Texas Introduces 3 Bills To Curb Application of Anti-Slapp Statute in Non-Compete and Trade Secrets Litigation

The Texas Citizens Participation Act (TCPA), enacted by the legislature in 2011, has been wrecking havoc in business and employment disputes due to the statute’s overbroad language, confusing and conflicting interpretation by the various courts of appeals and federal courts, and defendants’ persistence in invoking the statute’s dismissal process in trade secrets and non-compete lawsuits. 

In late 2018 and early 2019, at least two Texas Courts of Appeals issued scathing opinions criticizing the statute’s dismissal mechanism being used by defendants in the run-of-the-mill trade secrets and non-compete disputes.  It appears that the legislature heard the complaints from the bench and the business community, which is why in the past week, we have seen three new bills that seek to exempt trade secrets and non-compete disputes from the grasp of the TCPA.  

HB 3547  introduced by Rep. Joe Moody (D) on March 6, 2019:

SECTION 1. Sections 27.001(2) and (6), Civil Practice and Remedies Code, are amended to read as follows: 

(2) “Exercise of the right of association” means a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.  The term does not include a communication that is the basis of a claim asserting a misappropriation of a trade secret or a breach of a covenant not to compete.

SB 2162 introduced by Sen. Angela Paxton (R) on March 8, 2019 and HB2730 introduced by Rep. Jeff Leach (R) seek to amend the TCPA as follows: 

SECTION 8. Section 27.010, Civil Practice and Remedies Code, is amended to read as follows:

Sec. 27.010. EXEMPTIONS. [(a)] This chapter does not apply to:  …

(7) a legal action to enforce:
(A) a noncompete agreement;
(B) a nondisclosure agreement; or
(C) a non-disparagement agreement.

The bills contain many other amendments to the statute that are unrelated to trade secrets and non-compete litigation and they face tremendous opposition from the press. For example, the Reporters Committee for Freedom of the Press issued a press release stating its concern that “HB 2730 and SB 2162  would, if enacted, significantly undermine key parts of TCPA and, therefore, speech protections in Texas.”  Therefore, their passage remains an open question. 

We will continue to monitor their progress through the legislature and will provide an update if they pass. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice.  Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

The Two Steps All Small Businesses Can Take to Protect Their Trade Secrets

I-Too-Like-To-Live-DangerouslyDoes your business have a client list? A tested marketing strategy? A sales script? A proprietary business process? Those are just a few things that may give your company a competitive advantage over other similar businesses and may  be considered your company’s “trade secrets.”  

Now imagine one of your employees walking out the door and taking that information to a competitor because they offered him or her a slightly better compensation or using it to start their own copycat business. This happens on a daily basis.  Yet, when it does, many business owners are not prepared to deal with it and have done nothing to address it ahead of time. 

So, if your company does nothing else in 2019 to protect its trade secrets, it should do at least the following two things to prevent its competitive information from walking out the door with the next employee who leaves:

Have your employees sign confidentiality and non-competition/non-solicitation agreements. These agreements do not have to be complex, but they have to comply with the laws of the state where your company operates and possibly with the laws of the states where the employees work.  So, for example, if your company is based in Texas, but you have employees in other states, your confidentiality and non-compete/non-solicit agreements must meet Texas-specific requirements for such agreements and may also need to comply with the laws of other states. 

If you think these agreements are not enforceable, check our my prior post addressing the most common misconceptions about non-compete agreements.

Learn about the security features of the document management systems you use and implement them.  Many small businesses use Google, Microsoft 360, Dropbox or some other similar systems to maintain and manage company records.  All of those systems allow the administrator to: (1) set restrictions on which employees can access which information within the company; (2) track what the employees do with that information when they access it; (3) set restrictions on whether the employees can print, download, copy or share the information with other employees or people outside the company; (4) periodically change passwords to access the systems; and (5) many other features that can help business owners prevent their information being shared outside the company. 

