Tuesday, November 25, 2008, 11/25/2008 08:09:00 AM

Fourth Circuit Affirms Denial of Trade Secrets Preliminary Injunction

Technology Partners, Inc. v. Hart, No. 08-1651 (4th Cir. Nov. 4, 2008), represents an illustrative example of how preliminary injunction practice works in the Fourth Circuit, particularly as it relates to trade secrets claims.

The fact pattern is a familiar one: the defendant was a former employee of the plaintiff, TPI, a software development company for healthcare providers, especially radiologists. After working his way up from an hourly programmer, the defendant, in early 2008, accepted a VP position with TPI which required him to enter into a non-compete agreement.

Now go back in time about a year, to early 2007. At that time, a company called AMICAS, also a provider of radio software, negotiated to purchase TPI and conducted due diligence on the company. Although it ultimately determined not to acquire TPI, it did acquire certain proprietary TPI software and the defendant was assigned by TPI to work assist on the implementation of the software at AMICAS. In April 2008, he took a job with AMICAS.

Shortly thereafter, TPI sought a preliminary injunction in North Carolina state court claiming violations of the non-compete and the trade secrets statute. After removal to the United States District Court for the Western District of North Carolina, the motion was denied and TPI appealed to the Fourth Circuit.

The Fourth Circuit reaffirmed the primacy of its seminal preliminary injunction decision, Blackwelder Furniture Co. of Statesville, Inc. v. Seilig Mfg. Co., 550 F.2d 189 (4th Cir. 1977). Under Blackwelder, the court considers three steps: first, the balancing of the likelihood of irreparable harm to the plaintiff and defendant if the injunction is denied or granted; second, whether grave or serious questions are presented; and third, the public interest.

In denying the preliminary injunction with respect to the trade secrets claim, the court found that TPI could not get over the first step because its agreement with the new employer, AMICAS, required the transfer of "substantial chunks" of the alleged trade secrets in any event. In other words, AMICAS had either learned of the trade secrets in connection with the acquisition of the software or was entitled to them in the context of the acquisition agreement.

Thus, the Fourth Circuit upheld the denial of the preliminary injunction.

Full disclosure: our firm represented the departing employee who prevailed on appeal.

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