In a decision rendered by the North Carolina Business Court in November 2009, Judge Diaz denied a motion for a preliminary injunction filed by plaintiff Napco, Inc. (”Napco”) in connection with a sports memorabilia manufacturing process that it alleged was a trade secret. NAPCO, Inc. v. PBM Graphics, Inc., 09 CCVS 157. While the Court’s order is short on detail, briefs submitted by the parties provide some helpful insight into the Court’s decision. The briefs also help highlight one conclusion to be drawn from the order: irreparable harm may not necessarily exist in a trade secret case.

In that case, it was alleged that Napco developed for PBM Graphics (”PBM”) a manufacturing process for sports memorabilia cards which PBM intended to use in supplying cards to a third-party customer, The Upper Deck Company. The “memorabilia cards” were allegedly different than other sports cards as they would have imbedded in them a swatch of a jersey or a sliver of a broken bat. Napco alleged that it created this process for PBM as a subcontractor, with the assurance that large orders would be placed for these cards as long as a satisfactory product could be produced. Napco further alleged that PBM, having gained access to the process, then misappropriated it for supplying cards to the Upper Deck Company. Napco asserted claims of trade secret misappropriation and unfair competition under North Carolina’s statutes and moved for a preliminary injunction. Interestingly, Napco did not allege that it had formed any contract with PBM or that PBM breached any obligation of confidentiality owed to Napco.

PBM had a different take on the situation, challenging virtually every aspect of the plaintiff’s claims in opposing the motion. Two arguments, however, bear noting. First, PBM argued that Napco’s claim was deficient because Napco “shared its alleged trade secrets without negotiating any obligation on the part of PBM to maintain the secrecy of these purported secrets.” Rather, Napco, according to the Defendant, provided PBM “all its purported trade secrets in the hopes of getting future work from PBM.” Second, PBM argued that Napco understood fully that it was hired to develop the process for both Napco and PBM and if successful, Napco would be awarded substantial work by PBM. “NAPCO’s reward for success was solely monetary” and therefore, plaintiff could not show irreparable harm for an injunction to be granted.

In denying the motion, the Business Court found many failings with the plaintiff’s argument. First, the Court noted was that there was substantial evidence presented that the claimed trade secret, the Napco process for manufacturing the sports memorabilia, did not work. Of course, one requirement of a trade secret in North Carolina is that the alleged secret have actual or potential commercial value. The Court found the evidence wanting in this respect, which obviously posed a hurdle for a preliminary injunction. The Court also found that evidence presented demonstrated that the alleged secret incorporated technology that was widely known and used in the printing industry. Again, this undermined the claim that the alleged secret had actual or potential commercial value from not being generally known or readily ascertainable through independent development.

Of significance here, the Court found that the Plaintiff had failed to show it had taken reasonable efforts to protect its alleged secrets, a fundamental element of any trade secret claim. The Court noted that the parties never negotiated a confidentiality agreement to protect the information or prevent its use by PBM. While Napco relied heavily on logs signed by PBM employees when visiting Napco’s facility as evidence of some agreement not to disclose confidential information, the Court found the language of the log too vague: visitors “may” be exposed to confidential or proprietary information of Napco.

Finally, while finding the Plaintiff had failed to show a likelihood of success on the merits, the Court also found a separate ground to deny the motion for an injunction: the lack of irreparable harm. Noting that the Plaintiff made no claim that PBM took the alleged secret for any other purpose, the Court found that any damage could be addressed through monetary damages, as the Plaintiff had alleged that it had been promised to be awarded a contract to produce the cards for the Upper Deck Company. The Court reasoned “it should be relatively simple for Plaintiff to calculate its damages, which will be measured either by Plaintiff’s lost profits or the extent of Defendant’s unjust enrichment resulting from the alleged violation of the NCTSPA. Accordingly, because Plaintiff has an adequate remedy at law, the Court declines to grant preliminary injunctive relief.” Had the Plaintiff alleged some greater harm — such as the Defendant disclosing the trade secret to others, destroying its value, or using it with other customers — perhaps the Court would have come to a different conclusion on this point.

The Napco decision is interesting in that cases involving motions for preliminary injunctions to protect trade secrets typically do not turn on the irreparable harm component. Here, the Court found that fatal to the motion. But the Napco case also serves as a reminder of the need to take appropriate precautionary steps, through contract or otherwise, to protect the information claimed to be a trade secret. Without such steps, significant hurdles exist to convincing any court that injunctive relief is warranted.