Additionally, many other programs, applications, CRM and ERP systems, sales databases, etc., have their own settings that restrict how  the sensitive and proprietary information contained in them can be shared within and outside the company.  Business owners should determine who within the company should have access to which parts of each system, limit such access on the “need-to-know” basis and set the systems to either prevent individuals from downloading, printing, emailing or otherwise exporting the information out of the system, or alerting the company when such actions are taken.  Regardless of whether a business sets the alerts or restrictions, at a minimum, each company system should keep track or log what employees are doing with respect to the sensitive information they use in the course of their work.

Additionally, anytime you consider purchasing a new document management systems, or an ERP, CRM, sales system or databases, consider not only whether it matches your business needs, but also what security measures it offers in terms of tracking and limiting access to the system by the employees.

BOTTOM LINE: Large companies can dedicate a lot of resources to protecting their trade secrets – resources that are not available to small businesses.  However, every small business has the resources to implement the two steps described above.  If you, as the owner of the company, do not take the time to put the proper employee agreements in place and to educate yourself about the security measures available to you and use them, the employees will know the security gaps and will be in position to exploit them when presented with the right incentives. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

Is Credit Card Information Stored by a Restaurant a “Trade Secret”?

Credit Card Data BreachA federal district court in Colorado recently ruled that customer credit card information was not a “trade secret” under the federal Defend Trade Secrets Act (DTSA).

This case arose out of a 2017 data breach of Chipotle Mexican Grill, Inc.’s computer system and point of service (POS) terminals which resulted in the theft of customers’ credit card and debit card data. As the result of the breach, several financial institutions had to replace their members’ credit and debit cards and refund fraudulent payments. Consequently, they sued Chipotle for negligence, unfair competition, and a violation of the DTSA, on behalf of themselves and other financial institutions. 

Plaintiffs argued that the credit card information of their members was a “trade secret” under the DTSA because: (1) it was plaintiffs’ financial data; (2) they had taken reasonable measure to keep it secret; and (3) the data had independent economic value, and that Chipotle misappropriated it in violation of the federal statute.

The district court noted that the question of whether the credit card information was a trade secret was a question of first impression as neither plaintiffs not Chipotle cited any authority clearly addressing this issue. However, it concluded that because the credit card information simply created an access mechanism for the members’ accounts, it had no independent value.  In other words, the value of the credit card information derived from the thing that it was intended to protect – a bank account.  See N. Star Media, LLC v. Winogradsky-Sobel, 2011 WL 13220157, at *10-11 (C.D. Cal. May 23, 2011); State Analysis, Inc. v. Am. Fin. Servs. Assoc., 621 F. Supp. 2d 309, 321 (E.D. Va. 2009); see also MicroStrategy Inc. v. Bus. Objects, S.A., 331 F. Supp. 2d 396, 429 (E.D. Va. 2004)(expressing skepticism that a CD key is a trade secret); Tryco, Inc. v. U.S. Med. Source, L.L.C., 80 Va. Cir. 619 (2010) (“Courts have repeatedly held that collections of numbers and/or letters, whose only value is to access other potentially valuable information, do not by themselves have independent economic value.”).

The court reasoned that the payment card data (including cardholder names, credit or debit card numbers, and corresponding CVVs) was similar to passwords and usernames that provided access to something of value, i.e. an individual’s line of credit with a financial institution or money in an account with a financial institution. Absent a connection to either a line of credit or a bank account, payment card data was simply a string of alpha or numeric (or indeed other typographical) symbols, and, thus, had no independent economic value.

Because the court concluded that the credit card information was not a trade secret, it did not address whether a misappropriation occurred during the breach or whether Chipotle could be liable under the DTSA. 

Leiza litigates trade secrets and non-compete agreements disputes in a variety of industries.  If you are a party to a dispute involving a non-compete agreement or theft of confidential information, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

A Study Concludes Mentioning “Trade Secrets” in Form 10-K Leads to More Cyber Breaches

screen-shot-2012-11-01-at-8-08-46-amA recently-published study* concluded that companies that mention the existence of trade secrets in their publicly filed Form 10-K disclosures are 30% more likely to become victims of cyber attacks. Among those companies, the probability of a cyber attack is even higher for younger firms, firms with fewer employees, and firms operating in less concentrated industries.

