Retail Services WIS Corp. v. Crossmark, Inc., a preliminary-injunction case involving the alleged misuse of trade secrets, made these observations (among others):

• Trade secret existence. The plaintiff adequately established the existence of a trade secret with testimony that “(1) Crossmark possesses information it considers confidential, including playbooks and digital transformation strategies, that would give a competitor ‘insight into what we’re working on’ and an opportunity ‘to cut corners and create a shortcut to allow them to be able to compete effectively and potentially even, you know, take it further faster than we are’; 2) Crossmark takes multiple steps to protect that information, including limiting access and requiring employees to sign confidentiality agreements; and (3) the digital demo display customers see in stores is ‘just the tip of the iceberg’ and does not constitute the entirety of Crossmark’s strategy.“
• Order specificity. While the Court said that “much of th[e] provision is conclusory” that described the harm justifying the injunction, it concluded: “[T]wo portions address ‘reasons why’ Crossmark will suffer irreparable injury: ‘because once CROSSMARK trade secrets are improperly used and disclosed, they are forever lost and such loss is cannot be calculated in money damages’ and ‘CROSSMARK’s customer and client goodwill, which has been developed over many years, will be harmed and such harm cannot be quantified in money damages.'”

The Court went on to identify a number of problems with the specificity of the enjoined acts, as well as the requirement that certain electronic storage devices be turned over, and the details of those holdings will be reviewed in a future post. No. 05-20-00937-CV (May 4, 2021) (mem. op.).

McGuire-Sobrino v. TX Cannalliance LLC presents a mini-course on effective protection of business information. Cannalliance sued McGuire-Sobrino, a former contractor, for restricting its access to its website and other digital assets. The Fifth Court addressed

• Rule 683. The temporary injunction made adequately-detailed findings, which the Court quoted largely verbatim;
• Irreparable injury. Rejecting the argument that Cannalliance’s proof of irreparable injury showed only “a fear of possible contingencies,” the Court credited testimony of its managing member that “his inability to control Cannalliance’s digital assets and website is ‘crippling our ability to market and promote our events, to sell tickets to support the business’ and … ‘can smear the public perception and paint a bad picture of the ability to have control over our business.'”
• Likelihood of success. Cannaliance showed a likelihood of success on claims for conversion and trademark infringement; and
• Status quo. The injunction preserved the status quo by “returning the parties to their pre-September 26, 2019 status” (the date when Cannalliance showed it no longer had full access to its digital assets).

No. 05-19-01261-CV (Aug. 10, 2020) (mem. op.).

The initials “JM” appeared on drawings ARCO (a consulting firm) prepared for products designed by Kendall Harter (an inventor and entrepreneur). The appellant in KBIDC Investments v. Zuru Toys, a case about the design of water-balloon devices, argued that Josh Malone worked for ARCO and was exposed to Harter’s ideas at ARCO, noting: “that the initials ‘JM’ appear on drawings ARCO prepared for other products designed by Harter, including drawings for a sandwich maker and a water-balloon gun. Appellant also points to Malone’s Linkedin.com profile, which states that his technical skills include ‘CAD,’ computer-aided design. Appellant also asserts, without citing any evidence other than Harter’s affidavit, that Malone’s house was ‘within a 30-minute drive of ARCO’s offices’ in Farmer’s Branch. Appellant also asserts that ARCO had no employees with the initials ‘JM’ at that time.” The Fifth Court saw this evidence differently, finding: “This evidence is too indefinite and uncertain to show Malone had access to Harter’s designs. It does not constitute circumstantial evidence that Malone worked at ARCO, that he had access to Harter’s provisional patent application or drawings, or that he misappropriated Harter’s trade secrets.” No. 05-19-00159-CV (June 26, 2020) (mem. op.) – and on rehearing (Oct. 9, 2020). 

The Fifth Court gives some highly practical guidance about the enforcement of noncompetition agreements in Gehrke v. Merritt Hawkins & Assocs.

As to the scope of activity, the Court reminded: “Covenants not to compete prohibiting solicitation of clients with whom a former salesman had no dealings are unreasonable and unenforceable. . . . . However, when an employer seeks to protect its confidential business information in addition to its customer relations, broad non-solicitation restrictions are reasonable.” Here, “the record demonstrates [Defendant] was much more than a mere salesman–he was an executive and vice president with intimate knowledge of MHA’s confidential business information and trade secrets who also supervised other salesmen.”

