Sunday, March 10, 2013

Procedure for Obtaining Electronic Data During a Lawsuit

How does one obtain electronic data during the course of a lawsuit in Texas?

In many cases today, electronic data is critically important.  In most of these cases, each side will want to request electronic data and must also be prepared to provide electronic data that is requested by the opposing party.  The primary rule of civil procedure governing the discovery of "information that exists in electronic or magnetic form" is Tex. R. Civ. P. 196.4, which dictates that "the requesting party must specifically request production of electronic or magnetic data and specify the form in which the requesting party wants it produced."

The Texas Supreme Court has laid out the following steps the parties should follow under Rule 196.4:

1.    Prior to promulgating requests for electronic information, parties and their attorneys should share relevant information concerning electronic systems and storage methodologies so that agreements regarding protocols maybe reached or, if not, trial courts have the information necessary to craft discovery orders that are not unduly intrusive or overly burdensome.

2.  The party seeking to discover electronic information must make a specific request for that information and specify the form of production.  (The request is reasonably specific if the responding party understands the scope of the request before the trial court intervenes.  See In re Weekley Homes, L.P., 295 S.W.3d 309, 314-15 (Tex. 2009)).

3.    The responding party must then produce any electronic information that is "responsive to the request and . . . reasonably available to the responding party in its ordinary course of business."

4.    If "the responding party cannot -- through reasonable efforts -- retrieve the data or information requested or produce it in the form requested," the responding party must object on those grounds.

5.    The parties should make reasonable efforts to resolve the dispute without court intervention.

6.    If the parties are unable to resolve the dispute, either party may request a hearing on the objection at which the responding party must demonstrate that the requested information is not reasonably available because of undue burden or cost.

7.    If the trial court determines the requested information is not reasonably available, the court may nevertheless order production upon a showing by the requesting party that the benefits of production outweigh the burdens imposed, again subject to Rule 192.4's discovery limitations.

8.    If the benefits are shown to outweigh the burdens of production and the trial court orders production of information that is not reasonably available, sensitive information should be protected and the least intrusive means should be employed.  See Tex. R. Civ. P. 192.6(b).  The requesting party must also pay the reasonable expenses of any extraordinary steps required to retrieve and produce the information.  See Tex. R. Civ. P. 196.4.

9.    Finally, when determining the means by which the sources should be searched and information produced, direct access to another party's electronic storage devices is discouraged, and courts should be extremely cautious to guard against undue intrusion.

See In re Weekley Homes, L.P., 295 S.W.3d 309, 322 (Tex. 2009).

Proof Needed for a Temporary Injunction in a Federal Court in Texas

What must be proved to obtain a temporary injunction in a Texas federal court?

A preliminary injunction is an extraordinary remedy that should only issue if the movant establishes:  (1) a substantial likelihood of success on the merits, (2) a substantial threat of irreparable injury if the injunction is not issued, (3) that the threatened injury if the injunction is denied outweighs any harm that will result if the injunction is granted, and (4) that the grant of an injunction will not disserve the public interest.  A district court’s decision whether to grant or deny a preliminary injunction is reviewed only for abuse of discretion; however, a decision grounded in erroneous legal principles is reviewed de novo.  When a preliminary injunction turns on a mixed question of law and fact, it is reviewed de novo.   Byrum v. Landreth, 566 F.3d 442, 445 (5th Cir. 2009).

Purpose & Proof for Temporary Injunctions in Texas

What is the purpose of a temporary injunction, and what must be proved to obtain a temporary injunction in Texas?

“A temporary injunction's purpose is to preserve the status quo of the litigation's subject matter pending a trial on the merits.  A temporary injunction is an extraordinary remedy and does not issue as a matter of right.  To obtain a temporary injunction, the applicant must plead and prove three specific elements: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim.  An injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard.  Whether to grant or deny a temporary injunction is within the trial court's sound discretion.  A reviewing court should reverse an order granting injunctive relief only if the trial court abused that discretion.  The reviewing court must not substitute its judgment for the trial court's judgment unless the trial court's action was so arbitrary that it exceeded the bounds of reasonable discretion.”  Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002)(citations omitted).