Considering that trade secrets consist of all forms and types of “financial, business, scientific, technical, economic, or engineering information” and, along with other types of intellectual property, may constitute more than 80% of a company’s value, their theft can severely damage the company’s value or even bring its demise.

The study analyzed a total of 39,992 10-Ks from about 7,500 companies. Of those, 12,542 mentioned trade secrets, and 591 became victims of a cyber breach.  The authors searched the companies’ Form 10-K disclosures for words such as “trade secrets” and “trade secrecy” and then analyzed the frequency of cyber breaches of such companies with those whose Form 10-K disclosures did not mention such words.  Those who mentioned the key phrases often did so in the context of listing what types of intellectual property they had in their portfolio and what measures they were taking to protect their trade secrets.  

According to the study, companies feel safe mentioning “trade secrets” in their public filings without revealing the nature of such trade secrets and, often, discuss the protection measures they take to protect this intellectual property, such as non-disclosure agreements with employees. However, according to the authors, even mentioning the existence of trade secrets increased the probability of a cyber attack by 30%. 

BOTTOM LINETrade secrets only have value as long as they stay secret, so once they come into a competitor’s hands or become publicly available, their value is often destroyed.  In light of the study, the companies may want to omit mentioning trade secrets in their public filings and press releases and reserve the discussion of their trade secrets protection measures for the confidential correspondence with their shareholders. 

*The study was done by Michael Ettredge and Yijun Li of the University of Kansas School of Business, and Feng Guo of the Iowa State University College of Business.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

An Injunction in a Theft-of-Trade-Secrets Case Cannot Prohibit a Party From Using Publicly Available Information

downloadCompanies suing for trade secrets theft often want not just the monetary compensation for the stolen trade secrets, but also a court order – an injunction – prohibiting the other side from using the stolen information.  

In order to be enforceable, however, under the Texas Rules of Civil Procedure, an injunction must be “in clear, specific and unambiguous terms” so that the party enjoined can understand the duties and obligations imposed by the injunction and so that the court can determine whether the injunction has been violated.  Additionally, an injunction cannot prohibit a defendant from doing something he has a legal right to do, e.g., use publicly available information along with the trade secret information. Thus, a court order prohibiting a defendant from using trade secrets must be broad enough to cover all possible circumstances while narrow enough to include only the illegal activities.   This is easier said than done.

In a recent case, the Houston Court of Appeals reversed a permanent injunction order which could be read to cover both – the trade secret data and publicly available information.  In TMRJ Holdings, Inc. v. Inhance Techs., LLC, the injunction at issue prohibited defendant from:

(1) “using, disclosing, transferring, or possessing, in whole or in part, [plaintiff’s] trade secret information,” which was defined as “compilation of specified data” for various plaintiff’s processes; and

(2) “operating, manufacturing, designing, transferring, selling, or offering for sale” certain processes that “contain, are based on, or utilize, in whole or in part, [plaintiff’s] trade secrets.” 

The Court concluded that the injunction was not specific enough because failure to define “specified data” and the general description of “trade secrets” did not give adequate notice of the prohibited conduct to defendant.  Specifically, the injunction did not distinguish between the unique, protected elements of plaintiff’s data compilations, processes, or equipment from that which plaintiff’s competitors use throughout the industry.  As the result, the Court reversed the permanent injunction in this case and remanded it to the trial court to consider in light of its opinion. 

