Entertainment, Inc., 60 F.3d 27, 39 (2d Cir. 1995), an unjustified delay could, "standing alone," serve as a basis for denying a preliminary injunction, because such delay is patently inconsistent with the type of "urgency" that granting such relief is intended to address. Tough Traveler, 60 F.3d at 968.
This is not a case where decades, years, or even many months passed before plaintiff sought to enjoin the alleged infringement. See, e.g., Tough Traveler, 60 F.3d 964 (delay of thirteen months between time of discovery of alleged infringement and filing of motion for preliminary injunction rebutted presumption of irreparable harm); Marcy Playground, Inc. v. Capitol Records, Inc., 6 F. Supp.2d 277, 281-82 (S.D.N.Y. 1998) (delay of fifteen months between discovery of alleged infringement and moving for preliminary injunction rebutted presumption of irreparable harm); Brockmeyer v. The Hearst Corp., available at 2002 WL 1402320, at *4 (S.D.N.Y. June 27, 2002) (allowing presumption of irreparable harm to be rebutted by showing that plaintiff waited over sixteen months between the time of discovery of the alleged infringement and filing for preliminary injunctive relief); see also Patsy's Brand, Inc. v. I.O.B. Realty, Inc., ___ F.3d ___, available at 2003 WL 124876, at *5 (2d Cir. Jan. 16, 2003) ("Where, as here, the senior user has tolerated for decades the junior user's competition in the same market with a name similar to that of the senior user, the justification for preserving for the senior user use of a dominant component of its name in a related field vanishes entirely").
Instead, assuming that plaintiff became aware of the alleged infringement in August, contemporaneous with the sending of the cease and desist letter to defendants, or shortly before, only approximately four months passed between the time plaintiff discovered the alleged infringement and the time it moved for preliminary injunctive relief. In addition, at least some of that time — the time spent waiting for a reply to its cease and desist letter — would count towards a good faith effort on plaintiff's part to resolve the matter informally and avoid litigation. At least some of the subsequent time could be attributed to reinvestigating the matter to see if a violation still existed after defendants removed the bullet logo but kept their acronym. In short, the few months that passed between the discovery of the alleged infringement and the filing of the motion for a preliminary injunction do not justify usurping the finding of likelihood of confusion or irreparable harm.
B. TRADE SECRET THEFT/MISAPPROPRIATION
As noted, some of plaintiff's causes of action are dependent upon proof that defendant Corlew stole and/or misappropriated certain of plaintiff's "trade secrets" — namely, its product design specifications and its prospective and current customer databases.*fn8 As is the case when the substantive merits of trademark infringement are proven, a showing of misappropriation of trade secrets can give rise to a presumption of irreparable harm. See, e.g., Tradescape.com v. Shivaram, 77 F. Supp.2d 408, 410-11 (S.D.N.Y. 1999); see also FMC Corp. v. Taiwan Tainan Giant Indus. Co., Ltd., 730 F.2d 61, 63 (2d Cir. 1984) ("A trade secret, once lost is, of course, lost forever," and "it is clear that the loss of trade secrets cannot be measured in money damages"). Because, however, plaintiff cannot establish at this stage of the proceedings that its design specifications and customer databases are entitled to trade secret protection — a likelihood of success on the merits — or, alternatively, that even if there are sufficiently serious questions going to the merits, that the balance of hardships tip in its favor, the defendants cannot be enjoined from developing, marketing and selling their products pending trial.
1. Likelihood of success on the merits
To establish misappropriation of a trade secret, a plaintiff must prove: 1) that "it possessed a trade secret; and 2) that defendants are using that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means." Integrated Cash Management Services, Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990); see also Carpetmaster of Latham v. DuPont Flooring Systems, 12 F. Supp.2d 257, 261 (N.D.N.Y. 1998).
