Injunction bonds are necessary for some litigation proceedings. Simply put, an injunction is an order from a court requiring a party to do, or not do, a particular activity. The injunction bond protects the restrained party from damages in the event the court later determines the injunction was improper.
Injunction bonds often arise in intellectual property cases as well as employment and real estate cases. In intellectual property cases, a Plaintiff often accuses a Defendant of infringement and would like to stop any of the Defendant’s actions involving the disputed intellectual property. The injunction bond protects the Defendant if the court later determines the Plaintiff’s accusations were baseless or the Defendant was improperly suspended. Lawyers on both sides try to convince the judge of setting a bond amount most beneficial to their client. Thus, Plaintiffs will request a low bond amount and Defendants will request a high bond amount. Ultimately, however, the judge decides the bond amount.
The term injunction bond usually refers to a preliminary injunction bond. The bonded injunction only lasts until the litigation has finally ended. When the litigation ends, the judge has decided either to make the injunction permanent, honor a settlement, or award damages (in the amount of the bond) to the Defendants. The judge’s order should cancel the preliminary injunction bond.
Similar to preliminary injunction bonds are temporary restraining order (TRO) bonds. The main difference between the two is the length of time the bond is expected to last for. Preliminary injunction bonds are expected to last longer, and indeed some TRO bonds eventually turn into preliminary injunction bonds.
Because of the unpredictable nature of litigation, even client’s with the best legal representation may need to post collateral with the surety. A surety underwriter will evaluate the principal’s ability to meet the financial obligation in the event the judge finally determines the principal did not have title to the injunction.