TexasBarToday_TopTen_Badge_VectorGraphicCONCLUSION:  In trade secrets theft cases, in addition to proving the elements of an injunction, plaintiffs must also make sure the injunction order’s language is specific enough, without giving away the trade secrets information, to provide defendant with a clear notice of what it can and cannot do.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

The Fifth Circuit Rules that Federal Law Preempts Unfair Competition Claim Under Texas Law

Preemption

The Fifth Circuit Court of Appeals recently considered whether the federal copyright and patent laws (rock!) preempt  Texas common law claim of unfair competition by misappropriation (scissors!). The question reared its head amidst a web of lawsuits involving a medical device company, ThermoTek, and its former distributor, in which the company accused the distributor of obtaining its trade secrets involving a medical device he sold for them and proceeding to use the information to manufacture his own line of competing devices.   

The Fifth Circuit explained that the federal Copyright Act preempts a state law claim where (1) the intellectual property rights at issue are within the subject matter of copyright and (2) the state law protects rights in that property that are equivalent to any of the exclusive rights within the general scope of copyright. Meanwhile, the federal patent statutes preempt a state claim where its aim is to protect “the functional aspects of a product” because such claim would likely obstruct Congress’s goals by offering patent-like protection to intellectual property that its owner chose not to protect with a patent.  

In applying the above tests, the Fifth Circuit Court of Appeals held that the various aspects of the unfair competition by misappropriation claim in ThermoTek’s case against its former distributor were preempted either by the federal copyright or patent laws. 

The Copyright Act preempted the claim to the extent that ThermoTek alleged that the distributor misappropriated its written materials related to the medical device – here, manuals, reports, billing information, and other written documents – because such materials fell within the subject matter of copyright and the unfair competition by misappropriation claim did not qualitatively differ from a copyright claim.  Meanwhile, the federal patent law preempted the unfair competition claim to the extent it sought to protect the medical devices themselves or their functional aspects because the claim substantially interfered with the public’s enjoyment of unpatented aspects of the devices that ThermoTek publicly disclosed. 

TexasBarToday_TopTen_Badge_VectorGraphicBOTTOM LINE:  On a very basic level, the doctrine of preemption allows federal claims to preempt state law claims if they concern the same subject matter. If not analyzed strategically and addressed in the pleadings, this doctrine can wreak havoc on a party’s litigation strategy in a trade secrets lawsuit.  For example, in the ThermoTek lawsuit, the jury found in the company’s favor awarding it $6,000,000.00 in damages on the unfair competition claim. However, after the trial, the court found that the unfair competition claim was preempted by federal law and dismissed it leaving ThermoTek with $0.  In conclusion, trade secrets claims do not exist in a vacuum, but should be analyzed in the context of the existing intellectual property framework along with other types of IP.

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

 

Texas Amends Its Trade Secrets Statute Effective September

good-wifeTexas Governor recently signed House Bill 1995, which amends Texas Uniform Trade Secrets Act (“TUTSA”) and aligns is with the Defend Trade Secrets Act (“DTSA”).

HB 1995 will go into effect on September 1, 2017 and will eliminate the difference between the TUTSA’s and DTSA’s definitions of “trade secrets,” removing an incentive to forum shop. Additionally, the statute will emphasize that the owner must take reasonable “measures,” and not just “efforts,” to protect its trade secrets. HB 1995 also introduces the following new definitions:

• “Owner” means, with respect to a trade secret, the person or entity in whom or in which rightful, legal, or equitable title to, or the right to enforce rights in, the trade secret is reposed.

• “Willful and malicious misappropriation,” means intentional misappropriation resulting from the conscious disregard of the rights of the owner of the trade secret.

• “Clear and convincing evidence” required to establish willful and malicious misappropriation is defined as the “measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.”

Additionally, come September, Texas courts will have to apply a balancing test first articulated in  In re M-I, L.L.C., 505 S.W.3d 569 (Tex. 2016) when determining whether a party involved in a trade secrets lawsuit can be denied access to documents or testimony about its competitor’s trade secrets.  TUTSA codified this test as follows:

a presumption exists that a party is allowed to participate and assist counsel in the presentation of the party’s case. At any stage of the action, the court may exclude a party and the party’s representative or limit a party’s access to the alleged trade secret of another party if other countervailing interests overcome the presumption. In making this determination, the court must conduct a balancing test that considers:

•  the value of an owner’s alleged trade secret;
• the degree of competitive harm an owner would suffer from the dissemination of the owner’s alleged trade secret to the other party;
• whether the owner is alleging that the other party is already in possession of the alleged trade secret;
• whether a party’s representative acts as a competitive decision maker;
• the degree to which a party’s defense would be impaired by limiting that party’s access to the alleged trade secret;
• whether a party or a party’s representative possesses specialized expertise that would not be available to a party’s outside expert; and
• the stage of the action.

