly v. City of
Harrisburg, 858 F.3d 173, 179 (3d Cir. 2017) (footnote
omitted). Absent either of those threshold factors, “[w]e
cannot sustain a preliminary injunction ordered by the district
court[.]” Hoxworth v. Blinder, Robinson & Co., Inc., 903 F.2d
18The facts preliminarily found concerning Lacayo’s
extensive knowledge of Mallet’s business and her work for
Bundy and Synova, see supra Sections I.A.1.a & 2.a, may be
enough to demonstrate irreparable harm for breaching her
noncompetition agreement with Mallet – even without trade
secret misappropriation. But we leave that to the District Court
to decide in the first instance.
29
186, 197 (3d Cir. 1990) (quoting In re Arthur Treacher’s
Franchisee Litig., 689 F.2d 1137, 1143 (3d Cir. 1982)). If both
factors are established, however, the district court considers the
two remaining factors – whether granting relief will result in
even greater harm to the nonmoving party or other interested
persons and whether the public interest favors such relief. The
court then “determines in its sound discretion” whether the
balance of all four factors warrants granting preliminary relief.
Reilly, 858 F.3d at 179.
To establish a likelihood of success, a plaintiff must
show that “there is ‘a reasonable chance, or probability, of
winning.’” In re Revel AC, 802 F.3d 558, 568 (3d Cir. 2015)
(quoting Singer, 650 F.3d at 229)). That does not require a
“more-likely-than-not showing of success on the merits.” Id.
at 179 & n.3. But it does require the plaintiff to “demonstrate
that it can win on the merits,” which involves a showing that
its chances of establishing each of the elements of the claim are
“significantly better than negligible.” Id.
For a federal trade secret misappropriation claim, those
elements are: “(1) the existence of a trade secret … (2) that ‘is
related to a product or service used in, or intended for use in,
interstate or foreign commerce[,]’ and (3) the misappropriation
of that trade secret[.]” Oakwood Labs. LLC v. Thanoo, 999
F.3d 892, 905 (3d Cir. 2021) (second alteration in original)
(citations omitted). And, of course, each of those elements is
predicated on an adequate identification of what the plaintiff
contends to be its trade secret. See id. (“To plead the existence
of a trade secret in a misappropriation claim …, [a plaintiff]
must sufficiently identify the information it claims as a trade
secret[.]”).
30
The Defend Trade Secrets Act (“DTSA”)19 defines a
trade secret as information that “the owner thereof has taken
reasonable measures to keep … secret” and that “derives
independent economic value, actual or potential, from not
being generally known to, and not being readily ascertainable
through proper means by, another person who can obtain
economic value from the disclosure or use of the
19
Mallet has asserted claims for misappropriation under
the DTSA and the Pennsylvania Uniform Trade Secrets Act
(“PUTSA”). (J.A. at 409-10 (claiming “actual and continuing
misappropriation in violation of the DTSA”), 411-12 (claiming
“actual or threatened misappropriation of trade secrets … in
violation of the [PUTSA]”).) The DTSA and the PUTSA are
substantially similar, as both are closely related to the Uniform
Trade Secrets Act (“UTSA”). Heraeus Med. GmbH v.
Esschem, Inc., 927 F.3d 727, 736 (3d Cir. 2019) (“The
Pennsylvania General Assembly based the PUTSA on the
provisions of the [UTSA].”); Oakwood Labs. LLC v. Thanoo,
999 F.3d 892, 910 (3d Cir. 2021) (“[Congress] recognized the
DTSA and the UTSA as similar.” (quotation marks and citation
omitted)). Indeed, the definitions of “trade secret” under the
DTSA and the PUTSA are almost identical. Compare 18
U.S.C. § 1839(3), with 12 Pa. Cons. Stat. § 5302. Thus,
although our discussion focuses on the DTSA, we conclude
that the same analysis applies to Mallet’s claims under the
PUTSA and the same outcome results. See, e.g., Teva Pharms.
USA, Inc. v. Sandhu, 291 F. Supp. 3d 659, 675 (E.D. Pa. 2018)
(consolidating the analysis of claims under the DTSA and the
PUTSA); Jazz Pharms., Inc. v. Synchrony Grp., LLC, 343 F.
Supp. 3d 434, 445 (E.D. Pa. 2018) (same).
31
information[.]”20 18 U.S.C. § 1839(3). We cannot evaluate
whether a plaintiff is likely to succeed on any element of a trade
secret misappropriation claim until the plaintiff has sufficiently
described those trade secrets. See Porous Media Corp. v.
Midland Brake Inc., 187 F.R.D. 598, 600 (D. Minn. 1999)
(“Failure to identify the trade secrets with sufficient specificity
renders the Court powerless to enforce any trade secret
claim.”). It follows that a district court’s injunction order must
first adequately identify the information to which it accords
trade secret status. Otherwise, the injunction order lacks the
foundation necessary for holding a plaintiff likely to prevail on
its misappropriation claim. Without that information, the
injunction order fails to comply with Rule 65(d), and it must
be vacated. Cf. PMC, Inc. v. Sherwin-Williams Co., 151 F.3d
610, 620 (7th Cir. 1998) (“Legal rules committing decisions to
judicial discretion suppose that the court will have, and give,
sound reasons for proceeding one way rather than the other.”
(citation omitted)).
20
That information includes “all forms and types of
financial, business, scientific, technical, economic, or
engineering information, including patterns, plans,
compilations, program devices, formulas, designs, prototypes,
methods, techniques, processes, procedures, programs, or
codes, whether tangible or intangible, and whether or how
stored, compiled, or memorialized physically, electronically,
graphically, photographically, or in writing[,]” 18 U.S.C.
§ 1839(3), so long as it is “information with independent
economic value that the owner has taken reasonable measures
to keep secret,” consistent with the DTSA. Oakwood, 999 F.3d
at 905.
