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.
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).
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 agents as well as the equipment used to apply such agents.
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 different release agents, including its "Vegalube Super P"
Along with its release agent "formulas and [the] processes used to make them[,]" Mallet considers the following information to be its "confidential, proprietary, trade secret information":
(J.A. at 1638 (Mallet's Proposed Findings of Fact), 1937-38 (Topercer
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[.]"
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, 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."
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 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
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.
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
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. Bundy
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 together to use as "a data collection form" that
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 (Price
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,
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
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 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.
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 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
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 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.
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 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:
(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 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.)
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):
It also prohibited Lacayo and Bowers from engaging in the following activities:
The injunction order did not elaborate on what information constitutes trade secrets.
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 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
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 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, 94 S.Ct. 713, 38 L.Ed.2d 661 (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, 94 S.Ct. 713. Failure to "satisfy the important requirements of Rule 65(d)" will typically result in an injunction's vacatur. Id. at 477, 94 S.Ct. 713; 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
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 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
The Defend Trade Secrets Act ("DTSA")
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
(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.'"
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. 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
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.
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 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.
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, 426 Pa. 188, 231 A.2d 292, 294 (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 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.
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,
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)).
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.
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 occurred.
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, 94 S.Ct. 713.
"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, 94 S.Ct. 713. A complication here is, of course, the need to maintain the secrecy of the plaintiff's trade secrets.
The description of the conduct enjoined should be narrowly tailored to reach only those acts that closely relate to the unlawful conduct giving rise to an entitlement to injunctive relief.
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.
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
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 non-competition 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.
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 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
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.
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 Project, ___ U.S. ___, 137 S.Ct. 2080, 2087, 198 L.Ed.2d 643 (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.
For the foregoing reasons, we will vacate the preliminary injunction and remand for further proceedings.
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)).
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 case 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 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.