Covenants Not to Compete Must be Reasonable

Unreasonable covenants not to compete are not enforceable.

"Whether a covenant not to compete is an unreasonable restraint of trade is a question of law . . ..  Courts generally disfavor covenants not to compete ‘because of the public policy against restraints of trade and the hardships resulting from interference with a person's means of livelihood.’ Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 658 (Tex. App. – Dallas 1992, no writ).  A covenant not to compete is a restraint of trade and unenforceable as a matter of public policy unless it meets a reasonableness standard.  Covenants not to compete are unreasonable if they are broader than necessary to protect the legitimate interests of the employer."  M-I LLC v. Stelly, 733 F. Supp. 2d 759, 793 (S.D. Tex. 2010)(citations omitted).

Texas's Covenant Not to Compete Statute

Does Texas have a statute that governs the enforcement of agreements not to compete?

The following section from the Texas Business and Commerce Code governs the enforceability of agreements not to compete:
§ 15.50.  Criteria for Enforceability of Covenants Not to Compete

    (a) Notwithstanding Section 15.05 of this code [which generally makes every contract, combination, or conspiracy in restraint of trade or commerce unlawful], and subject to any applicable provision of Subsection (b), a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.

    (b) A covenant not to compete relating to the practice of medicine is enforceable against a person licensed as a physician by the Texas Medical Board if such covenant complies with the following requirements:

        (1) the covenant must:

            (A) not deny the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment;

           (B) provide access to medical records of the physician's patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas Medical Board under Section 159.008, Occupations Code; and

          (C) provide that any access to a list of patients or to patients' medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract;

       (2) the covenant must provide for a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties; and

      (3) the covenant must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.

  (c) Subsection (b) does not apply to a physician's business ownership interest in a licensed hospital or licensed ambulatory surgical center.

Tex. Bus. & Com. Code § 15.50.

Tuesday, March 5, 2013

Theft of Trade Secrets is a Third Degree Felony

Is it a crime to take, copy or transmit someone else’s trade secrets?

The Texas Penal Code specifically addresses this question.  Texas Penal Code section 31.05 (“Theft of Trade Secrets”) defines a trade secret as “the whole or any part of any scientific or technical information, design, process, procedure, formula, or improvement that has value and that the owner has taken measures to prevent from becoming available to persons other than those selected by the owner to have access for limited purposes.”  Section 31.05 further provides in pertinent part that “A person commits an offense if, without the owner's effective consent, he knowingly: (1) steals a trade secret; (2) makes a copy of an article representing a trade secret; or (3) communicates or transmits a trade secret.”  Theft of a trade secret is a third degree felony.  The punishment for a third degree felony is a range of confinement from two to ten years, with the option of a fine not to exceed $10,000.  See Tex. Penal Code § 12.34.

Monday, March 4, 2013

Unfair Competition by Misappropriation

What must a party prove when claiming unfair competition by misappropriation?

A party claiming unfair competition by misappropriation must prove: "(i) the creation of plaintiff's product through extensive time, labor, skill and money, (ii) the defendant's use of that product in competition with the plaintiff, thereby gaining a special advantage in that competition (i.e., a 'free ride') because defendant is burdened with little or none of the expense incurred by the plaintiff, and (iii) commercial damage to the plaintiff."  Dresser-Rand Co. v. Virtual Automation Inc., 361 F.3d 831, 839 (5th Cir. 2004).  Claims for unfair competition by misappropriation are subject to a two-year limitations period.  See Tex. Civ. Prac. & Rem. Code § 16.003 (two-year limitations period for injury to or conversion of the property of another); see also Daboub v. Gibbons, 42 F.3d 285, 290 (5th Cir. 1995). 

Sunday, March 3, 2013

Customer Lists may be Trade Secrets

Is an employer’s list of customers a trade secret?

