A recent trade secret case involving a “love triangle” between three pharmaceutical companies, Amylin Pharm., Inc. v. Eli Lilly & Co., Case No. 11-CV-1061 JLS (NLS), U.S. Dist. Ct. for the Southern Dist. of California, illustrates the challenge of proving irreparable harm. (Many thanks to the Emergency Business Litigation Blog for writing a fine post on this case and bringing it to my attention).
The facts are straightforward. Amylin and Lilly had created an alliance to develop a drug, exenatide, for the treatment of Type 2 diabetes. Earlier this year, Amylin learned that Lilly had entered into another alliance with a competitor of Amylin’s, Boehringer Ingelheim GmbH, to develop a similar drug. Amylin then sought a TRO to prevent the disclosure of confidential information by Lilly’s sales staff to that competitor.
The district court struggled with the existence of irreparable injury from the beginning. Although the district court granted a TRO (a link to that decision appears below), it avoided any serious analysis of irreparable injury and held that California courts “have presumed irreparable harm when proprietary information is misappropriated.” The district court focused on what it perceived to be a strong showing on the the likelihood of the merits prong necessary for an injunction — namely, that because Lilly’s sales staff had the confidential information, they would inevitably disclose or use that information during the sales process.
After the preliminary injunction hearing and briefing, however, the district court declined to issue an injunction (a link to that opinion also appears below). Citing the Supreme Court’s holding in Winter v. NRDC, 555 U.S. 7 (2008), that a claimant must show that irreparable injury is likely, the district court rejected Amylin’s contention that Lilly’s sales representatives would misuse confidential information as speculative. In particular, it was persuaded by Lilly’s argument that FDA’s regulations prohibited Lilly’s reps from making statements without any adequate supporting data. Notably, Amylin was unable to show that those reps would be willing to risk the wrath of the FDA during the sales process. The court also noted that money damages could compensate Amylin if it were in fact injured.
Had Amylin been able to proffer any direct or compelling circumstantial evidence of misappropriation, the result may have been different. Remarkably, the district court did not address its concerns about inevitable disclosure, concerns that had figured so prominently in its TRO decision. I suspect that the court was uncomfortable relying on that doctrine in the face of FDA regulations that apparently obviated the court’s previous reservations.
The takeaway? Many of us have expected the holdings in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), and Winter would eventually filter down to trade secret cases. A party seeking an injunction has always been expected to come forward with evidence of improper conduct or misappropriation so that a court is comfortable finding irreparable injury. This means thorough investigation, forensic examination of laptops or other devices, or other means of identifying misappropriation is increasingly important. While many courts recognize the importance of circumstantial evidence in trade secret cases, (see Stratienko v. Cordis Corp., 429 F.3d 592 (6th Cir. 2003)), direct evidence of misconduct or misappropriation may now be critical to proving misappropriation and irreparable injury.