32
The District Court determined that “[a]t least some of
the Mallet information in question” constitutes protectable
trade secrets, “includ[ing], among other things, highly
sensitive details about how Mallet produces, markets and sells
its release agents[.]” (J.A. at 25.) Absent from the District
Court’s high-level description, however, are any specifics of
what those “highly sensitive details” are. Rather, we are left
with a list of thirteen broad categories of Mallet information
which the District Court deemed “protected materials”:21
Mallet’s formulas; customer purchase orders
demonstrating Mallet’s pricing; identification of
customers experiencing difficulty with Mallet’s
products; internal discussions of “actual major
problems” at customer locations; internal
discussions of how Mallet would address issues
with its products; internal discussions of
customers’ preferences and complaints; Mallet’s
completed organic certifications; identification
of Mallet’s supply source for product
ingredients; Mallet’s internal manuals and
procedures showing how Mallet’s lab is
operated; pricing and volume data; information
about Mallet’s equipment; Mallet’s training
materials showing how Mallet markets and sells
21
It is not clear whether the term “protected materials”
was intended to be synonymous with trade secrets, but we
assume it was. (J.A. at 25.) Information can be contractually
protected from use or disclosure and not be a trade secret.
33
its products; and a compilation of Mallet’s
product specification sheets.
(J.A. at 25-26.) While some information falling within those
categories may very well include trade secrets, there is a fair
probability that many of the categories – and perhaps all of
them – also include information that does not qualify for trade
secret protection.
The injunction order’s statement of protected material
is better characterized as a list of general categories of business
and technical information, a list that could be used to describe
documents found in any number of corporations. See A&P
Tech., Inc. v. Lariviere, No. 1:17-cv-534, 2017 WL 6606961,
at *10 (S.D. Ohio Dec. 27, 2017) (“Terms such as
‘engineering,’ ‘research and development procedures and
materials,’ and ‘marketing materials’ could be applied to
almost any corporation in existence, and do not in any way
allow Defendants to properly craft a defense around the alleged
misappropriation of trade secrets.”). The generic list thus
falters against the standard for specifying a trade secret. See
id. At a minimum, “the subject matter of the trade secret must
be described ‘with sufficient particularity to separate it from
matters of general knowledge in the trade or of special
knowledge of those persons who are skilled in the trade, and to
permit the defendant to ascertain at least the boundaries within
which the secret lies.’”22 Oakwood, 999 F.3d at 906 (quoting
22
In Oakwood, we noted that “deciding whether a
plaintiff has sufficiently disclosed its trade secrets is a fact-
specific question to be decided on a case-by-case basis.” See
999 F.3d at 906 (internal quotation marks omitted) (quoting
Vesta Corp. v. Amdocs Mgmt. Ltd., 147 F. Supp. 3d 1147, 1155
34
Diodes, Inc. v. Franzen, 67 Cal. Rptr. 19, 24 (Cal. Ct. App.
1968) (describing the minimum specificity threshold to survive
a motion to dismiss). That is especially the case where, as here,
the record suggests that those boundaries may not be
particularly clear.23
(D. Or. 2015). District courts must therefore engage with the
specific facts of the case and consider the degree of specificity
necessary in light of the particular industry-based context and
the stage of litigation – whether that be a motion to dismiss, a
discovery dispute, a motion to preliminarily enjoin a defendant
from competing with the trade secret plaintiff, or a summary
judgment motion. See id. at 1153 (“[T]he Court recognizes the
‘growing consensus’ of courts from around the country who
have applied the ‘reasonable particularity’ standard to
determine whether a party alleging a claim for
misappropriation of trade secrets has sufficiently identified its
trade secrets before it may compel discovery of its adversary’s
trade secrets. … [T]he ‘reasonable particularity’ standard
reflects the Court’s authority, pursuant to the Federal Rule of
Civil Procedure 26 requirements of early disclosure of
evidence, and the Court’s authority to control the timing and
sequencing of discovery in the interests of justice.” (citation
omitted)); DeRubeis v. Witten Techs., Inc., 244 F.R.D. 676,
680-82 (N.D. Ga. 2007) (“Unfortunately, there is no talismanic
procedure the Court may apply in order to obtain the best result
in any given case. The approach taken in [one dispute] may
have been perfectly appropriate in that case but may be
inappropriate in this one. In other words, ‘the “proper”
approach is clearly fact-dependent.’” (citation omitted)).
23
Mallet contends that its trade secrets are adequately
identified because of the following series of steps: (1) the
35
District Court’s order granting an injunction was based on the
Court’s Findings of Fact, Conclusions of Law & Order
deciding a preliminary injunction was warranted; (2) the
Court’s Finding of Fact ¶ 8 – stating that “Lacayo had access
to, and was intimately familiar with, Mallet’s protectable
information” – incorporated by reference the contents and
record citations in Mallet’s Proposed Findings of Fact ¶¶ 44-
60 (J.A. at 14); (3) those seventeen paragraphs in Mallet’s
Proposed Findings of Fact – the contents of which summarized
broadly that Lacayo had access to and knowledge of trade
secret information – incorporated by reference the contents and
record citations of numerous exhibits from the hearing; (4) all
of those exhibits are declarations and excerpts of deposition
testimony that themselves attach exhibits, cited by another
exhibit number or bates number, and that further refer to the
content therein; and (5) somewhere in there are trade secrets.
At oral argument, Mallet cited a range of bates-numbered
documents as proof that it had specified its trade secrets.