“Under Texas law, customer lists may be protected as trade secrets.  But a customer list of readily ascertainable names and addresses will not be protected as a trade secret.  Texas courts consider three factors to determine whether a customer list is a trade secret: (1) what steps, if any, an employer has taken to maintain the confidentiality of a customer list; (2) whether a departing employee acknowledges that the customer list is confidential; and (3) whether the content of the list is readily ascertainable.  In considering whether information was readily ascertainable, courts have considered the expense of compiling it.  Other Texas courts focus on the method used to acquire the customer information.  Even if the information is readily available in the industry, it will be protected if the competitor obtained it working for the former employer.”  Alliantgroup, L.P. v. Feingold, 803 F. Supp. 2d 610, 625-26 (S.D. Tex. 2011)(citations omitted); see also Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598, 667 (S.D. Tex. 2010).

Published Patent Applications and Trade Secrets

Can the contents of a published patent application be a trade secret?

“Although no post-2000 Texas case directly addresses whether a published patent application destroys the secrecy of its contents for trade secret purposes, the weight of authority from other jurisdictions holds that it does.  There can be no dispute that a published patent application, like a patent, is readily available – the United States Patent and Trademark Office and Google both allow free online searching of published patent applications.  Under Texas law, information that is generally known or readily available by independent investigation is not secret for purposes of trade secrecy. . . . [T]he decision to seek a patent is an either/or choice: either ‘secure the material rewards for his invention for a limited time’ on condition ‘that he make full disclosure for the benefit of the public of the manner of making and using the invention" or "make no public disclosure of his invention and thereby protect his trade secret.’”  Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 612-13 (5th Cir. 2011)(citations omitted).  “However, Texas law also recognizes that trade secret status may be maintained along with patent protection in situations where the patent does not disclose the exact information or details that a plaintiff contends are trade secrets.”  Wellogix, Inc. v. Accenture, LLP, 823 F. Supp. 2d 555, 563 (S.D. Tex. 2011).

Unique Combinations of Known Components Can be Trade Secrets

Trade secrets can be unique combinations of disclosed technologies or processes.

A trade secret “is one of the most elusive and difficult concepts in the law to define.”  Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 613-14 (5th Cir. 2011).  In Tewari, the trial court ruled that the plaintiff did not have any trade secrets because the specifics of its claimed secret process had already been publically disclosed or were know in the industry.  The Fifth Circuit, however, disagreed and ruled that whether plaintiff’s process was a trade secret was a question for the fact finder to decide.  In many cases, the question of whether certain information constitutes a trade secret ordinarily is best “resolved by a fact finder after full presentation of evidence from each side. . . .  A trade secret can exist in a combination of characteristics and components each of which, by itself, is in the public domain, but the unified process, design and operation of which in unique combination, affords a competitive advantage and is a protectible secret."  Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 613-14 (5th Cir. 2011)(citations omitted).

Friday, March 1, 2013

Personal Jurisdiction Requires "Minimum Contacts"

Can my company be sued in Texas even though its offices are located in a different state?

Of course, a person (and in the eyes of the law, a company is a person for most purposes) can be sued anywhere, but if the person being sued, the nonresident defendant, does not have a sufficient relationship with the state where it is being sued, the court will not have “personal jurisdiction” over the defendant and the lawsuit will be subject to being dismissed for lack of personal jurisdiction.  Generally in Texas federal courts, the party who filed the lawsuit, the plaintiff, bears the burden of establishing that the nonresident defendant has contacts with Texas sufficient to invoke the jurisdiction of the federal court located in Texas.  The plaintiff can meet that burden by making “a prima facie showing” that nonresident defendant has purposefully availed itself of the benefits and protections of Texas by establishing ‘minimum contacts’ with Texas.   A court’s exercise of personal jurisdiction over a non-resident defendant comports with constitutional due process requirements when (1) the defendant “purposefully availed” itself of the benefits and protections of the forum state by establishing “minimum contacts” with that state, and (2) the exercise of personal jurisdiction does not offend traditional notions of “fair play and substantial justice.”  See Moncrief Oil Int'l., Inc. v. OAO Gazprom, 481 F.3d 309, 311 (5th Cir. 2007).  Both prongs must be satisfied in order for a court to exercise personal jurisdiction over the defendant.  If the plaintiff makes a prima facie showing of minimum contacts, then the burden shifts to the defendant to show that the court’s exercise of jurisdiction would not comply with “fair play” and “substantial justice.”  See Freudensprung v. Offshore Technical Servs., Inc., 379 F.3d 327, 343 (5th Cir. 2004).  In making a fundamental fairness determination, a court must examine: (1) the burden on the defendant; (2) the forum state’s interests; (3) the plaintiff's interest in convenient and effective relief; (4) the judicial system’s interest in efficient resolution of controversies; and (5) the states’ shared interest in furthering fundamental social policies.  See Stroman Realty, Inc. v. Wercinski, 513 F.3d 476, 487 (5th Cir. 2008).