Bottom Line: In light of these new amendments, companies involved in trade secrets disputes in Texas will have to strategize early on – even pre-litigation – not only about proving their claims and defenses but also about protecting their trade secrets during the lawsuit and gathering evidence necessary to obtain attorney’s fees related to the trade secrets misappropriation claim.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. If you are a party to a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108

 

Why Trade Secrets Protection is Even More Important in the Strong Economy

downloadIt is a well-known fact that when the economy improves, employee mobility rises as well. The most valuable employees – those with a specialized skill set and many years of experience in a particular industry – tend to stay within that industry while moving among competitors. Since such employees are usually given access to confidential information as part of their job duties, their move to a rival company often raises a concern of whether they will be sharing that information with their new employer. 

As 2016 was drawing to a close, a number of nationally known companies filed lawsuits to prevent their former employees from working for their competitors and/or sharing their confidential information. In December, Carolina Herrera sued Oscar De La Renta for hiring Herrera’s former Senior VP of Design despite her 6-month non-compete with Herrera. In January, Aria sued its Las Vegas rival, Cosmopolitan, and a former executive, alleging that she took confidential information about Aria’s high-roller clients in order to solicit them for Cosmopolitan. Earlier that month, Zynga, a mobile app gaming power house and creator of Farmville, sued two of its former employees for allegedly taking 14,000 files related to a new game Zynga was developing before going to work for its competitor. These are just a few examples that have received attention in the media.  In reality, similar situations develop all over the country on a daily basis.

In short, in the current market, any successful business, regardless of its size or industry, may be subject to trade secret theft not from foreign entities, but from its own departing employees. To prevent theft, or minimize the inherent damage that it carries with it, companies must have a process in place for protection of trade secrets and a plan of action for when theft is detected.

I have previously written about the simple steps any company can take to protect its trade secrets. In addition to these preventative steps, companies should be prepared to act quickly if a trade secrets theft is detected or suspected as time is of the essence, and not only from the practical standpoint of preventing dissemination of trade secrets, but from the legal standpoint as well. The more time passes between a company’s discovery of trade secret theft and any legal action, the less likely is the company to obtain an order from the court prohibiting the thief from using or disseminating the information.  Thus, being prepared to act quickly and having the resources to do so, can make e a difference in the company’s ability to stop the thief from sharing its confidential information with others.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Why the Appointment of Jeff Sessions as the New Attorney General May Lead to More Trade Secrets Litigation

jeff-sessions-827pngOn Friday, President-elect Donald Trump named Alabama Sen. Jeff Sessions as his pick for the next Attorney General. Sessions is a former U.S. attorney and current senator with lengthy experience with the Justice Department. He is also known as a pro-business conservative, who on numerous occasions has expressed a favorable view of corporate indictments of executives marred in white-collar crimes. 

Sessions co-sponsored the Federal Defend Trade Secrets Act, which became the law this year. The statute allows civil lawsuits to prevent or redress theft of trade secrets in addition to already-existing criminal penalties under 18 U.S.C. § 1832.  His previous publicly expressed views suggest that he will not shy away from indicting big companies and individuals for white-collar crimes, which include theft of trade secrets.  

For example, in 2010, during a confirmation hearing for the U.S. deputy general, Sessions questioned the candidate about the “dangerous” philosophy of not charging companies criminally because of concerns regarding the effect of such charges on employees and shareholders and stated that he “was taught that if they violate a law, you charge them.” 

