Insider Software, Inc. v. ID Designs, Inc.

Background

Insider Software, Inc. sued ID Designs, Inc. and Klajd Deda, asserting federal and state trade-secret misappropriation claims and related claims. The motion addressed in this order was an ex parte motion for a temporary restraining order (TRO), meaning an emergency court order sought before the opposing parties had a full opportunity to respond, and an order requiring defendants to explain why a preliminary injunction should not issue.

According to declarations submitted by Insider, ID Designs and Deda had provided engineering and programming services for Insider’s FontAgent products under a Master Services Agreement. The agreement required defendants to give up rights in work performed for Insider and keep Insider’s intellectual property confidential. Insider had given defendants access to its source code and administrator credentials for the FontAgent CloudServer.

Insider asserted that defendants moved the cloud server without permission, retained copies of source code and other materials, refused to restore Insider’s access, and threatened to disable the server. Insider stated that disabling the server would interrupt customers’ use of its products and prevent Insider from meeting commitments to customers.

Court’s analysis

The court applied the standard for preliminary injunctive relief, which requires consideration of the likelihood of success on the merits, likely irreparable harm without relief, the balance of equities, and the public interest. The court found that Insider had satisfied the requirements for an ex parte TRO and that no security, or bond, was warranted.

The court focused primarily on Insider’s claims under the federal Defend Trade Secrets Act and the California Uniform Trade Secrets Act. It found that the evidence showed defendants had taken control of the FontAgent CloudServer, refused Insider’s access requests, and threatened to disable the server. The court also found likely irreparable harm because deactivation could cause Insider’s products to stop working for existing customers. It concluded that the balance of equities and the public interest favored relief.

The court considered both prohibitory relief, which prevents conduct, and mandatory relief, which requires conduct. It was satisfied that the record supported prohibiting defendants from disabling, deactivating, or destroying the FontAgent CloudServer and from using or disclosing materials developed for Insider. The court also found support for limited mandatory relief requiring defendants to grant Insider access to its intellectual property, based on evidence that Insider owned the server equipment and paid the costs of housing and operating it. The order does not grant all of the broader mandatory relief Insider requested, such as requiring defendants to return all code developed for Insider.

Disposition

The court GRANTED IN PART Insider’s ex parte motion for a TRO. The order states that the full scope of the injunction was set out in a TRO issued at the same time. The court ordered defendants to show cause in writing by September 4, 2020, why Insider’s requested preliminary injunction should not issue. Insider could file a reply by September 9 at 10:00 a.m., and the court set a hearing for September 14 at 10:00 a.m.

The court extended the TRO to remain effective for 28 days, until September 25, 2020, or until the court issued an order on the preliminary-injunction motion, whichever occurred earlier. Judge Beth Labson Freeman signed the order.