Thursday, February 28, 2013

Attorneys' fees in Tortious Interference Suits

Can attorneys’ fees be recovered on a claim for tortious interference?

Generally in current litigation, attorneys’ fees are not recoverable on tort claims and are typically only recoverable if provided for by statute or in a contract.  Also generally, unless provided for by statute or by contract of the parties, attorneys’ fees incurred by a party in older litigation are not recoverable against the present adversary in new, current litigation.  However, at least one Texas appellate court has recognized an equitable exception to this general rule for lawsuits based on tortious interference.  See Texas Beef Cattle Co. v. Green, 883 S.W.2d 415, 430 (Tex. App.  – Beaumont 1994) rev'd on other grounds, 921 S.W.2d 203 (Tex. 1996).  In this case, the Beaumont court of appeals held that necessary and reasonable attorneys' fees and costs even though expended and incurred in previous litigation can be recovered as proper damages in a later suit based on tortious interference of contract if the natural and proximate results and consequences of prior wrongful acts had been to involve the plaintiff in litigation with and against third parties and other parties.

Tuesday, February 26, 2013

Employee's Personal Liability for Tortious Interference

Can a corporate officer be personally liable for tortious interference for his or her acts on behalf of the corporation?

It has long been the law in Texas that "a corporate agent is personally liable for his own fraudulent or tortious acts."  Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002).  If a corporate agent directs or participates in a tort during his employment, he faces personal liability for the tortious act. Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984).  Therefore, regardless of whether the person performed the tortious acts in his or her capacity as an officer, he or she can still face personal liability for those acts.  See Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984).

Proof Needed for Tortious Interference with a Prospective Contract

What must one prove for a claim of tortious interference with a prospective contract?

To prove a cause of action for tortious interference with a prospective contract, a claimant must establish the following elements: "(1) a reasonable probability that the parties would have entered into a business relationship; (2) an intentional, malicious intervention or an independently tortious or unlawful act performed by the defendant with a conscious desire to prevent the relationship from occurring or with knowledge that the interference was certain or substantially likely to occur as a result of its conduct; (3) a lack of privilege or justification for the defendant's actions; and (4) actual harm or damages suffered by the plaintiff as a result of the defendant's interference, i.e., the defendant's actions prevented the relationship from occurring."  Tex. Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 367 (Tex. App. – Dallas 2009, pet. denied);  Anderton v. Cawley, 378 S.W.3d 38, 48 (Tex. App. – Dallas 2012, no pet.).

Duty of Discharged Employee to Mitigate Damages

Discharged employee’s duty to mitigate damages.

The general rule as to mitigation of damages in breach of employment suits is that the discharged employee must use reasonable diligence to mitigate damages by seeking other employment.  The correct measure of damages for wrongful discharge of an employee is the present cash value of the contract if it had not been breached, less any amounts that the employee should in the exercise of reasonable diligence be able to earn through other employment.  See Gulf Consol. Int'l, Inc. v. Murphy, 658 S.W.2d 565, 565-66 (Tex. 1983).

Monday, February 25, 2013

Texas is an at-will Employment State

What is meant by “at-will” employment?