A threshold, and, in this case, ultimately dispositive, question that must be determined is whether the design specifications and current and prospective customer databases are entitled to trade secret protection at this stage of the litigation. Under New York law, which defines the contour of trade secret law in this case, a trade secret may consist of "`any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it'." Softel, Inc. v. Dragon Med. and Scientific Communications, Inc., 118 F.3d 955, 968 (2d Cir. 1997) (quoting Restatement of Torts, § 757, comment b, at 5 (1939)).
In determining whether something fits this definition, the following six factors are generally considered: 1) the extent to which the information is known outside plaintiff's business; 2) the extent to which it is known by employees and others involved in plaintiff's business; 3) the extent of measures taken by plaintiff to guard the secrecy of the information; 4) the value of the information to plaintiff and its competitors; 5) the amount of money and effort expended by plaintiff in developing the information; and 6) the ease/difficulty with which the information could be properly acquired or duplicated by others. See Hudson Hotels Corp. v. Choice Hotels Int'l., 995 F.2d 1173, 1176 n. 1 (2d Cir. 1993), abrogated on other grounds, Nadel v. Play-by-Play Toys & Novelties, Inc., 208 F.3d 368 (2d Cir. 2000); Ashland Management Inc. v. Janien, 82 N.Y.2d 395, 407, 604 N.Y.S.2d 912 (1993).
Of primary overall importance is whether the information was secret. See Lehman v. Dow, Jones, & Co., Inc., 783 F.2d 285, 298 (2d Cir. 1986). Indeed, "[f]our of the six factors concern secrecy," and "the primary consideration in determining secrecy is whether the information is easily ascertainable by the public." LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp.2d 492, 498-99 (S.D.N.Y. 2002); see also A.F.A. Tours v. Whitchurch, 937 F.2d 82, 89 (2d Cir. 1991); Defiance Button Machine Co. v. C & C Metal Products Corp., 759 F.2d 1053, 1063 (2d Cir.), cert. denied, 474 U.S. 844, 106 S.Ct. 131, 88 L.Ed.2d 108 (1985). While it is admitted that plaintiff may have taken some efforts to guard the secrecy of its information, and that Corlew signed a confidentiality agreement agreeing not to disclose trade secrets and/or customer information,*fn9 the secrecy determination, encompassing most of the above factors, weighs heavily in defendants' favor at this stage of the litigation on both alleged trade secrets, and trade secret protection is therefore unavailable.
a. customer databases
Plaintiff alleges its current and prospective customer databases are trade secrets. The question of whether a customer list is a trade secret is generally a question of fact. North Atlantic Instruments, Inc. v. Haber, 188 F.3d 38, 44 (2d Cir. 1999); A.F.A. Tours, 937 F.2d at 89. "A customer list developed by a business through substantial effort and kept in confidence may be treated as a trade secret and protected at the owner's instance against disclosure to a competitor, provided the information it contains is not otherwise readily ascertainable." North Atlantic, 188 F.3d at 44 (citations omitted); Leo Silfen, Inc. v. Cream, 29 N.Y.2d 387, 392, 328 N.Y.S.2d 423 (1973).
Plaintiff's databases contain, among other things, contact information — including names and addresses — for companies in the papermaking industry. At the very least, plaintiff has failed to prove that this general contact information is not readily ascertainable through outside sources, like the internet or telephone book, or directories of papermaking companies, like the one shown by defendants at oral argument. Plaintiff contends, however, that with respect to the prospective customer database, the specific names of individuals key to the purchasing chain of command at these companies could not be so readily ascertained.
This argument is ill-advised. Since the general contact information is readily ascertainable through other sources, and thus properly usable, follow-up questions to the company in general would reveal the specific names, e-mail addresses, or phone numbers of individuals involved in the purchasing process for those companies. See Inflight Newspapers, Inc. v. Magazines In-Flight, LLC, 990 F. Supp. 119, 129 (E.D.N.Y. 1997) ("It was sufficiently established that the identity of magazine publishers and airline in-flight personnel could be easily ascertained through the use of trade directories, telephone books, the Internet, trade shows, and the magazines themselves. If these sources did not directly reveal the proper contacts, further inquiry therein would") (emphasis added).