Trade secret theft indictments have been on the rise over the past several years, prompting an almost unanimous passage of the Federal Defend Trade Secrets Act in the beginning of this year. The uptick in criminal litigation has been accompanied by a blooming civil litigation of trade secrets theft on state and federal level as well.  

Given Sessions’ prior remarks regarding his preference for corporate indictments in lieu of settlements or payment of penalties, as well as his expressed support towards protection of trade secrets, we can expect a rise in corporate indictments arising out of theft of sensitive information (especially when it is shared with foreign companies or states). This will put the spotlight on the rise of trade secrets theft in the country, will garner more publicity for such acts, and will in turn educate the US companies and business owners as to legal remedies available to them in the civil court to remedy trade secret theft.  

In short, Sessions’ expected tough stance on corporate crime, including trade secrets theft and the accompanying publicity will likely result in an increase in civil litigation in that arena as well. 

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Texas Supreme Court Rules Competitors Can be Excluded from the Courtroom

cartoonUntil recently, companies suing for trade secret theft ran a risk of having to disclose to their competitors in open court certain aspects of their trade secrets in order to prove their claim. The companies often argued that they shouldn’t have to give up their trade secrets in order to pursue their legal rights.  On the other hand, defendants argued that they cannot defend against a claim when they don’t know what they are accused of taking. Last month, the Texas Supreme Court clarified how such dilemma is to be resolved. 

The Court ruled that a company suing for trade secret misappropriation may exclude its competitor’s representatives from the courtroom when their trade secrets are discussed, leaving only the lawyers and independent outside experts of the competitor to hear such testimony. This way, a defendant can learn the information it needs to defend against the claims brought against it, but the information cannot be used outside of the lawsuit. 

Under TUTSA, trial courts are required to take “reasonable measures” to protect trade secrets during litigation, including, among other things, “holding in camera hearings” i.e. hearings that are closed to the public because they will involve discussion of trade secrets.  TUTSA does not specifically define the term or explain exactly who may or may not be present during in camera hearings.  Recently, NOV and M-I Swaco battled in court over whether NOV’s corporate representative could be present at a hearing where M-I Swaco offered testimony about what trade secrets its former employee took from it and gave to NOV.

In In Re M-I, LLC d/b/a M-I Swaco, NOV argued that as a party to the lawsuit where it was accused of stealing trade secrets from M-I Swaco, it had a right to be present at a temporary injunction hearing and hear what trade secrets M-I Swaco claimed NOV misappropriated.  The Texas Supreme Court did not buy into this argument finding that in camera hearings could include hearings where a party or its representatives (but not its attorneys) could be excluded.

The Supreme Court explained that when a trial judge is faced with the decision on whether to exclude a corporate representative from the courtroom during testimony about trade secrets, which he might not already know by virtue of misappropriation, the judge must balance (1) the “degree of competitive harm” the party would have suffered from the disclosure of its trade secrets to the other party’s corporate representative and (2)  the degree to which a party’s defense of a trade secrets case might be impaired if its corporate representative is excluded from the courtroom.

To make this determination regarding the degree of competitive harm, the court must consider the relative value of the party’s trade secrets to its competitor as well as whether the corporate representative acts as a competitive decision-maker at his company.  If he does, disclosure of alleged trade secrets would “necessarily entail greater competitive harm” because, even when acting in good faith, the corporate representative would not be able to resist acting on what he or she may learn during the hearing. To determine whether a party’s defense might be impaired, the court should consider whether a corporate representative possess unique expertise that a party may not find in outside experts.

Takeway:  The Texas Supreme Court has made it clear that a company wishing to prosecute theft of trade secrets can do so without having to disclose its trade secrets to a competitor in an open court.  If the disclosure of such information in open court will harm the company, it may ask the judge to remove its competitor’s representatives from the courtroom when critical proprietary information is discussed, leaving it up to the other sides’ lawyers and experts to analyze the testimony or evidence.  While this will certainly increase the cost of trade secrets litigation, it will also ensure that a competitor cannot use the courtroom to get to the “secret sauce.”

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.