Texas is an at-will employment state, meaning that employers generally may terminate their employees at any time, for any or no reason, without incurring  liability under Texas law, unless they have contractually agreed otherwise.  See E. Line & R.R.R. Co. v. Scott, 72 Tex. 70, 10 S.W. 99, 102 (Tex. 1888) (adopting at-will employment doctrine); see also Montgomery Cnty. Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998) (“For well over a century, the general rule in this State, as in most American jurisdictions, has been that absent a specific agreement to the contrary, employment may be terminated by the employer or the employee at will, for good cause, bad cause, or no cause at all.”); Sabine Pilot Serv., Inc. v. Hauck, 687 S.W.2d 733, 734-35 (Tex. 1985) (noting certain statutory exceptions to general rule). In Sabine Pilot, the Texas Supreme Court judicially crafted a “very narrow exception” to this general rule, recognizing a cause of action against an employer that discharges its employee “for the sole reason that the employee refused to perform an illegal act.” Sabine Pilot Serv., Inc. v. Hauck, 687 S.W.2d 733, 735 (Tex. 1985).

Generally, No Recovery of Mental Anguish on a Tortious Interference with Contract Claim

Can mental anguish damages be recovered on a claim for tortious interference with a contract?

Generally, mental anguish damages are not recoverable on a claim for tortious interference with a contract.  This is because the measure of actual damages for tortious interference with a contract is the same as the measure of damages for breach of the interfered-with contract, and mental anguish damages generally are not available for breach  of a contract.  Mental anguish damages are available in "a very limited number of contracts dealing with intensely emotional noncommercial subjects such as preparing a corpse for burial or delivering news of a family emergency."  See City of Tyler v. Likes, 962 S.W.2d 489, 496 (Tex. 1997).

Tortious Interference with Property Rights

Claims for tortious interference are not limited to interference with contract rights.

“Any intentional invasion of, or interference with, property, property rights, personal rights or personal liberties causing injury without just cause or excuse is an actionable tort.”  See King v. Acker, 725 S.W.2d 750, 754 (Tex. App. – Houston [1st Dist.] 1987, no pet.).  A cause of action for tortious interference with the peaceful use and enjoyment of property is a claim for intentional interference with property rights. See Ski River Dev., Inc. v. McCalla, 167 S.W.3d 121, 140 (Tex. App.—Waco 2005, pet. denied).

Sunday, February 24, 2013

Tortious Interference with the Employer-Employee Relationship

Can an employer claim someone else tortiously interfered with the at will relationship between the employer and his employees?  

It is well settled that a cause of action exists for tortious interference with an employment relationship terminable at will.  See Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689 (Tex. 1989).

Legal Justification or Privilege as a Defense to Tortious Interference Claims

Justification or excuse is an affirmative defense to a tortious interference claim.

Legal justification or privilege is an affirmative defense to tortious interference with contract.  "The party asserting this privilege does not deny the interference but rather seeks to avoid liability based upon a claimed interest that is being impaired or destroyed by the plaintiff's contract."  Under this defense, "one is privileged to interfere with another's contract (1) if it is done in a bona fide exercise of his own rights, or (2) if he has an equal or superior right in the subject matter to that of the other party."  See Sterner v. Marathon Oil Co., 767 S.W.2d 686, 689-91 (Tex. 1989).

Proving Tortious Interference with an Existing Contract

What must a plaintiff prove when claiming tortious interference with an existing contract?

To recover for a tortious interference with an existing contract, a plaintiff must prove: (1) the existence of a contract subject to interference; (2) a willful and intentional act of interference; (3) that the act was a proximate cause of the plaintiff's damages; and (4) actual damage or loss.  See Butnaru v. Ford Motor Co., 84 S.W.3d 198, 207 (Tex. 2002).  Proximate cause is that cause which in a natural and continuous sequence, unbroken by any new and independent cause, produces the injury and without which the injury would not have occurred.  See Phoenix Refining Co. v. Tips, 125 Tex. 69, 81 S.W.2d 60, 61 (Tex. 1935); see also Cook Consultants, Inc. v. Larson, 700 S.W.2d 231, 236 (Tex. App. – Dallas 1985, writ ref'd n.r.e.).  “To show proximate cause, a plaintiff must allege that 'the defendant took an active part in persuading a party to a contract to breach it.  Merely entering into a contract with a party with the knowledge of that party's contractual obligations to someone else is not the same as inducing a breach.  It is necessary that there be some act of interference or of persuading a party to breach, for example by offering better terms or other incentives, for tort liability to arise.”  M-I LLC v. Stelly, 733 F. Supp. 2d 759, 775 (S.D. Tex. 2010).  A plaintiff is not limited to showing the contract was actually breached.  Any interference that makes performance more burdensome or difficult or of less or no value to the one entitled to performance is actionable.  See Khan v. GBAK Props, Inc., 371 S.W.3d 347, 359-60 (Tex. App. – Houston [1st Dist.] 2012, no pet.).