Also contained in these databases, or at least the one dealing with plaintiff's current customers, is information on certain individual companies' purchasing histories. While contact information may be readily ascertainable through other sources, things such as purchasing histories or customer preferences may not. See North Atlantic, 188 F.3d at 46; Inflight Newspapers, 990 F. Supp. at 127. This information, however, is subject to the same logic employed above. The general contact information, at the very least, is readily ascertainable through other sources. Using other sources to obtain the general contact information, he or other agents of defendants may have simply asked the customers about their preferences. See Tactica Int'l., Inc. v. Atlantic Horizon Int'l., Inc., 154 F. Supp.2d 586, 607 (S.D.N.Y. 2001) ("Information concerning the preferences of [plaintiff's] customers could easily be recalled by [defendants], or obtained by contacting the customers directly");*fn10 Ivy Mar Co., Inc. v. C.R. Seasons Ltd., 907 F. Supp. 547, 558 (E.D.N.Y. 1995) (same, collecting cases). Defendants have alleged this, and the burden is on plaintiff to provide sufficient proof that this is not what occurred. Plaintiff has not done so.
If plaintiff had shown that this information was cultivated through great effort, time, and expense, like the plaintiff apparently did in North Atlantic with respect to specific customer contact information, the conclusion may not be so easily drawn. In this regard, plaintiff points only to the fact that the prospective customer database costs a great deal to buy/implement and maintain. The fact that the database itself, as a whole, costs a lot of money to maintain, implement, or buy is not enough. Noting the conclusion that the general contact information at this stage of litigation is not entitled to trade secret protection, the concern here is whether the specific contact information and/or purchasing histories are expensive to maintain.
Plaintiff does not sufficiently prove that maintaining those specific contact names, together with e-mail addresses and/or phone numbers, cost a great deal of money and, in any event, it is difficult to see how it alone would. Thus, the customer databases, at this stage of the litigation, have not been sufficiently proven to be entitled to trade secret protection.
b. design specifications
Secrecy again takes center stage and is dispositve when determining whether plaintiff's product design specifications are entitled to trade secret protection for the purposes of obtaining preliminary injunctive relief. If secrecy is lost when a product is placed on the market, there is no trade secret protection. See LinkCo, 230 F. Supp.2d at 498-99 (collecting cases). The primary issue with respect to this alleged trade secret is whether plaintiff's products could be reverse engineered in the time span between Corlew's hiring at Seeley and defendants' marketing and putting out their products for sale.*fn11 As will be shown, infra, the parties disagree about every material fact that goes toward resolving this debate. "Trade secret law . . . does not offer protection against discovery by . . . so-called reverse engineering[.]" Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974). However, "the term `reverse engineering' is not a talisman that may immunize the theft of trade secrets." Telerate Systems, Inc. v. Caro, 689 F. Supp. 221, 233 (S.D.N.Y. 1988). The relevant inquiry is whether the means to obtain the alleged trade secret were proper or "honest," as opposed to being obtained by virtue of a confidential relationship with an employer. See Franke v. Wiltschek, 209 F.2d 493, 495 (2d Cir. 1953); Telerate, 689 F. Supp. at 233. Reverse engineering a product to determine its design specifications is therefore permissible so long as the means used to get the information necessary to reverse engineer is in the public domain, and not through the confidential relationship established with the maker or owner of the product.
One court, not satisfied with this distinction, has held that even where a product is out in the public domain, and was thus subject to being reverse engineered by a purchaser, trade secret status remains intact because the defendant's former employment with the plaintiff was the only basis for the defendants being "able to select particular items from a vast sea of public information." See Monovis, Inc. v. Aquino, 905 F. Supp. 1205, 1228 (W.D.N.Y. 1994).