Circumstances such as access to trade secrets, unusually
accelerated or low-cost development of a competing product,
and relative lack of prior expertise, may, in combination,
establish a likelihood of success on the element of
misappropriation, see Oakwood, 999 F.3d at 908, 911-12. But
they do not establish that likelihood for the element on which
we focus here: the existence of a trade secret that has been
identified “with sufficient particularity.” Id. at 906. And
whatever else the foregoing order of operations might be, it is
not consistent with Rule 65(d)(1), which requires that every
injunction “(A) state the reasons why it issued; (B) state its
terms specifically; and (C) describe in reasonable detail – and
not by referring to the complaint or other document – the act
36
For example, Mallet recognizes that its own patents
publicly disclose some of its formulas, but it appears to contend
that even formulas thus publicly disclosed are part of its trade
secrets. (See J.A. at 11001-02 (Mallet Depo.) (“What I am
saying is while these formulations were developed here, it
doesn’t necessarily mean that the exact formula in one of these
[patent] tables is at question as a trade secret. These are
examples only. They form a part of the examples of the
patent. … They are part of a trade secret.”) (emphasis added).)
If that is really its position – and it is hard for us to tell – then
it is hard to take entirely seriously. A formula disclosed in a
patent is, by definition, not a secret. Nevertheless, “[w]hile the
precise information provided within or directly ascertainable
from a patent cannot constitute a trade secret, patent holders
are not necessarily precluded from cultivating trade secrets that
go beyond the corpus of the patent or that refine the patent’s
process in some proprietary way.” AutoTrakk, LLC v. Auto.
Leasing Specialists, Inc., No. 4:16-cv-1981, 2017 WL
2936730, at *5 (M.D. Pa. July 10, 2017). Problematically,
though, Mallet fails to explain how we or anyone else is to
distinguish between what is generally known or available
information and what it contends to be protectable trade
secrets. With a wave of the hand, it declares everything to be
secret know-how. (See J.A. at 10986 (Mallet Depo.) (“The
issue at hand is not so much that the formula might be the same
or different. What is at hand is that the know-how that Ms.
or acts restrained or required.” Fed. R. Civ. P. 65(d)(1)
(emphasis added).
37
Lacayo took from Mallet, and is applying within Bundy, is all
about delivering the performance, the quality, and those other
factors I mentioned to the customer to provide them the
solution. That know-how was developed by Mallet over 80
years.”).)
When the breadth of a trade secret description is so far-
reaching that it includes publicly available information (like
patent disclosures) and admitted industry knowledge, that
information is not specific enough to be accorded trade secret
status.24 DeRubeis v. Witten Techs., Inc., 244 F.R.D. 676, 689
24
See, e.g., Radiant Glob. Logistics, Inc. v. Furstenau,
368 F. Supp. 3d 1112, 1125 (E.D. Mich. 2019) (“The
identification of alleged trade secrets is important because ‘the
general knowledge of an employee does not constitute a trade
secret[.]’ … [T]o establish a trade secrets claim, the party
‘must establish more than the existence of generalized trade
secrets and a competitor’s employment of the party’s former
employee who has knowledge of trade secrets.’” (citations
omitted)); Broker Genius, Inc. v. Zalta, 280 F. Supp. 3d 495,
515 (S.D.N.Y. 2017) (“While neither the New York Court of
Appeals nor the United States Court of Appeals for the Second
Circuit has expressly required trade secrets to be identified
with any particular degree of specificity, it is evident that a
‘vague and indefinite’ piece of information cannot be protected
as a trade secret.” (quoting Big Vision Private Ltd. v. E.I.
DuPont De Nemours & Co., 1 F. Supp. 3d 224, 258 (S.D.N.Y.
2014))); L-3 Commc’ns Corp. v. Jaxon Eng’g & Maint., Inc.,
No. 10-cv-2868, 2011 WL 10858409, at *2 (D. Colo. Oct. 12,
2011 (“[W]hat is clear is that generic allegations and general
references to products or information are insufficient to satisfy
the reasonable particularity standard.” (citation omitted));
38
(N.D. Ga. 2007) (“If the list is too general, it will encompass
material that the defendant will be able to show cannot be trade
secret.” (citation omitted)). While we recognize the difficulty
inherent in articulating what trade secrets Lacayo and Bowers
may have misappropriated – and it certainly appears they took
things that may qualify as trade secrets – “care must [still] be
taken to not allow a plaintiff in a trade secret misappropriation
case to make generalized claims that leave a defendant
wondering what the secrets at issue might be[.]” Oakwood,
999 F.3d at 907; see also Patriot Homes, Inc. v. Forest River
Housing, Inc., 512 F.3d 412, 415 (7th Cir. 2008).
The District Court, in effect, recapitulated Mallet’s own
broadly stated categories of information. For example, the
Court said that “Mallet’s formulas” were trade secrets. (J.A. at
25.) But, like Mallet, it did not identify which formulas it
UTStarcom, Inc. v. Starent Networks, Corp., 675 F. Supp. 2d
854, 875 (N.D. Ill. 2009) (“It is simply not enough for a
plaintiff to ‘point to broad areas of technology and assert that
something there must have been secret and misappropriated.
The plaintiff must show concrete secrets.’” (quoting
Composite Marine Propellers, Inc. v. Van Der Woude, 962
F.2d 1263, 1266 (7th Cir. 1992)); Dura Glob. Techs., Inc. v.
Magna Donnelly, Corp., No. 7-cv-10945, 2007 WL 4303294,
at *4 (E.D. Mich. Dec. 6, 2007) (“[A] list of general categories
and types of information they allege comprise their trade
secrets” is not enough to “identify the trade secrets at issue with
the particularity necessary for Defendant to identify the
information which Plaintiffs claim was misappropriated”
because they “are too general to specify the trade secrets at
issue.”).
39
referred to, nor did it describe any characteristics or properties
contributing specific competitive value to Mallet that could
serve as a marker for separating Mallet’s formulas from
publicly available information or generally known formulas in
the industry.25 The District Court also concluded that “pricing
25
Though our decision relies on the District Court’s
findings of fact, we note that on remand the Court is not bound
by its initial findings and should again carefully assess the
evidentiary record, weighing all conflicting evidence. We
offer two examples of findings that give us pause, at least as
presently explained. First, extensive evidence was introduced
showing that many of both Mallet’s and Synova’s products
were single ingredient oils, some of which were simply
repackaged for sale. Given that, we hesitate to agree with the
District Court that the testimony relating to unformulated pure
oils is a “red herring” and immaterial to Mallet’s right to relief.