Availablity of Mandamus

When is mandamus available?

Mandamus will issue to correct a discovery order if the order constitutes a clear abuse of discretion and there is no adequate remedy by appeal.  In re Colonial Pipeline Co., 968 S.W.2d 938, 941 (Tex. 1998).  Mandamus relief may be justified when: (1) the appellate court would not be able to cure the trial court's discovery error, such as when privileged information or trade secrets would be revealed or production of patently irrelevant or duplicative documents imposing a disproportionate burden on the producing party is ordered; (2) the party's ability to present a viable claim or defense is severely compromised or vitiated by the erroneous discovery ruling to the extent that it is effectively denied the ability to develop the merits of its case; or (3) the trial court's discovery order disallows discovery that cannot be made a part of the appellate record, thereby denying the reviewing court the ability to evaluate the effect of the trial court's error.  In re Colonial Pipeline Co., 968 S.W.2d 938, 941 (Tex. 1998)(citing Walker v. Packer, 827 S.W.2d 833, 843-44 (Tex. 1992)).  A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law, or if it clearly fails to analyze or apply the law correctly.  In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex. 2005).

Writ of Mandamus

What is mandamus?

A writ of mandamus is an extraordinary remedy that allows an appellate court to review a ruling made by a trial court even though the trial court has not yet made a final judgment in the case and a normal appellate remedy is not available.  See, e.g., Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985); see also Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992).

Recovery of Attorneys' Fees for Theft of Trade Secrets

Can attorneys’ fees be recovered on a misappropriation of trade secrets claim?

The Texas Theft Liability Act imposes civil liability for, among other actions, “unlawfully appropriating property” as described by Texas Penal Code section 31.05.  See  Tex. Civ. Prac. & Rem. Code Ann. §§ 134.002(2), 134.003.  Under penal code section 31.05(b), a person commits theft of trade secrets if, without the trade-secret owner's consent, he knowingly: (1) steals a trade secret; (2) copies an article representing a trade secret; or (3) communicates or transmits a trade secret.  Tex. Penal Code Ann. § 31.05(b) (2013).  A person who sustains damages resulting from the unlawful appropriation of property under section 31.05 may recover actual damages, as well as additional damages not to exceed $1,000 and attorney's fees.  Tex. Civ. Prac. & Rem. Code Ann. § 134.005.  See also Twister B.V. v. Newton Research Partners, LP, 364 S.W.3d 428, 440 (Tex. App. –  Dallas 2012).

Saturday, February 23, 2013

Injunctions to Protect Trade Secrets

Can a Court Issue an Injunction to Protect Trade Secrets?

The improper use of trade secrets provides a proper basis for an injunction; however, every order granting an injunction must be specific in its terms and describe in reasonable detail the  act or acts to be restrained.  In a case involving trade secrets or confidential information, the injunction must be narrowly tailored to address the improper use of confidential or proprietary information.  Further, the injunction must not be framed so broadly as to prohibit the enjoyment of lawful rights.  Sw. Research Inst. v. Keraplast Tech., Ltd., 103 S.W.3d 478, 482 (Tex. App. – San Antonio 2003, no pet.); see also Tex. R. Civ. P. 683.

Employees and Use of Trade Secrets

Can an employee use his employer’s trade secrets for his own benefit?

Upon the formation of an employment relationship, certain duties arise apart from any written contract.  One of those duties forbids an employee from using trade secret information acquired during the employment relationship in a manner adverse to the employer.  Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 600 (Tex. App.-Amarillo 1995, no writ).

Proof of a Misappropriation of Trade Secrets Claim

What must a plaintiff prove to establish a claim for misappropriation of trade secrets?

