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.

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.

Is a Client List a Trade Secret in Texas?

0e348adfa4295fa0fabe78ead1d69672--lawyer-humor-job-humorI’ve been contacted by many a business owner saying, “my employee left, he had a confidentiality agreement, and now he is contacting my customers on behalf of his new employer. Can I stop him?”. The answer to that question, of course, depends on several factors. One of them is whether the business owner’s client list qualifies as a “trade secret” in Texas. 

Under the Texas Uniform Trade Secrets Act (“TUTSA”), a “list of actual or potential customers or suppliers” of a company qualifies as a trade secret as long as: (1) its owner, i.e. the company, took reasonable measures to keep it secret and (2) the list has an economic value because it is not generally known and cannot be easily determined by another person. 

Thus, a client list is not automatically a trade secret. Instead, a company must establish certain things at the temporary injunction hearing in order to get a court order prohibiting a former employee from contacting its clients on the ground that its client list is a trade secret.  

Recently, a Texas Court of Appeals in Cooper Valves, LLC, et al. v. Valvetechnologies, Inc., dissolved an injunction that prohibited a former employee from “possessing, copying, selling, disclosing, or using” any information about his former employer’s 1800 customers listed on the exhibit attached to the injunction order. The employer in that case, submitted under seal a list of all of its customers and asked the court to order the former employee not to use any information about those customers in his new job. The list, however, included only the names of the companies, and not the names and contact information for the key decision-makers.  It also included many pre-existing customers of the former employee’s new employer.

The Court of Appeals voided the injunction finding that it was overboard and that the company did not prove that company names qualified for trade secret protection. Thus, the owner of the client list failed to prove that his particular client list, consisting of just the company names, was a trade secret. 

BOTTOM LINE: Business owners in Texas should make sure that they take reasonable measures to protect the secrecy of their client lists and, when push comes to shove and they must seek a court order preventing a former employee from using such a list in their new job, must be ready to establish the necessary requirements under the Texas law proving that the information contained in their client lists qualifies for trade secret protection. 

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. For a consultation regarding a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

Employees’ Unauthorized Copying of Electronic Files is Not Theft in Texas

1sbkpi.jpgWhen a company learns that an employee took or copied confidential materials, it’s not unusual for the company to sue the employee for misappropriation of trade secrets and theft of trade secrets under the Texas’s civil theft statute.   A recent federal court decision out of the Southern District, however, serves as a reminder that employers should carefully analyze what exactly the employee took and/or copied before tacking on a claim under the Texas Theft Liability Act (TTLA) to their lawsuit.

In BHL Boresight, Inc. v. Geo-Steering Sols. Inc., BHL accused the defendants of stealing: (1) software; (2) bitlocks; (3) data; and (4) user guides for BHL’s software program.  It claimed that these items constituted “property” under Texas Penal Code §33.03 and that defendants committed civil theft of this property by  unlawfully appropriating it without BHL’s effective consent.

Defendants argued that the civil theft claim must be dismissed because “general theft applies to unique documents and not copies of documents,” and the district court agreed finding that “consensus appears to be that if the plaintiff continues to possess and control originals of the subject property, he cannot show that the defendant possessed the requisite intent to deprive” the owner of its property.  And without intent, there is no claim for theft.

The district court ruled that because BHL retained the originals of its user guides and the software program, its theft claim related to these two items failed. However, bitlocks and the data generated by the software were a different matter.  Because bitlocks were physical USB devices that allowed users to access BHL’s software, they were neither “documents” nor “originals” and, therefore, when the defendants took them, they had the intent to deprive BHL of these devices.  Similarly, the data generated by BHL’s software was unique because the software generated different data depending on which oil & gas well it was applied to.  Therefore, the court did not dismiss BHL’s claim with respect to the theft of bitlocks and the software data.

BOTTOM LINE FOR COMPANIES:  Before pleading a Texas Theft Liability Act claim against an employee for stealing the company’s data, information, documents, or other property, the company should make sure that there is at least some evidence of the employee’s intent to deprive the company of its property.   While unauthorized copying of information or files may not be sufficient to bring a theft claim, the company may have other claims under Texas and federal law that it may use to remedy the harm from the employee’s actions.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. For a consultation regarding a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

Proving Lost Profits in a Trade Secrets Case – An Expensive Lesson from a Texas Court of Appeals

think memeWhat the jury giveth, the judge may taketh away. Memes aside, any company that is thinking of filing a trade secrets misappropriation case, must be ready to prove both: that its trade secrets were taken and the amount of damages that the taking caused.

A recent ruling from the Dallas Court of Appeals demonstrates how a company’s verdict can be taken away by the court due to the party not having sufficient evidence of damages. 

In Radiant Financial v. Bagby, the company, which structures and sells fractional interests in life insurance policies referred to as life settlements, sued its former sales agent for breaching her non-disclosure agreement and trade secrets misappropriation.  Radiant alleged that Bagby persuaded 19 investors who had previously placed money into escrow with Radiant, to take their money out and invest it with a Radiant’s competitor.  In the process, she allegedly provided some of Radiant’s proprietary forms and the information filled out by the investors to Radian’t competitor.