(J.A. at 14.) As of December 7, 2020, repackaged mineral oils
constituted approximately half of Synova’s Supra and Primo
series. Further, we wonder whether a single naturally
occurring ingredient can be repackaged as a product and then
be considered a formula warranting trade secret protection, but
we leave that for consideration in the first instance on remand.
Second, the Court found that “Mallet’s evidence
establishes that the formulation of its relevant products takes
substantial time, sometime years” and that “Lacayo’s
testimony, to the effect that formulating such products is ‘very
easy,’ was not credible.” (J.A. at 14.) But those findings make
no mention of other evidence that supported Lacayo’s claim
about the ease of developing some formulas. Two other
witnesses – including Mallet’s own witness, Roja Ergun –
acknowledged that some basic release agents were in fact easy
to make. Ronald Wilson, the senior director of engineering at
40
and volume data” and “Mallet’s training materials showing
how [it] markets and sells its products” are trade secrets. (J.A.
at 26.) But those trade secret descriptions fare no better than
Mallet’s assertion that “pricing information[,] strategies[, and]
marketing information” are trade secrets. (J.A. at 1638
(Mallet’s Proposed Findings of Fact.) Specific examples are
needed and, if provided, could very well suffice to support
injunctive relief.
Because the District Court did not articulate with
particularity the information to which it accorded trade secret
status, we are unable to conduct an informed appellate review,
assessing the alleged trade secret information against other
information that the record may reveal is publicly available,
easily generated, or widely applicable to or learned in the
industry. SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244,
1258 (3d Cir. 1985). In other words, meaningful review
requires enough factual detail to permit us to draw a connection
between the alleged trade secret and its value as a “particular
secret[] of the complaining employer” and not general know-
how of the trade. Id. at 1256 (quoting Capital Bakers v.
Townsend, 231 A.2d 292, 294 (Pa. 1967)).
We appreciate the burden this places on district courts
and “that with the advantage of hindsight it is much easier for
[us] to find a deficiency in a decree than it would be to write a
Hostess Brands, stated that Hostess Brands has created its own
baking pan oils in-house at numerous points in the company’s
history. According to Wilson, the process was “[v]ery, very
simple,” with “nothing to it.” (J.A. at 4117.) Further insight
into the District Court’s weighing of such conflicting evidence
will assist us in providing meaningful appellate review.
41
specific decree that does not offend the law when dealing with
the somewhat nebulous field of trade secrets.” Id. at 1266.
Importantly, however, while it is a district court’s
responsibility to adequately describe the trade secrets at issue
in a case like this, it is first and foremost the plaintiff’s burden
to specifically identify what it contends to be its trade secrets
and to demonstrate with record evidence a “significantly better
than negligible” chance, Reilly, 858 F.3d at 179, of establishing
the existence of those trade secrets. If a plaintiff fails to meet
that burden, the district court faces the same problem we now
have on appeal, and a preliminary injunction for trade secret
misappropriation ought not issue.26
While we are persuaded that some of Mallet’s
information – such as that contained in its patents – cannot
legitimately have the protected status that it may have been
afforded by the District Court,27 we lack the information
26
That does not mean there may not be other bases for
injunctive relief, only that a failure to adequately make a record
identifying trade secrets with sufficient specificity means no
injunction on the claim of trade secret misappropriation can
issue.
27
Compare BIEC Int’l, Inc. v. Glob. Steel Servs., Ltd.,
791 F. Supp. 489, 541 (E.D. Pa. 1992) (“While it is quite
possible that BIEC may have an extraordinary and massive
body of technical trade secrets and confidential
information, … the law requires that BIEC separate those
interrelated processes before it has satisfied its heavy burden
of proving specific trade secrets.” (internal quotation marks
and citation omitted)), with Smith v. BIC Corp., 869 F.2d 194,
201 (3d Cir. 1989) (“To extrapolate from this [i.e., the
42
necessary to decide anything more about what allegedly does
have that protected status and Mallet’s likelihood of success in
establishing misappropriation of that specific information. So,
instead, we share two observations for consideration on
remand.
First, information will not necessarily be deprived of
protection as a trade secret because parts of it are publicly
available. A confidential compilation and organization of
public information can amount to a trade secret. “Courts have
long recognized that ‘a trade secret can exist in a combination
of characteristics and components, each of which, by itself, is
in the public domain, but the unified process, design and
operation of which, in unique combination, affords a
competitive advantage and is a protectable secret.’” AirFacts,
Inc. v. de Amezaga, 909 F.3d 84, 96 (4th Cir. 2018) (quoting
Imperial Chem. Indus. v. Nat’l Distillers & Chem. Corp., 342
F.2d 737, 742 (2d Cir. 1965)).28 Similarly, “[w]hile the precise
plaintiff’s concession that some design information was within
the public domain] to say that all design information is not a
trade secret because it is in the public domain is erroneous
indeed.”).
28
See also Compulife Software Inc. v. Newman, 959
F.3d 1288, 1314 (11th Cir. 2020) (While “scraped quotes [are]
not individually protectable trade secrets because each is
readily available to the public … that doesn’t in and of itself
resolve the question whether, in effect, the database as a whole
was misappropriated. Even if quotes aren’t trade secrets,
taking enough of them must amount to misappropriation of the
underlying secret at some point. Otherwise, there would be no
substance to trade-secret protections for ‘compilations,’ which
43
information provided within or directly ascertainable from a
patent [or other published document] cannot constitute a trade
secret,” that does not, as noted earlier, mean that a patentee is
“precluded from cultivating trade secrets that go beyond the
corpus of the patent or that refine the patent’s process in some
proprietary way.” AutoTrakk, LLC, 2017 WL 2936730, at *5.
Second, an employee’s general know-how should be
distinguished from the particular secrets held by an employer.