To establish a claim for misappropriation of trade secrets, a plaintiff is required to establish (1) a trade secret existed; (2) the trade secret was acquired through a breach of a confidential relationship or was discovered by improper means; (3) the defendant used the trade secret without the plaintiff’s  authorization; and (4) the plaintiff suffered damages as a result.  See Tex. Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 366-67 (Tex. App. – Dallas 2009, pet. denied).  A person is liable for disclosure of a trade secret if he either (1) discovers the secret through improper means or (2) his disclosure and use, after properly acquiring knowledge of the secret, constitutes a breach of the confidence reposed to him.  Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d 763, 778 (Tex. 1958).  “Use of the trade secret” means commercial use by which the offending party seeks to profit from the use of the secret.  See Global Water Group, Inc. v. Atchley, 244 S.W.3d 924, 928 (Tex. App. – Dallas 2008, pet. denied).

Appeal of Overly Broad Discovery Orders

Is a court’s order that compels overly broad discovery appealable?

"An order that compels overly broad discovery is an abuse of discretion for which mandamus is the proper remedy."  In re Deere & Co., 299 S.W.3d 819, 820 (Tex. 2009) (orig. proceeding). An overbroad request is improper regardless of whether it is burdensome. In re Allstate Cnty. Mut. Ins. Co., 227 S.W.3d 667, 670 (Tex. 2007) (orig. proceeding).  A discovery request is "overbroad" when it encompasses "time periods, products, or activities beyond those at issue in the case" and, therefore, is not "reasonably tailored to include only relevant matters."  In re Alford Chevrolet-Geo, 997 S.W.2d 173, 180 n.1 (Tex. 1999) (orig. proceeding); see also Deere & Co., 299 S.W.3d at 820;  In re Graco Children's Prods., 210 S.W.3d 598, 600 (Tex. 2006) (orig. proceeding).

Discovery of Trade Secrets

Assertion of the trade secret privilege.

The party resisting discovery must establish that the information is a trade secret.  The burden then shifts to the requesting party to establish that the information is necessary for a fair adjudication of its claims. If the requesting party meets this burden, the trial court should ordinarily compel disclosure of the information, subject to an appropriate protective order.  See In re Cont'l Gen. Tire, 979 S.W.2d 609, 613 (Tex. 1998).

Trade Secrets are Privileged

Trade Secrets Are Accorded Evidentiary Privilege.

Rule 507 Trade Secrets.  A person has a privilege, which may be claimed by the person or the person's agent or employee, to refuse to disclose and to prevent other persons from disclosing a trade secret owned by the person, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice. When disclosure is directed, the judge shall take such protective measure as the interests of the holder of the privilege and of the parties and the furtherance of justice may require.  Tex. R. Evid.  507 (2012).

Trade Secrets versus Other Types of Protected Intellectual Property

What are some ways that trade secrets differ from other types of protected intellectual property?

To qualify as a trade secret, the information must be secret and have value to the owner's trade or business.  A trade secret cannot be a matter of general knowledge in an industry.   Absolute secrecy, though, is not required, but the owner must take “reasonable precautions to ensure its secrecy.” See Phillips v. Frey, 20 F.3d 623, 630 (5th Cir. 1994).  While other forms of intellectual property protections (patents, copyrights, and trade dress) protect intellectual property that has become public knowledge, an owner of a trade secret is only protected from wrongful disclosure of the trade secret.  The law provides, "[O]ne who either discloses or uses another's trade secret, without a privilege to do so, is liable for such disclosure or use if the disclosure or use constitutes a breach of confidence reposed in the party disclosing or using the trade secret by the owner of the trade secret." See IBP, Inc. v. Klumpe, 101 S.W.3d 461, 472 (Tex. App.—Amarillo 2001, pet. denied) ("To be actionable, the disclosure or use of the trade secret ordinarily must be to the competitive disadvantage of the owner of the trade secret."). See In re Waste Mgmt. of Tex., Inc., 286 S.W.3d 615, 2009 Tex. App. LEXIS 3671 (Tex. App. Texarkana 2009).  Unlike the case of copyright infringement, one need not make an exact or nearly exact copy of an algorithm or a compilation of information to be liable for trade secret misappropriation in connection with the misappropriation of the essence of the algorithm.  Nor do each of the steps of a process that is protected as a trade secret have to be novel or previously unknown.  See Restatement of Torts § 757, cmt. b (1939);  see also E.I. DuPont de Nemours & Co. v. Christopher, 431 F.2d 1012, 1014 (5th Cir. 1970).  The value of the trade secret comes from the fact that competitors do not possess the information embodied in the trade secret, which gives the holder a potential business advantage.

