Case Study

Court injunctions – successful or not?

We are often asked to bring or defend a court injunction.  Not all cases will be successful in court.  Others stand a good chance of resolution outside of court to avoid litigation.  To help you gauge how the courts look at matters we have summarised some common scenarios involving court injunctions.

Example 1 – Good chance of securing an injunction to restrict activities – misuse of intellectual property

An employment agreement includes provisions designed to protect intellectual property. The contract creates a restriction the use of around all intellectual property created during the course of the employee’s engagement by providing that such work vests in the employing company. The employer terminates the employee’s employment, and on day 2, the employee launches a new software model created outside working hours.

Likely outcome to court injunction application

  • It is likely that an injunction restraining activities and ordering the return of intellectual property would be achieved.
  • The company does not know what monetary value the intellectual property has so damages are not appropriate.
  • To avoid going to a full hearing the employee could offer an undertaking not to use the software.

Example 2 – Good chance of securing restraining injunctions – unfair competition

The restrictions apply whilst the individual is a shareholder, and for two years thereafter under the shareholders’ agreement. The shareholder disposes of his shares, and then takes customers and trade secrets.   Here, it is difficult to quantify the monetary loss. But, there is a  shareholders’ agreement which includes restrictive covenants. Those restrictive covenants prevent shareholders stealing trade secrets and customers.

Likely outcome to court injunction application

  • Since the loss cannot be readily quantified, the court would likely award the injunction. The injunction would compel the shareholder to cease the infringing behaviour. Damage to reputation is worth stressing.
  • As the restriction is set out under the shareholders agreement which is a commercial agreement the two year period is likely to be considered reasonable.  Restrictions in commercial agreements will be enforceable for longer and more encompassing than those under an employment agreement.
  • There would be a damages claim dealt with at a second hearing where the company would have to show the past revenues from such clients; and estimate future expected revenues from such clients.

Example 3 – case that could go either way – damage to property

The owner of a high value software company outsources development work. The work is completed, and is not up to standard. The software has malfunction issues and does not operate as intended. The owner of the company had intended to licence the software for a fixed fee. As a result, licensees will not accept the software for the fixed fee suggested. A reduced fee is agreed. The software company could apply for a mandatory injunction forcing the developer to remedy the defects. However, the developer could compensate the company for the reduced licence fee.

Likely outcome to an application for a court injunction

  • Damages could be appropriate, but it would depend on the company’s use of the software. If it had a material affect on the company’s future performance, then an injunction to force the developer to remedy the defects could be awarded. A case analysis would provide the full picture.
  • This is an example of where the parties will be better off in trying to negotiate a settlement agreement.

Alex Kleanthous

A highly experienced, tactically astute yet practical litigation lawyer, Alex has 30 years experience in resolving disputes.

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