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). 

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).

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).