SI Handling Sys., 753 F.2d at 1256.29 In other words, while an
the law clearly provides.”); Radiant Glob. Logistics, Inc., 368
F. Supp. 3d at 1127 (“[I]t is widely accepted that a trade secret
can exist in a combination of characteristics each of which, by
itself, is in the public domain.” (alteration in original) (quoting
Mike’s Train House, Inc. v. Lionel, L.L.C., 472 F.3d 398, 411
(6th Cir. 2006))); Fishkin v. Susquehanna Partners, G.P., 563
F. Supp. 2d 547, 582 (E.D. Pa. 2008) (“A trade secret may be
based on publicly available information if it consists of a secret
advance over common knowledge and practice or if it
combines publicly available information in a new and secret
way.” ).
29
See also Cap. Bakers, Inc. v. Townsend, 231 A.2d
292, 294 (Pa. 1967) (“It is true that true ‘trade secrets’ of an
employer are a valuable asset, the disclosure and use of which
by a former employee will be enjoined[.] … However, ‘trade
secrets’ which will be so protected must be [p]articular secrets
of the complaining employer and not general secrets of the
trade in which he is engaged. The ‘trade secrets’ asserted
herein are nothing more than those of the general bakery
business.” (citation omitted)).
44
employee’s general know-how does not constitute trade secret
information, employers remain free to identify and protect their
particular proprietary information. Admittedly, the line
distinguishing between the two – an employee’s general
knowledge or skill and an employer’s protectable trade secrets
– may often be difficult to draw. Thus, in exercising its
equitable discretion, a district court need not draw the line with
precision, but the plaintiff has to provide something better than
sweeping generalities for the court to work with. See Van
Prods. Co. v. Gen. Welding & Fabricating Co., 213 A.2d 769,
777 (Pa. 1965) (“[T]he concept of ‘know-how’ is … a very
fuzzily defined area, used primarily as a short-hand device for
stating the conclusion that a process is protect[a]ble. It covers
a multitude of matters, however, which in the broad sense are
not protect[a]ble, e.g., an employee’s general knowledge and
skill.”). It is the trade secret owner that bears the burden of
demonstrating its claimed secrets are protectable and are not
general industry knowledge. Just how much specificity a court
should require of the plaintiff-owner is again a context-specific
matter. We cannot provide a bright-line rule. The best we can
do is say that Mallet’s very general description of categories
does not “sufficiently identify the information it claims as a
trade secret,” Oakwood, 999 F.3d at 905, and thus does not
suffice to justify the sweeping injunction the District Court
issued.
The bottom line is this: without knowing what particular
information Mallett claims as trade secrets, we cannot assess
its likelihood of success in establishing that the information the
Defendants acquired, disclosed, or used is trade secret
information or that misappropriation of a trade secret has
45
occurred.30 By its very definition under the DTSA, the term
“misappropriation” presumes that the Defendants’ misconduct
30
For example, the District Court found that Bundy and
Synova were “solicit[ing] confidential information regarding
[Mallet’s] product formulations from former Mallet employee,
Shane Zhou.” (J.A. at 15.) Those findings derived from an
email from Mr. Bundy to Zhou asking for “the type and general
formula” for ten products to “help [Mr. Bundy] size some of
the bulk tanks and piping” for Synova’s production facility.
(J.A. at 1894.) Those products were identified by item
numbers, all of which began with “FG[,]” and the email makes
no mention of Mallet. (J.A. at 1894.) Thus, there is a
disconnect between Mr. Bundy’s request for information on
those ten products and the District Court’s finding that, more
likely than not, those ten products are linked to Mallet and the
information requested on those products was confidential.
There could be evidence in the record to support the Court’s
finding, such as a declaration from Mallet’s Food Technology
Director saying something like, “Mallet’s products are
identified by FG (‘finished good[’]) and a numerical code”
(J.A. at 4329), as well as record evidence suggesting that
Mallet considers the requested information confidential or a
trade secret. We are not insisting that the record evidence be
tied tightly to every factual finding, but we cannot be left to
guess at the ties. They should be made explicit. See
Proofpoint, Inc. v. Vade Secure, Inc., No. 19-cv-04238, 2020
WL 836724, at *2 (N.D. Cal. Feb. 20, 2020) (“To succeed on
a claim for misappropriation of trade secrets, the plaintiff must,
inter alia, offer evidence that ‘specifically identif[ies] [its]
trade secrets’ and ‘show[] that they exist.’” (alterations in
46
– its acquisition, disclosure, or use of information – involves a
trade secret.31 18 U.S.C. § 1839(5) (defining the term
original) (quoting MAI Sys. Corp. v. Peak Comput., Inc., 991
F.2d 511, 522 (9th Cir. 1993))).
31
The Defendants would also have us insulate trade
secret thieves from liability as long as reverse engineering of a
secret was hypothetically an available alternative to access the
trade secret information. We decline to do so. The DTSA
expressly addresses the relationship between reverse
engineering and trade secret misappropriation. And it excludes
reverse engineering from the type of conduct it defines as
misappropriation. 18 U.S.C. § 1839(6). But while “reverse
engineering is a defense to misappropriation of [a] trade secrets
claim, the possibility that a trade secret might be reverse
engineered is not a defense.” Bal Seal Eng’g, Inc. v. Nelson
Prods., Inc., No. 8:13-cv-1880, 2018 WL 4697255, at *4 (C.D.