As to geographic scope, the Court concluded that “the trial court abused its discretion by misapplying the law to the facts in failing to enforce a geographic restriction for all states where Gehrke had worked during his final year at MHA, including the entirety of the Contested States. Additionally, we conclude the trial court abused its discretion by imposing the arbitrary ten-mile radius restriction because neither party presented evidence supporting that restriction.”  No. 05-18-01160-CV (Jan. 23, 2020) (mem. op.) (citations omitted from all quotes, all emphasis added).

The plaintiff in Global Supply Chain Solutions LLC v. Riverwood Solutions, Inc, a trade-secrets dispute, argued “the inevitable disclosure doctrine applies to provide evidence raising a fact issue on damages.” The Fifth Court observed that Texas has adopted the Unitorm Trade Secrets Act, which allows injunctive relief in connection with “threatened misappropriation” of trade secrets. But under Fifth Court precedent, temporary-injunction proceedings about trade secrets do not put the “ultimate merits” at issue; accordingly, “a threatened misappropriation for purposes of a temporary injunction is not a substitute for evidence of the ‘actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss’ to raise a fact issue on damages in response to a motion for summary judgment.” No. 05-18-00188-CV (Aug. 16, 2019) (mem. op.)

In the case of In re Elavacity, the Fifth Court stayed trial court proceedings after the grant of a TRO (thus ensuring the matter did not become moot, given the short time frame associated with a TRO), and then granted mandamus relief. It identified three defects with the order that made it void:

1. “[I]t does not include an explanation of why it was issued without notice to relators”;
2. “[I]tt does not define the injury it is designed to prevent, does not explain why such injury would be irreparable, and is not specific in its terms”; and
3. “[T]he order enjoins relators from taking certain actions related to Pruvit’s ‘trade secrets, confidential and/or proprietary information,’ and Pruvit’s existing promoters. However, the order does not describe what constitutes a trade secret, confidential information, and/or proprietary information or who is an ‘existing promoter.’”

No. 05-18-00135-CV (Feb. 16, 2017) (mem. op.)

The Discovery Channel may have has Shark Week, but the Fifth Court is having Mandamus Week. The most recent installment is In re: Commercial Metals, which involved a challenge to a protective order about a business’s trade secrets. The Court began by reminding, as to the basic requriements for a writ of mandamus, that “[a] trial court abuses its discretion if it orders discovery exceeding the scope permitted by the rules,” and that “[n]o adequate appellate remedy exists when the trial court compels production beyond the permissible bounds of discovery.” That said, the Court found no abuse of discretion in the particularized procedures used to limit use of the information by plaintiff’s “de facto in house counsel,” and denied the petition. The opinion provides useful guidance on a very practical and recurring issue in business disputes about the use of confidential information. No. 05-16-01214-CV (Aug. 29, 2017) (mem. op.)

In Baxter & Associates, LLC v. D&D Elevators, Inc., No. 05-16-003300-CV (Feb. 15, 2017), the plaintiff appealed from the denial of a temporary injunction against former employees and the company they formed. The plaintiff alleged that the former employees took trade secrets, namely a list of builders with projects potentially including elevators, in violation of their fiduciary duties and the Texas Uniform Trade Secrets Act (“TUTSA”).

After a two-day hearing, the parties received a signed order denying the request for temporary injunction, which was attached to an email from the court administrator stating, “The Court makes the following rulings: … I do find that trade secret as to existing jobs or bids was obtained… [but] there is an adequate remedy at law….” The plaintiff requested findings of fact and conclusions of law, and filed a motion for reconsideration based on its argument that it did not need to show no adequate remedy at law under TUTSA to obtain injunctive relief. The trial court did not sign any findings of fact or conclusions of law, and the plaintiff appealed without filing a notice of past due findings and conclusions of law.

The first issue addressed by the court was procedural—whether the statement contained in the court administrator’s email stating the existence of trade secrets was a finding of fact. The Court of Appeals held it was not, in part because at a subsequent hearing the trial court stated that it had not made such a finding. Although the plaintiff formally requested findings of fact and conclusions of law, it failed to file a notice of past due findings and conclusions of law pursuant to Rule 297. Thus, the Court of Appeals held there were no findings of fact or conclusions of law, that any error for the failure to make such findings was not preserved, and implied a finding that the plaintiff had not shown the existence of a trade secret.

The Court went on to hold that there was evidence that would have allowed the trial court to conclude that the list of projects was not a trade secret because the information could be publicly identified, and therefore would not “derive[] independent economic value, actual or potential, from not being generally known….”