This view of the law would effectively eviscerate any benefit reverse engineering would provide in the preliminary injunction analysis as applied to trade secrets, forestall healthy notions of commercial competitiveness, and heavily contribute to an inert marketplace where products can only be developed and sold under an impenetrable cloak of originality. It is therefore rejected.
Plaintiff has presented no evidence that the means used by defendants to obtain the alleged trade secret were improper or dishonest. In short, it has no evidence Corlew actually stole the design specifications. It instead necessarily relies upon an inference — that the only way defendants could develop, market, and sell their products in so short of time is if Corlew stole the design specification information — that is, as far as the evidence to this point shows, is unjustified. Plaintiff does not seem to argue that reverse engineering is impossible, just that it would take a great deal of time, skill, and expense, and that the lack thereof demonstrates that the design specifications must have been stolen. Defendants have argued that the plaintiff's products were simple, consisting of non-technical and few parts, that reverse engineering would take little time, and that, in any event, they only reverse engineered a small fraction, not all, of plaintiff's products. Plaintiff has not sufficiently rebutted these contentions. Thus, because plaintiff has failed to make a clear showing that defendants improperly obtained and reverse engineered its products, trade secret protection at this stage of the ligitation is improper. See, e.g., Bridge C.A.T. Scan Associates v. Technicare Corp., 710 F.2d 940, 946-47 (2d Cir. 1983) (lack of evidence that means to receive information that plaintiff claimed was trade secret were improper mandated denying preliminary injunctive relief).
2. Balance of hardships
Even if it could be said that plaintiff has demonstrated sufficiently serious questions going to the merits of its claims, it is clear plaintiff cannot likewise demonstrate that the balance of hardships tips in its favor. Plaintiff again offers only conclusory assertions that its business and reputation will suffer if defendants are allowed to sell their products, and that defendants are reaping profits from plaintiff's own research and economic expenditures. Plaintiff reports yearly sales easily in excess of $100 million, and trumpets itself as a long-time industry leader with well-established customer relationships. No sufficient proof has been submitted that plaintiff will bear a substantial economic loss or lose face in the industry. In addition, while injunctive relief may be appropriate in situations where damage to business goodwill or reputation is shown, it is less so if only a portion of business is disrupted, as opposed to the entire destruction of plaintiff's business. Plaintiff here has not complained that defendants are selling every type of product it produces. The credible evidence is mostly directed toward nozzles, which is only one of the three types of products plaintiff claims to develop and sell. Also, plaintiff's second contention — that defendants are reaping profits from work they did not perform — necessarily assumes a question of fact, to wit, that defendants are improperly using trade secrets of plaintiff.
On the other hand, the harm to defendants if injunctive relief is granted demonstrates that the balance of hardships tip in their favor. Defendants are a smaller company, with fewer customers and a lesser reputation. A preliminary injunction disallowing the marketing and sale of products would effectively shut down defendant APS, an entire division of defendant Seeley. This factor alone may outweigh any real or alleged hardship to plaintiff. See Random House, Inc. v. Rosetta Books LLC, 283 F.3d 490, 492 (2d Cir. 2002); Voicestream Wireless Corp. v. All U.S. Communications, 149 F. Supp.2d 29, 38 (S.D.N.Y. 2001); see also TCPIP Holding, 244 F.3d at 102-03 ("A preliminary injunction can have drastic consequences — potentially putting a party out of business prior to a trial on the merits"). In any event, plaintiff's harm, which, again, is merely prospective as opposed to the more concrete harm that defendants would suffer, would be at least somewhat remedied by money damages if it were to prevail on the merits at trial. Random House, 283 F.3d at 492.