Cal. Aug. 3, 2018) (internal quotation marks and citation
omitted); see also Imperial Chem. Indus. Ltd. v. Nat’l Distillers
& Chem. Corp., 342 F.2d 737, 743 (2d Cir. 1965) (“It is no
defense in an action of this kind that the process in question
could have been developed independently, without resort to
information gleaned from a confidential relationship.”). To
hold otherwise would fly in the face of commonsense and
allow a defendant to escape liability for unlawfully stealing
trade secrets as long as someone might – hypothetically and at
unknown cost in time, effort, and money – figure out some
means to discover them through reverse engineering. There
may be situations in which reverse engineering is so
straightforward that the distribution of a product is itself akin
to a disclosure. That kind of situation is, we believe, addressed
in our comment in SI Handling Sys., Inc. v. Heisley, that
47
“misappropriation” as “acquisition of a trade secret of another
by a person who knows or has reason to know that the trade
secret was acquired by improper means” or “disclosure or use
of a trade secret of another without express or implied
consent” (emphases added)). So, while the Defendants’
conduct appears deceitful, it will not support preliminary
injunctive relief on a misappropriation claim under the DTSA
unless the supposed trade secrets are adequately identified and
there is some evidence tying the Defendants’ conduct to the
taking of those trade secrets. A plaintiff need not have direct
evidence tying each trade secret to a defendant’s acquisitive
conduct. The Defendants’ actions here, plus their access to
what may be trade secret information, plus the accelerated
launch of Synova products may easily be sufficient
circumstantial evidence to support a likelihood of success on
the merits of Mallet’s misappropriation claim. See Oakwood,
999 F.3d at 912-13. The record, even as it stands now, may
establish the requisite likelihood that the Defendants engaged
in conduct that would be considered misappropriation of trade
secrets, if the relevant information is identified with sufficient
specificity. See supra Section I.A.2. But that identification
has not yet occurred.
“[m]atters which are fully disclosed by a marketed product and
are susceptible to ‘reverse engineering’—i.e., ‘starting with the
known product and working backward to divine the process
which aided in its manufacture,’—cannot be protected as trade
secrets.” 753 F.2d 1244, 1255 (3d Cir. 1985) (quoting
Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974)).
But short of that factual scenario, the mere potential for reverse
engineering with unlimited resources does not foreclose the
existence of a trade secret.
48
B. Should the District Court decide on remand
that preliminary injunctive relief is
warranted, the injunction must be sufficiently
specific in its terms and narrowly tailored in
its scope.
Just as the lack of specificity regarding the claimed
trade secrets deprives us of a meaningful opportunity to review
the decision to grant injunctive relief, see supra Section II.A,
the injunction order’s absence of specific terms likewise
inhibits our review of the order itself. “Unless the trial court
carefully frames its orders of injunctive relief, it is impossible
for an appellate tribunal to know precisely what it is
reviewing.” Schmidt, 414 U.S. at 477.
“Since an injunctive order prohibits conduct under
threat of judicial punishment, basic fairness requires that those
enjoined receive explicit notice of precisely what conduct is
outlawed.” Id. at 476. A complication here is, of course, the
need to maintain the secrecy of the plaintiff’s trade secrets.32
32
That complication, however, is not unique to
injunction proceedings. It is one courts commonly resolve in
cases involving trade secrets and other highly sensitive
information, utilizing confidentiality orders that restrict access
to such information to trial counsel and other persons on a
need-to-know basis. See Fed. R. Civ. P. 26(c); DeRubeis, 244
F.R.D. at 682 (“[A] protective order is in effect in this case
which allows the parties to limit confidential information to
attorneys’ eyes only. Therefore, [the party’s] identification of
its trade secrets should not risk the information’s
confidentiality.”); Bailey v. Dart Container Corp. of Mich.,
980 F. Supp. 560, 583 (D. Mass. 1997) (weighing a defendant’s
49
Nevertheless, an injunction ought not leave too much
“guesswork” for the Defendants “to determine if [they are]
engaging in activities that violate the injunction”; it cannot be
“little more than a recitation of the law.” Patriot Homes, 512
F.3d at 415; see also Corning Inc. v. PicVue Elecs., Ltd., 365
F.3d 156, 157-58 (2d Cir. 2004). Such vagueness “places an
unduly harsh burden on the defendants … and is not in accord
with the mandate of Rule 65 that a preliminary injunction shall
be in specific terms.” E.W. Bliss Co. v. Struthers-Dunn, Inc.,
408 F.2d 1108, 1114 (8th Cir. 1969) (internal quotation marks
and citations omitted). “Rule 65(d) reflects Congress’[s]
concern with the dangers inherent in the threat of a contempt
citation for violation of an order so vague that an enjoined party
may unwittingly and unintentionally transcend its bounds.”
Sanders v. Air Line Pilots Ass’n, Int’l, 473 F.2d 244, 247 (2d
Cir. 1972) (citing Int’l Longshoremen’s Ass’n, Local 1291 v.
Phila. Marine Trade Ass’n, 389 U.S. 64, 76 (1967)).
The description of the conduct enjoined should be
narrowly tailored to reach only those acts that closely relate to
right “to examine relevant evidence against the right of [the
plaintiff] to protect his confidential information” and
concluding that “[a] protective order with [a] provision
requiring in house counsel and experts to sign an affidavit
agreeing to be bound by the terms of the order sufficiently
protects [the plaintiff’s] interest while allowing [the defendant]
access to relevant information”). We have confidence that the
District Court and the parties can craft an order that strikes an
acceptable balance between specifying forbidden action and
protecting trade secrets.
50
the unlawful conduct giving rise to an entitlement to injunctive
relief.
We must protect that which is protectable, but, in
doing so, we must limit the use of injunctive
relief to situations where it is necessary to
prevent immediate and irreparable injury. The
dramatic and drastic power of injunctive force
may be unleashed only against conditions
generating a presently existing actual threat[.]
Holiday Inns of Am., Inc. v. B & B Corp., 409 F.2d 614, 618
(3d Cir. 1969).
The injunction order here is problematic because it
extends the scope of the injunction to reach what appears to be
lawful conduct. For example, a total production ban against
the Defendants is not supported on the present record. “A
‘production injunction’ … completely bars [a] defendant from
manufacturing the type of product in which the trade secret is
utilized” and should only be imposed “when a trade secret is
‘inextricably connected’ to the defendant’s manufacture of the
product[.]” Christopher M’s Hand Poured Fudge, Inc. v.