Baxter & Associates, LLC v. D&D Elevators, Inc., No. 05-16-003300-CV (Feb. 15, 2017)

In the common fact situation of an employee leaving for a new, competing employer, the Fifth Court found no abuse of discretion in denying a temporary injunction when:

• After his termination, Turner did not have access to any confidential information except for the contents of a laptop
• Turner testified that he did not access the laptop following his termination except to examine his girlfriend’s resume and his employment agreement and when he took it to the Apple Store to have his personal photographs removed from the computer.
• Plaintiff had a forensic examination of the computer performed, and it presented no evidence that Turner’s testimony was false.
• When Turner also testified that when he went to work for Gulfstream, he did not contact any of BM Medical’s clients with whom he had worked while employed by BM Medical (although some contacted him to find out what had happened to him); and
• Only one client of BM Medical became a client of Gulfstream, who was a good friend of Turner’s whom Turner had known before he went to work for BM Medical, and who still did business with BM Medical.

BM Medical Management Service LLC v. Turner, No. 05-16-00670-CV (Jan. 10, 2017) (mem. op.)

In In re Michelin North America, Inc., the Dallas Court of Appeals conditionally granted a writ of mandamus to protect Michelin from being forced to produce certain discovery.  The district court ordered Michelin to produce specifications for tires similar to the allegedly defective tire at issue in that case in addition to financial information for the decade prior to the litigation.

The court of appeals held that Michelin satisfied its burden under Texas Rule of Evidence 507 to resist the discovery of trade secrets through the affidavit of an engineer who worked in Michelin’s legal department but that Michelin failed to satisfy its burden of proving its financial data was a trade secret because it failed to offer an affidavit until after the hearing on the motion to compel (helpful hint: it should be filed 7 days before the hearing under TRCP 193.4(a) if it is in affidavit form).  The court also held that the plaintiffs failed to meet their burden under Rule 507 to show “with specificity” exactly how the lack of information would impair the presentation of the case on the merits “to the point that an unjust result is a real, rather than a merely possible, threat.”  On the issue of financial information, though Michelin failed to timely prove its trade secrets privilege, Michelin was saved by a secondary argument that the district court’s order was too broad because the discovery included financial information from several years earlier and only current financial information is relevant for calculation of punitive damages.

In re Michelin

A former Halliburton employee who had worked at the company designing and manufacturing wellbore plugs left and formed his own company that designed and manufactured wellbore plugs.  Halliburton sued the former employee and his company.  Ultimately, a jury found in Halliburton’s favor, awarding it damages, and the trial court entered an injunction barring the former employee from using Halliburton’s trade secrets for eighteen months.

Not satisfied, Halliburton appealed, seeking a permanent injunction.  The Court of Appeals sided with Halliburton, holding that the trial court erred by refusing to enter a permanent injunction because the former employee failed to show that anything less than a perpetual injunction would protect Halliburton’s rights and “remove the competitive advantage obtained through the misappropriation.”  Halliburton Energy Servs., Inc. v. Axis Tech. LLC, 444 S.W.3d 251 (Tex. App.-Dallas 2014, no pet.)

In this case, the appellee was sued for, among other things, aiding and abetting an alleged misappropriation of trade secrets.  The Court of Appeals held that, even if the appellant could establish the underlying tort of trade secret misappropriation, the claim would still fail.  According to the Court, a cause of action for aiding and abetting exists for a “specific and narrow purpose:  to deter antisocial or dangerous behavior.”  Examples of this type of behavior included “drag racing or similar conduct posing a high degree of risk to others.”  The Court found that misappropriation of trade secrets does not qualify as sufficiently antisocial or “deviant” to support an aiding and abetting cause of action.

West Fork Advisors v. Sungard Consulting

An opinion issued on an emergency motion to stay a trial court’s order unsealing alleged trade secret materials highlights a difference between Dallas and some of the other courts of appeals when it comes to obtaining temporary stays. The trial court denied the defendant’s motion to permanently seal the disputed records under TRCP 76a and ordered that the documents were to be unsealed at 5 pm last Friday. Because unsealing orders are considered to be final for purposes of appeal, the defendant perfected an appeal and moved for an emergency order to stay the unsealing of the documents. The Court of Appeals granted that request, holding that a temporary stay was necessary to preserve the rights of the parties pending appeal. The Court noted that other appellate courts have applied a more stringent standard, under which the movant must show that it would be entitled to the issuance of an injunction to protect appellate jurisdiction under section 22.221 of the Government Code. The opinion expressly states that it was not ruling on the merits of the unsealing order, and that nothing in it was intended to bind the submission panel when the appeal proceeds to the merits.

