The Texas Supreme Court recently agreed to hear oral arguments in a case closely watched by the business community, given that the Court is expected to provide guidance on how a company can protect its trade secrets that are at issue in an injunction action.
The facts of the case are similar to situations encountered regularly by businesses dealing with confidential information, in this case competitors within the energy industry. Jeff Russo (“Russo”) was employed by M-I SWACO (“M-I”) as a business development manager (i.e., a sales person). Russo signed a non-competition agreement as part of his employment. In exchange for entering into the non-competition agreement, M-I claims it provided Russo with access to confidential and proprietary information and trade secrets. Russo’s non-competition agreement with M-I restricts him from going to work with a competitor for two years after leaving his employment with M-I. After signing the non-competition agreement, Russo elected to resign from his position at M-I and went to work for National Oilwell Varco, LP (“NOV”), a direct competitor of M-I.
A few months after Russo started working for NOV, M-I sent him a letter reminding him of his obligations under his non-competition agreement. M-I subsequently moved for an injunction to prevent Russo and NOV from using its alleged trade secrets.
In order to prevail on its claim for misappropriation of trade secrets, M-I was required to prove that it had trade secrets and NOV/Russo had misappropriated such alleged trade secrets. At the temporary injunction hearing, M-I sought to call an executive to testify regarding the alleged trade secrets. M-I requested the trial court to remove NOV’s corporate representative from the courtroom while M-I presented evidence of its alleged trade secrets. M-I claimed that it would defeat the purpose of the hearing if NOV’s corporate representative was permitted to hear testimony regarding the alleged trade secrets, as he would gain firsthand, direct knowledge related to the trade secrets. M-I contended that NOV’s interests would be appropriately protected because its attorneys and experts would be present during the hearing.
NOV objected to M-I’s requested relief on the grounds that it violated NOV’s due process rights to hear the accusations asserted against it. In other words, NOV maintained it had a right to hear testimony regarding what trade secrets it allegedly stole from M-I. The trial court agreed with NOV. Rather than excluding NOV’s corporate representative from the hearing, the trial court allowed the corporate representative to participate in the hearing, but instructed him that he was not to use any information learned during the hearing for any purpose outside of the litigation.
After the trial court’s ruling, M-I immediately recessed the temporary injunction hearing and filed a petition for writ of mandamus with the Fourteenth Court of Appeals seeking to overturn the court’s ruling. M-I claimed that the trial court abused its discretion in not excluding NOV’s corporate representative from the hearing. The Court of Appeals agreed with the trial court and denied M-I’s request for mandamus relief. M-I subsequently appealed this matter to the Texas Supreme Court. As noted above, the Texas Supreme recently agreed to fully consider the merits of this appeal. The key issue will be the scope of relief afforded under the Texas Uniform Trade Secrets Act (“TUTSA”) to protect trade secrets, as compared against a party’s due process rights.
TUTSA is found in Chapter 134A of the Texas Civil Practice & Remedies Code. Importantly, TUTSA only became effective on September 1, 2013. Consequently, there remains a level of uncertainty regarding how the statute should be applied by courts. The provision in question is Tex. Civ. Prac. & Rem. Code § 134A.006 – Preservation of Secrecy, which reads as follow:
In an action under this chapter, a court shall preserve the secrecy of an alleged trade secret by reasonable means. There is a presumption in favor of granting protective orders to preserve the secrecy of trade secrets. Protective orders may include provisions limiting access to confidential information to only the attorneys and their experts, holding in camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval. (emphasis added)
M-I contends that under § 134A.006, the trial court abused its discretion when it failed to use “reasonable means” to limit access to its alleged trade secrets at the time the trial court refused to exclude NOV’s corporate representative from the temporary injunction hearing. M-I contends that § 134A.006 specifically contemplates this result when allowing the entry of protective orders limiting access to confidential information to “only attorneys and their experts.” Further, M-I contends that § 134A.006 also permits courts to conduct in camera hearings to address trade secret issues. An in camera hearing permits the trial judge to review evidence “in chambers” outside the presence of the opposing party. M-I claims this is exactly what it requested the trial court to do in this case.
On the other hand, NOV responds by stating that it had a due process right to have a corporate representative present to hear the allegations asserted against it by M-I. NOV claims that the trial court did not abuse its discretion; rather, it followed § 134A.006 when instructing NOV’s corporate representative not to disclose any alleged trade secrets learned during the hearing without prior approval from the court. NOV claims that this was a “reasonable means” to address M-I’s concerns that NOV’s corporate representative would gain access to M-I’s alleged trade secrets. M-I countered this argument by stating that it was unreasonable and unrealistic to think that NOV’s corporate representative would learn information about M-I’s trade secrets and then not use this information in furtherance of NOV’s business. M-I’s position is that NOV’s suggested remedy placed M-I in a catch-22, it had two equally unattractive options: (1) not to pursue a lawsuit to prevent NOV from stealing its trade secrets; or (2) pursue a lawsuit regarding the alleged misappropriation of trade secrets and be forced to reveal these trade secrets to a direct competitor in order to prevail on these claims. M-I claims that this would defeat the purpose of § 134A.006.
This is an issue of first impression in Texas, as no court has addressed how to best protect a party’s right to keep trade secrets privileged against an opposing party’s due process rights. The Texas Supreme Court is scheduled to hear oral arguments on January 13, 2016.
We will provide a comprehensive update regarding the Texas Supreme Court’s ruling when issued. Please stay tuned to Law in the Workplace as this matter continues to develop.