Hennon, 699 A.2d 1272, 1277 (Pa. Super. Ct. 1997) (citations
omitted). The record here shows that several formulas for
baking release agents are the subject of patents and other
publications, so it is unclear how the Defendants’ manufacture
of a baking release agent will, of necessity, be inextricably
entwined with Mallet’s trade secrets, since there are publicly
available alternatives that the Defendant can utilize to
manufacture such a product.
51
In addition, the production ban was not limited to just
manufacturing but also restrained the Defendants from
“directly or indirectly formulating, manufacturing, distributing
or selling products competitive to Mallet products[.]” (J.A. at
44.) It would take a truly extraordinary showing – one not
made here – to justify an order ejecting a competitor from the
marketplace altogether.33 Injunction orders should not restrain
competitors from engaging in lawful business activities.34 See
33
And here, the breadth of the injunction restrains
Defendants from producing or selling release agents not only
in the commercial baking industry, the only industry in which
Mallet competes, but in any industry involving release agents.
(See J.A. at 56.)
34
See Bhd. of R.R. Carmen of Am., Local No. 429 v. Chi.
& N.W. Ry. Co., 354 F.2d 786, 800 (8th Cir. 1965) (“By its
terms the injunction goes far beyond enjoining just the conduct
of the minor dispute giving rise to it and thus is in violation of
traditional concepts of judicial restraint in equity matters.”);
Feathercombs, Inc. v. Solo Prods. Corp., 306 F.2d 251, 258
(2d Cir. 1962) (“We believe that although the use of such
material by Solo was an indication of its intention to engage in
unfair competition, Feathercombs’ grievance could be
remedied by an injunctive provision which is less drastic and
which would not deprive Solo of the right to legitimately
market its own hair appliance. Since Solo infringes no patent
by manufacturing its expandable comb, it is essential that it not
be unduly curtailed from marketing it by being denied the usual
promotional accoutrements of the modern market place.”);
Corica v. Ragen, 140 F.2d 496, 499 (7th Cir. 1944) (“Without
indicating what defendants may do in carrying on their normal
business operations, the injunction prohibits them from doing
52
N.L.R.B. v. Express Publ’g Co., 312 U.S. 426, 435-36 (1941)
(“This Court will strike from an injunction decree restraints
upon the commission of unlawful acts which are thus
[disassociated] from those [acts] which a defendant has
committed.”); E.W. Bliss Co., 408 F.2d at 1114 (noting that we
will find an injunction order “excessively broad and
consequently invalid [if] it goes far beyond restraining
unlawful conduct on the part of the defendants”).
Another example of problematic language in the
injunction is the prohibition on Bowers “working, directly or
indirectly, in any capacity … for … any person or entity that is
competitive with Mallet.” (J.A. at 40.) Bowers was not under
a noncompetition agreement, nor can we discern any other
basis for saying he cannot work anywhere for anyone who
might compete with Mallet in some way.
C. The bond amount must be tied to the scope of
the preliminary injunction and account for
the factual circumstances of the case.35
The Defendants also contend that the District Court
abused its discretion when it set a $500,000 bond – less than
three percent of the bond amount that they say is needed. They
assert that the District Court improperly relied upon bond
acts which are usual and necessary in the business of gathering,
editing, and distributing news.”).
35
“We … review district court judgments fixing the
amount of an injunction bond for abuse of discretion.” Sprint
Commc’ns Co. L.P. v. CAT Commc’ns Int’l, Inc., 335 F.3d 235,
239 (3d Cir. 2003).
53
amounts set in other cases without considering or evaluating
the evidence the Defendants set forth in support of their bond
assessment. We agree that the amount of the bond is not
adequately supported by the Court’s explanation.
Before a preliminary injunction can issue, the moving
party must provide “security in an amount that the court
considers proper to pay the costs and damages sustained by any
party found to have been wrongfully enjoined or restrained.”
Fed. R. Civ. P. 65(c). Rule 65(c)’s bond requirement balances
the competing interests of the adverse parties: preliminarily
enjoining a defendant’s conduct prevents a plaintiff from
incurring further irreparable harm, while the bond ensures at
least some protection for the defendant in the event its conduct
was wrongfully enjoined. The injunction bond serves as a
deterrent to “rash applications for interlocutory orders; the
bond premium and the chance of liability on it causes plaintiff
to think carefully beforehand.” Instant Air Freight Co. v. C.F.
Air Freight, Inc., 882 F.2d 797, 804 (3d Cir. 1989) (citation
omitted). It is also the only recourse for a wrongfully enjoined
party. Sprint Commc’ns Co. L.P. v. CAT Commc’ns Int’l, Inc.,
335 F.3d 235, 240 (3d Cir. 2003); see also W.R. Grace & Co.
v. Local Union 759, Int’l Union of United Rubber Cork,
Linoleum & Plastic Workers of Am., 461 U.S. 757, 770 n.14
(1983) (“A party injured by the issuance of an injunction later
determined to be erroneous has no action for damages in the
absence of a bond.”). The bond “limits the liability of the
applicant” and sets “the price [it] can expect to pay if the
injunction was wrongfully issued[,]” Sprint Commc’ns, 335
F.3d at 240 (quoting Instant Air Freight, 882 F.2d at 805),
since there is no other “legal or equitable means to recover
against the applicant for a wrongful grant of the injunction (i.e.,
where the applicant does not prevail in the main action), other
54
than the bond.” Frank’s GMC Truck Ctr., Inc. v. Gen. Motors
Corp., 847 F.2d 100, 103 n.5 (3d Cir. 1988).