C. BREACH OF CONTRACT/FIDUCIARY DUTY
Plaintiff's fifth and sixth causes of action are for breach of contract and breach of fiduciary duty. Corlew signed a confidentiality agreement in which he agreed "not to disclose to others or use [to his] own benefit during [his] employment by [plaintiff] or thereafter any trade secrets or private information [of plaintiff] pertaining to any of the actual or anticipated business of [plaintiff] or any of its customers . . ." See Aff. of Jeffrey Bachand, Docket No. 2, Exh. I (emphasis added); accord ABKCO Music Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 994 (2d Cir. 1983). As noted, supra notes 2 and 8, these causes of actions can lie even in the absence of the customer databases and design specifications being entitled to trade secret protection. Plaintiff signed the confidentiality agreement, so if he disclosed to others or used to his own benefit "private information" — which, for the purposes of this motion, are the design specifications and customer databases — he is in breach of both his contract and his fiduciary duty to plaintiff.
However, in the absence of trade secret protection, plaintiff must show that its information was actually stolen or misappropriated or otherwise actually obtained by improper means, i.e., that a breach occurred. See Leo Silfen, 29 N.Y.2d at 391.*fn12 Plaintiff clearly has not demonstrated such concrete evidence. It can rely instead only on inferences and assumptions that flaunt the clear showing required for the granting of preliminary injunctive relief. "Defendants naturally deny that they stole or removed any materials from plaintiff's offices. Although discovery may reveal concrete evidence that such misconduct occurred, plaintiff's bare allegations, without more, are insufficient for the issuance of a preliminary injunction." See Ivy Mar, 907 F. Supp. at 561 (citing Hancock v. Essential Resources, Inc., 792 F. Supp. 924, 928 (E.D.N.Y. 1992) ("Preliminary injunctive relief cannot rest on mere hypotheticals" concerning a former employee's misconduct")). As such, preliminary injunctive relief on the basis of plaintiff's breach of contract and fiduciary duty claims is unwarranted.
D. ENJOINMENT OF COMPUTER DATA DESTRUCTION
Plaintiff has also asked that defendants be enjoined from destroying or erasing any stored computer information that may tend to demonstrate that defendants are in possession of plaintiff's trade secrets. This request, given the factual issues that exist as to plaintiff's claims, is reasonable and is granted. Defendants have offered no overt objection to this request, as well they should not, if indeed they are not improperly in possession of such information.
Plaintiff has shown a likelihood of confusion with respect to its trademark claim, and claims dependent thereon, which also serves to demonstrate irreparable harm and a likelihood of success on the merits. Plaintiff is entitled to a preliminary injunction with regards to its trademark claims. Plaintiff is also entitled to a preliminary injunction enjoining defendants from destroying any computer-stored information concerning its design specifications or otherwise relating to plaintiff's claims against them. Plaintiff has not, however, shown a likelihood of success on the merits of its trade secrets claim, or on its breach of contract or fiduciary duty claims, or that the balance of hardships tip in its favor even if it is assumed that sufficiently serious questions to the merits have been demonstrated. Thus, plaintiff is not entitled to a preliminary injunction enjoining defendants from operating in general and developing, selling, and/or marketing their products specifically.
Accordingly, it is
1. Plaintiff Kadant, Inc.'s motion for a preliminary injunction is GRANTED in part and DENIED in part;
2. Plaintiff is GRANTED a preliminary injunction as to its trademark claims, and all claims dependent thereon, and the defendants are enjoined from using in any way the acronyms "AES," "APS," or any other three-letter acronym with "A" and "S" as the first and last letters, prior to and during a trial in this case;
3. Plaintiff is GRANTED a preliminary injunction as to computer data and the defendants are enjoined from destroying, erasing, or altering any of its computer-stored information that concerns any of plaintiff's claims against them;
4. Plaintiff is DENIED a preliminary injunction as to its theft/misappropriation of trade secrets claims, and all claims dependent thereon, including its breach of contract and fiduciary duty claims, and the defendants are entitled to resume the business of developing, marketing, and selling products to the papermaking and pulp industry; and
5. The $100,000 bond posted on plaintiff's behalf remains in effect during the pendency of this dispute.
IT IS SO ORDERED.