Oryon Techs. v. Marcus, No. 05-14-00446-CV

In this memorandum opinion, the Court found that the trial court’s temporary injunction preventing the defendants from disclosing, among other things, “techniques,”  “materials,” “confidential information” and “proprietary information,” was not specific enough to meet the  requirements of TRCP 683, which requires that an injunction shall “describe in reasonable detail . . . the acts sought to be restrained.”

Ramirez v. Ignite Holdings

Hood worked for ISC as both an employee and an independent contractor “registered representative” working to bring in new clients on commission. Hood regularly downloaded ISC client information onto personal storage. ISC fired Hood, who solicited 800 of ISC clients at his new place of business. Many of those clients Hood brought to ISC and was entitled to solicit; other he did not. ISC sued and sought a temporary injunction. Both side submitted a list of client files taken from Hood’s hard drive, but disagreed about which clients were not Hood’s and thus ISC proprietary information. The court accepted Hood’s list, ordering him to destroy or return all of the files he designated as belonging to ISC, or preserve them and refrain from accessing them. ISC appealed the denial of a temporary injunction based on ISC’s list.

On appeal, the court first held that Hood’s download of client lists, prohibited by ISC for registered representatives, could constitute a violation of the Penal Code’s offense for accessing a computer without the consent of the owner. The court next held that some of the data Hood retained contained sensitive information about the clients that exposed ISC to FINRA violations, and that this information was unnecessary to Hood’s solicitations. Thus, the injunction should have extended to both information about clients that Hood did not bring to ISC and the social security numbers and account information of all ISC clients.

ISC Group, Inc. v. Hood, No. 05-12-00568-CV

The court of appeals has issued a lengthy opinion in an employment non-disclosure case, partially affirming a jury verdict in favor of the former employer.  In this instance, both the plaintiff and the corporate defendant were in the business of providing in-home pediatric nursing services.  After the defendant company hired away three of the plaintiff’s employees, eleven of the plaintiff’s most profitable accounts moved over to the new company.  The court of appeals started by noting that the defendants did not challenge the jury’s finding that they had entered into a conspiracy to damage the plaintiff.  That led the court to conclude that each of the defendants was jointly and severally liable for the other defendants’ breaches of their non-disclosure agreements, which were themselves established by sufficient evidence at trial.  The court of appeals upheld the jury’s award of $250,000 in lost profits attributable to the eleven patients lost by the plaintiff, but reversed and rendered amounts that had been awarded for profits that would have been earned after the plaintiff went bankrupt and sold off its business.  According to the court, there was no evidence that he plaintiff would have had the right to continue receiving profits from customers after the business was sold, so there was no evidentiary basis for the recovery of those post-sale profits.  Finally, the court of appeals affirmed the trial court’s grant of JNOV against the plaintiff on its claim for attorney fees, holding that fees were not recoverable because the plaintiff had not offered any proof of presentment to the defendants.

Helping Hands Home Care, Inc. v. Home Health of Tarrant County, Inc., No. 05-08-01657-CV

Delcom Group, LP thought that it was the winning bidder for a project to install “Digital Classroom integration solutions with technology components including installation and service at multiple school facilities” in the Dallas Independent School District.  But when DISD dumped Delcom and went with the second-place bidder instead, Delcom sued both the school district and the competing bidder.  The trial court granted a temporary restraining order to prevent DISD and the competitor from using Delcom’s trade secrets, but ultimately denied a temporary injunction and granted the school district’s plea to the jurisdiction.  On interlocutory appeal from that ruling, the court of appeals affirmed.  Despite a chain of documents that Delcom pointed to as forming the contract, the court held that the contractor could not sue DISD for breach because the parties had never settled on the essential terms of a contract.  Among other problems, Delcom had actually submitted two different bids, one for $79 million and the other for $62 million — and DISD had never stated which bid it intended to accept.  Because the parties had not agreed on the essential terms of a contract, there could be no waiver of governmental immunity under section 271.152 of the Local Government Code.  The court likewise rejected Delcom’s takings claim, because there could be no taking when Delcom had given its alleged trade secrets to the school district voluntarily.  Finally, the panel affirmed the trial court’s denial of the temporary injunction, holding that Delcom had not established any imminent and irreparable injury through use of its trade secrets, nor had it shown it could not be compensated with money damages if any actual misappropriation were to occur.

Delcom Group, LP v. Dallas Independent School District, No. 05-11-01259-CV