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).