Appellate Review of Orders Compelling Disclosure of Trade Secrets

Is a court’s order compelling the discovery of trade secrets appealable?

Yes.  Because improper disclosure of a trade secret cannot be adequately remedied on appeal, mandamus relief is appropriate.  See In re Union Pac. R.R. Co., 294 S.W.3d 589, 593 (Tex. 2009)(orig. proceeding).

Thursday, February 21, 2013

What is a trade secret?

What type of information does Texas law regard as “trade secrets”?

A trade secret is any "formula, pattern, device or compilation of information" that is "used in one's business and presents an opportunity to obtain an advantage over competitors who do not know or use it."  In re Bass, 113 S.W.3d 735, 739 (Tex. 2003).  Customer lists, pricing information, client information, customer preferences, buyer contacts, blueprints, market strategies, and drawings have all been recognized as trade secrets.  T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 22 (Tex. App.—Houston [1st Dist.] 1998, pet. dism'd).  To qualify as a trade secret, the information must be secret and have value to the owner's trade or business.  A trade secret cannot be a matter of general knowledge in an industry.  Absolute secrecy, though, is not required, the owner must take reasonable precautions to ensure its secrecy.  To determine whether information is a trade secret, Texas courts consider the following six-factor test:  (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of the information to the business and to its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.  See, e.g., In re Union Pac. R.R. Co., 294 S.W.3d 589, 593 (Tex. 2009)(orig. proceeding).  However, the party claiming a trade secret is not required to satisfy all six factors "because trade secrets do not fit neatly into each factor every time."  In re Bass, 113 S.W.3d 735, 740 (Tex. 2003).  Whether a trade secret exists is usually a question of fact to be determined by a factfinder.  See General Universal Systems, Inc. v. Lee, 379 F.3d 131, 150 (5th Cir. 2004).

Statute of Limitations for Tortious Interference with Existing Contract

If someone tortiously interferes with a contract that I am a party to, is there a limited time within which I must file a lawsuit?

Yes.  As a general principle of Texas law, tortious interference with an existing contract has a two-year limitations period.  See First Nat'l Bank of Eagle Pass v. Levine, 721 S.W.2d 287, 289 (Tex. 1986); see also Khan v. GBAK Props., Inc., 371 S.W.3d 347, 356 (Tex. App. – Houston [1st Dist.] 2012, no pet.).

Statute of Limitations for Misappropriation of Trade Secrets

If someone misappropriates my trade secrets, is there a limited time within which I must file a lawsuit?

Yes.  “A person must bring suit for misappropriation of trade secrets not later than three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.”  See Tex. Civ. Prac. & Rem. Code § 16.010(a) (O’Connor’s CPRC Plus 2012-13);  see also Pressure Sys. Int'l, Inc. v. Southwest Research Inst., 350 S.W.3d 212, 216 (Tex. App. – San Antonio 2011, pet. denied).

Wednesday, February 20, 2013

Texas Statute of Limitations for Breach of Contract Claims

If someone breaches his or her contract, is there a limited time within which the non-breaching party must file a lawsuit?

Yes.  As a general principle of Texas law, the statute of limitations on a claim for debt based on breach of contract is four years from the time the cause of action accrues.[1]

1. See Tex. Civ. Prac. & Rem. Code § 16.004(a) (O’Connor’s CPRC Plus 2012-13); see also Williams v. Unifund CCR Partners, 264 S.W.3d 231, 234 (Tex. App.—Houston [1st Dist.] 2008, no pet.).