American Can Company v. Mansukhani

Court of Appeals for the Seventh Circuit
742 F.2d 314 (1984)

ELI5:

Rule of Law:

An injunction in a trade secret case must be specific enough under Federal Rule of Civil Procedure 65(d) to provide fair notice of the prohibited conduct and cannot be so broad as to enjoin the use of public information or an employee's general skills, especially when the trade secret itself is narrowly defined. Furthermore, an ex parte temporary restraining order is improper unless notice would render the action fruitless and the order itself states why it was granted without notice per FRCP 65(b).

Facts:

In 1976, American Can's predecessor hired Ishwar Mansukhani, an experienced ink chemist, who signed an agreement not to use its trade secrets.
Mansukhani developed numerous commercial jet inks for American Can's predecessors, including the '400 Series' inks.
In October 1980, American Can reacquired the jet ink business and offered Mansukhani a job, which he declined.
In December 1980, Mansukhani and his wife, Ruth Brand, started their own commercial jet ink business.
They began selling jet inks to American Can's customers at lower prices, which were later found to be 'precisely identical' to American Can's 400 Series inks.
After a permanent injunction was issued against them, Mansukhani and Brand developed and began selling new inks, SK-2914 and SK-2916, which were compositionally similar but not identical to the 400 Series inks.

Procedural Posture:

American Can Company sued Ishwar Mansukhani and his company in the U.S. District Court for the Eastern District of Wisconsin for trade secret misappropriation.
After a trial, the district court found for American Can and entered a permanent injunction on June 18, 1982, prohibiting defendants from selling the specific inks developed while Mansukhani worked for American Can.
Defendants appealed the permanent injunction, which the U.S. Court of Appeals for the Seventh Circuit affirmed.
On July 20, 1983, American Can filed a motion for an ex parte temporary restraining order (TRO), alleging defendants were violating the injunction.
On July 26, 1983, the district court granted the ex parte TRO.
On August 16, 1983, after a hearing, the district court granted a preliminary injunction, which expanded the prior injunction to specifically prohibit the sale of defendants' new inks, SK-2914 and SK-2916.
Defendants (appellants) appealed the district court's grant of the preliminary injunction to the U.S. Court of Appeals for the Seventh Circuit, with American Can as appellee.

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Issue:

Does a preliminary injunction that prohibits the sale of products that are 'functionally similar' to a competitor's narrowly defined trade secrets violate the specificity requirements of Federal Rule of Civil Procedure 65(d) when much of the underlying formula consists of public information?

Opinions:

Majority - Cudahy, Circuit Judge

Yes, such a preliminary injunction violates the specificity requirements of Rule 65(d). An injunction based on a 'functional similarity' standard is too vague and overbroad when the underlying trade secret is narrowly defined and the defendant is entitled to use public information and his own expertise to compete. The court found that the district court abused its discretion by applying an incorrect legal standard to determine the plaintiff's likelihood of success on the merits. American Can's trade secret was limited to the precise proportions of ingredients in its 400 Series inks, not the ingredients themselves, which were in the public domain via patent disclosures. By enjoining inks that were merely 'functionally similar,' the district court improperly extended protection beyond the narrow scope of the secret and failed to distinguish between products derived from the secret and those developed from public information and Mansukhani's own skill. This created an injunction so vague that the defendants could not fairly determine what conduct was prohibited, forcing them to risk contempt to test the legality of any new formula. The court also held that the preceding ex parte temporary restraining order was wrongfully issued because there was no valid reason for proceeding without notice and the order failed to comply with the facial requirements of FRCP 65(b).

Analysis:

This case establishes a critical limit on the scope of injunctive relief in trade secret law, emphasizing the balance between protecting proprietary information and permitting legitimate competition. It clarifies that when a trade secret is narrow (e.g., a precise formula, not its components), an injunction cannot broadly prohibit 'similar' products, as this would stifle innovation and an employee's right to use their general knowledge. The decision mandates that injunctions be highly specific, forcing courts to clearly define the prohibited conduct rather than using vague standards like 'functional similarity.' This precedent requires plaintiffs to prove that a new product was 'substantially derived' from the secret, not just that it performs similarly, thereby protecting former employees' ability to compete fairly using public domain knowledge.

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