The jury awarded Radiant $152,916 in damages, $150,000 in punitive damages, and $600,000 in attorneys fees in response to the question to “[c]onsider the profit that Radiant Financial lost” as a result of Bagby’s failure to comply with her non-disclosure agreement and misappropriation of Radiant’s trade secrets.  

The trial court, however, refused to award these damages after concluding that Radiant did not prove that the 19 investors that left would have invested with it but for Bagby’s actions. 

During  the trial, Bagby introduced evidence that: (1) the 19 investors had specific investment requirements; and (2) at the time when they left Radiant, it offered no policies that met these investors’ requirements. Radiant argued that its track record showed that it “had always been able” to find appropriate policies for its investors.  Thus, it would have been able to find appropriate policies had Bagby not taken the investors to a competitor.  The trial court rejected Radiant’s lost profits damages model finding that it would require the court to “stack assumption upon assumption,” and took away the jury damages award.  The Dallas Court of Appeals upheld the court’s decision.

Bottom Line:  Before filing a trade secrets case, the company bringing the lawsuit should always consider the following questions: (1) what damages did it suffer? (2) how does it calculate such damages? (3) how can it prove such damages in court?  While the answer might not be obvious in the beginning of the lawsuit, waiting to ask such questions until the lawsuit is well underway can result in the company spending thousands of dollars in attorney’s fees on a lawsuit where the monetary damages are speculative or non-existent.

Leiza litigates non-compete and trade secrets lawsuits 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 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.

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.

No Non-Compete Agreement? No Problem! – What Texas Companies Can Learn from Oculus Rift Lawsuits

kkI advise all my business clients in Texas to have non-compete and non-solicitation agreements with their key employees. Why? Well, first of all, because Texas courts enforce such agreements, so it only makes sense to take advantage of them. Second, because clear, specific, and reasonable non-compete and non-solicitation restrictions are usually a fair trade for providing key employees with access to customer lists, confidential information or expensive specialized training.

However, what happens if an employee does not have a non-compete? Does that mean that he or she can set up a competing shop across the street with no repercussions from the former employer? Well, not exactly. One only has to take a look at a few recent high-profile cases out of California courts to see that employers have many other ways to prevent employees from taking their confidential information and opening a competing business.  Since California does not allow non-competes, its employers have spent years perfecting other remedies to prevent unscrupulous employees from misappropriating their trade secrets. So, while Texas hates to look to California for, pretty much, anything, and while Texas and California law often diverge significantly, on this specific issue it pays to take note of what California companies have been cooking in their own courts.

Most recent example of an employer v. former employee battle waged in California-land that did not involve a non-compete agreement is a lawsuit by Total Recall Technologies (TRT) against Oculus Rift – a company that manufactures virtual 3D-reality headsets for gaming – and its founder, Palmer Luckey.  TRT filed a complaint in a federal court in California alleging a breach of non-disclosure agreement and “wrongful exploitation and conversion of plaintiff’s intellectual and personal property in connection with TRT’s development of affordable, immersive, virtual reality technology” by Luckey and Oculus Rift.  TRT alleged that Luckey was hired in 2011 to help develop a prototype head-mounted display, and as part of his job, he received information and feedback to modify the design.  According to TRT, Luckey used this confidential information to create Oculus Rift, his own version of the head-mounted display, which he launched via Kickstarter.  The lawsuit demands both punitive and compensatory damages in an unspecified amount. Given that Oculus Rift has recently been acquired by Facebook for $2 billion, the timing of this lawsuit could not be better for the plaintiff.

This is not the first time that Oculus Rift and its founder are being sued for alleged misappropriation of trade secrets. In 2014, ZeniMaxIP sued the same defendants in the U.S. District Court for the Northern District of Texas alleging that Occulus Rift breached its non-disclosure agreement with ZeniMax and, among other things, hired ZeniMax’s employees knowing that they would inevitably disclose ZeniMax’s trade secrets. Other claims included copyright infringement, unfair competition, trademark infringement, unjust enrichment, and false designation under the Lanham Act.

Notably absent from the suits were statutory claims for misappropriation of trade secrets.  The claim was not included in the ZeniMax v. Oculus lawsuit because Texas Uniform Trade Secrets Act (TUTSA), which governs such claims now, did not apply to misappropriations that occurred prior to September 1, 2013 – its effective date.  Why TRT did not plead a claim under the California Uniform Trade Secrets Act (CUTSA) is less clear, but just like TUTSA such claim is often plead in many employer v. former employee lawsuits in California.

Takeaway:  Just because a former employee never signed a non-compete or a non-solicitation agreement, does not mean that he or she can set up a competing business by using the trade secrets of its former employer. In Texas, TUTSA allows employers to go after employees who misappropriated their trade secrets (even in absence of non-compete or non-solicitation restraints) or where there is a threat of misappropriation. Moreover, a lot of times, a good non-disclosure agreement will give grounds to other claims. So, although having a non-compete or a non-solicitation clause in an employment agreement makes it easier for an employer to stop a departing employee from using its confidential information, all is not lost if no such restraints have been put in place.

Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.