Realistically, that means the consequences of
wrongfully enjoining a defendant could be dire if a district
court were to significantly underestimate the economic impact
of an injunction it issues. While that risk is offset to a degree
by the high burden placed on the moving party to establish that
an injunction is warranted, id. at 102 (recognizing that the grant
of injunctive relief is an “extraordinary remedy, which should
be granted only in limited circumstances” (citation omitted)),
the risk remains, especially if the scope of the injunction is far-
reaching.36 District courts are therefore tasked with the
36
Mallet contends that the risk of an errant ruling is a
factor courts may use in setting the bond amount, explaining
that “[t]he lower the risk of an injunction being wrongfully
enjoined, the more appropriate a lower bond amount.”
(Answering Br. at 73-74 (citing Ark. Best Corp. v. Carolina
Freight Corp., 60 F. Supp. 2d 517, 518 (W.D.N.C. 1999)).
Mallet then points to the time spent litigating this case, as well
as the volume of briefing and testimony leading up to the
issuance of the injunction to support its assertion that there was
a “limited risk” that the injunction was wrongfully issued and,
therefore, that the $500,000 bond correctly accounted for that
limited risk. (Answering. Br. at. 74.) We disagree. While it is
true that the preliminary injunction standard’s heavy burden
reduces the risk of wrongful enjoinment, the purpose of the
bond is still to build in protections for the enjoined, given the
risks that inherently arise from the expedited and preliminary
nature of the proceedings. See Kos Pharms., Inc., 369 F.3d at
710 (recognizing that “district courts must exercise their
discretion on an expedited basis in deciding whether to grant
55
responsibility of accounting for the factual circumstances of
the parties and tying the scope of the injunction to the bond
amount it decides to set. Because setting the bond amount –
like the preceding decision to order injunctive relief – “is
almost always based on an abbreviated set of facts” that
“requir[e] a delicate balancing” of the adverse parties’
competing interests, the decision rests within the district
court’s sound discretion. See U.S. Steel Corp. v. Fraternal
Ass’n of Steelhaulers, 431 F.2d 1046, 1048 (3d Cir. 1970).
The deference we accord a district court to “mold its
decree to meet the exigencies of the particular case” is not,
however, unlimited. Trump v. Int’l Refugee Assistance
preliminary relief”); U.S. Steel Corp. v. Fraternal Ass’n of
Steelhaulers, 431 F.2d 1046, 1048 (3d Cir. 1970) (“[T]he grant
or denial of a preliminary injunction is almost always based on
an abbreviated set of facts[.]”). To strip those built-in
protections from the Defendants at this early stage of the
litigation negates the very reason for requiring a bond and
stands in tension with the standard for setting the bond amount
– which measures compensable harm based on the
presumption of wrongful enjoinment, not the likelihood of
wrongful enjoinment. See Kos Pharm., Inc., 369 F.3d at 732
n.28. Moreover, the size of the preliminary injunction record
does not negate the preliminary nature of the proceedings. We
cannot assume that the size of the record indicates the extent of
remaining evidence that may be uncovered during discovery,
nor do we see a basis for assuming there is an inverse
relationship between the size of a preliminary injunction record
and the level of risk that a defendant will be wrongfully
enjoined.
56
Project, 137 S. Ct. 2080, 2087 (2017) (quoting 11A C. Wright,
A. Miller, & M. Kane, Federal Practice and Procedure
§ 2947, at 115 (3d ed. 2013)). District courts should engage in
a case-specific analysis that accounts for the factual
circumstances of the parties, the nature of the case and
competing harms, and the scope and potential impact of the
injunction, and they should place on the record their reasons
for setting a bond amount, so as to provide a meaningful basis
for appellate review. Cf. Coyne-Delany Co., Inc. v. Cap. Dev.
Bd., 717 F.2d 385, 392 (7th Cir. 1983) (“[T]he ingredients of a
proper decision are objective factors—such as the resources of
the parties, the defendant’s efforts or lack thereof to mitigate
his damages, and the outcome of the underlying suit—
accessible to the judgment of a reviewing court. … [T]he
district court’s decision cannot stand” when “it fails to consider
and evaluate the full range of factors … that would be relevant
under the proper standard[.]”).
Here, the District Court’s stated reason that a $500,000
bond was “reasonable, proper[,] and sufficient” was that
$500,000 was “toward the high-end of those [bonds] to have
been imposed” in similar cases.37 (J.A. at 45 n.2.) And it
37
The District Court “surveyed federal court decisions
in like cases, from across the country,” but there is nothing in
the record or the Court’s decision indicating the number of
cases surveyed, any case names or citations, or how the Court
determined which decisions to include in its set of purportedly
similar cases. (J.A. at 45 n.2.) So assuming that a survey of
“like cases” might inform a court’s exercise of discretion in
setting a bond amount, the absence of any information about
the content of that survey in this case remains a problem. And
in the absence of that information, we cannot conclude that the
57
rejected the Defendants request for a bond exceeding $21.5
million since that amount “seem[ed] astronomical by
comparison.” (J.A. at 45 n.2.) The Court further alluded to a
warning it had previously given, advising the parties “that it
would ‘summarily … adopt the [proposals] it believe[d to be]
most reasonable, appropriate and consistent with the Court’s
[preliminary injunction] rulings.’” (J.A. at 45 n.2 (alterations
in original) (quoting ECF No. 109 at 27).) And after
contemplating that “a splitting-of-the-baby” strategy may have
influenced the Defendants’ bond proposal, it faulted the
Defendants for not heeding its warning. (J.A. at 45 n.2.) But
frustration with a party, even if it may be justified, does not
relieve a district court of the obligation to engage in a case-
specific analysis, looking at potential harm from the injunction.
Considering comparable cases – if they are truly comparable –
is not inappropriate, but there still must be an analysis of the
particular facts at hand. See Kos Pharms., Inc., 369 F.3d at 732
n.28. If the District Court decides to again grant a preliminary
injunction on remand in this case, it should consider anew the
appropriate bond amount.
III. CONCLUSION
For the foregoing reasons, we will vacate the
preliminary injunction and remand for further proceedings.
enormous gap between the Defendants’ bond proposal and
bond amounts in other cases means that what the Defendants
proposed was unreasonable.
58