Cases from Texas

Supreme Court of Texas
"Treasure Map" Misappropriation Award Upheld in Texas

On March 13, 2015, the Texas Supreme Court denied review of Lamont et al v. Vaquillas Energy Lopeno, Ltd. et al, thereby upholding a $4.9 million jury award for Vaquillas in its trade secret misappropriation suit. At the center of the dispute is the seismic map of oil and gas prospects that Ricochet Energy, Inc. generated pursuant to an agreement with Vaquillas in 2003 and 2004. The seismic map, or “treasure map” as both parties had referred to it, had identified a lucrative prospect – a gas reservoir containing natural gas estimated as much as $60 million.

The instant controversy began when Thomas Lamont, a co-owner of Ricochet, separated from Ricochet in 2006, and then formed a new entity, Montecristo II, with another oil and gas investor, Rosendo Carranco in 2007. Because Lamont had continued to own a working interest in the gas prospect, after Lamont’s separation, Ricochet shared the treasure map with Lamont as a potential investor, without signing any confidentiality agreements. Montecristo II then outbid Ricochet to lease property adjacent to the gas reservoir, and depleted it, foreclosing any opportunity for Ricochet to withdraw any gas.

On appeal from the jury’s verdict in favor of Vaquillas, Lamont argued that the trade secret’s status was destroyed when Ricochet shared the treasure map with Lamont after his effective resignation date. However, the court noted that the disclosure to Lamont was in his role as a potential investor, and as such, the limited disclosure did not destroy its trade secret status. The disclosure was never meant to enable a potential investor to compete directly against Ricochet, but instead, to work with them in an investment opportunity. Further, the court noted that Ricochet took proper means to protect its trade secret, by keeping it a secret from its employees, competitors, and the public. Next, the appellate court concluded there was sufficient evidence to support a finding that Lamont and Carranco’s actions fell below the generally accepted standards of commercial morality, because they used improper means to locate the gas reservoir when they misused the map. Notably, Lamont and Carranco had never conducted any independent research, indicating their reliance on the map, which they used to enrich themselves off of Ricochet’s work and investment.

While Texas adopted a version of the Uniform Trade Secrets Act, it only took effect on September 1, 2013, and does not apply to prior misappropriation. As such, in the instant case, the appellate court relied heavily on the 3rd Restatement of Unfair Competition, which notably, is aligned with the Act. Therefore, this case is still persuasive in situations where a company must rely on common law to protect its trade secrets if it is in a state where the UTSA, or any version of the model Act, has not been adopted. Further, and more significantly, this case demonstrates that companies which did not employ confidentially or non-disclosure agreements, may still be protected in the scenario a potential business investor misuses their secrets. While certainly helpful in situations where negotiations could be stalled for such agreements, it is always better to employ these agreements, if for no other reason than it may define the scope of litigation.

Texas District Court
Fake Evidence Leads to Dismissal with Prejudice

One month into a complex case involving energy production in post-Soviet Russia, Moncrief Oil International abruptly dropped its $1.37 billion lawsuit that included a trade secret misappropriation claim against Gazprom after the Fort Worth company was accused of producing a falsified key document in the case. The company’s lawsuit hinged upon the allegation it had shared with Gazprom the secret details of an LNG plant it wanted to build with Occidental Petroleum in Ingleside, Texas in 2004.

State District Judge Melody Wilkinson dismissed the case with prejudice at the request of attorneys representing Moncrief Oil, which was suing the Moscow-based energy company for backing out of a deal for rights to develop a natural gas field in Siberia. During the trial last week, a document prepared by an accountant at Moncrief Oil International was found to include a key error, making it impossible to continue with the case

By dismissing the case with prejudice, Wilkinson prevents Moncrief Oil from continuing with any lawsuit on the same claims. This case shows the necessity of following all rules, both ethical and procedural, whilst litigating such claimes.

E.D. Texas, United States District Court
Medical Device Company Steals Doctor's Trade Secret - Now it Pays the Price

Medical Device Company Globus met with Dr. Bianco back in 2007 to tell them about his idea for a new device to be used as an interbody spacer. The spacers that existed at the time did not have the ability to expand and contract at the surgeon's will, and thus Dr. Bianco's innovation was to create a design that was capable of doing so. Globus told Dr. Bianco that they would let him know whether they wanted to pursue his invention, but after a short period, they told him they were not interested. In 2011, however, Dr. Bianco learned that they had pursued his idea, when Globus tried to sell one of their products employing the technology to Dr. Bianco.

Ultimately, the jury awarded over $4 million to Dr. Bianco for the theft of his Trade Secrets. No recovery would have been possible if not for the mutual NDA both parties had agreed to prior to their initial meeting. Followings the jury's award, Globus filed for a judgment as a matter of law, but Judge Bryson was unconvinced by Globus' numerous legal arguments, and denied the motion in a decision issued on October 27.

Supreme Court of Texas
Texas Supreme Court to Review Jurisdictional Dismissal of Misappropriation Suit Against Russian NG Producer

In December, the Texas Supreme Court granted review of a lower Texas court's dismissal, on jurisdictional grounds, of Texas-based plaintiff Moncrief's misappropriation suit against Russian natural gas giant Gazprom. Moncrief's petition for review (available below) was filed in 2011. A record of the court's grant of review is available Here.

234th Judicial District Court of Harris County, Texas
Trade Secret Holder Files for Injunctive Relief After Employee Confesses to Accepting Bribe from Competitor

On October 4, 2012, National Oilwell Varco LP (“NOV”) petitioned for a Temporary Restraining Order (TRO) and Injunction against its competitor Ceram-Kote, Inc., (“Ceram-Kote”), Ceram-Kote’s President Kevin Freeman, and former NOV employee Nelson Calderon (collectively “Defendants”). NOV brought the suit in Texas State court to stop Ceram-Kote from producing a “knock-off blast unit” that Ceram-Kote allegedly misappropriated from NOV.

NOV claims that “Ceram-Kote along with its president, Kevin Freeman, secretly recruited and paid Nelson Calderson – while he was still working at [NOV] --to build a knock-off of a . . . sophisticated piece of [NOV] industrial machinery,” which was an NOV trade secret. Calderon had access to highly confidential information by virtue of his employment with NOV, and had signed multiple confidentially agreement with the company. After NOV received an anonymous tip about a possible knock-off blast unit at Ceram-Kote, it approached Calderon, who confessed to accepting a bribe from Freeman and providing him with confidential designs.

Per NOV’s filing: “Rather than investing in research and development themselves, they decided to cheat — by paying a [NOV] employee $40,000 to design a large scale blast unit for them by using [NOV's] proprietary technology.” In addition to NOV’s claim for misappropriation of trade secrets pursuant to the Texas Uniform Trade Secrets Act, NOV brought additional causes of action for breach of contract[s], tortious interference with a contract, conversion, conspiracy, unjust enrichment and constructive trust.

295th Judicial District Court of Harris County, Texas
Baker Hughes Accuses Departing Scientist of Leaving Confidential Information

On August 6, 2012, Plaintiffs Baker Hughes Incorporated and Baker Petrolite Corporation (collectively “Baker”) filed an application seeking a temporary restraining order, and a temporary and permanent injunction against its former employee, Defendant Jun Tian (“Tian”). Plaintiffs allege Defendant misappropriated “confidential information and trade secrets, resigned from [Plaintiffs’ company], and went to work for a direct competitor, Multi-Chem Group LLC (‘Multi-Chem’).” Defendant has refused to return said information, and Plaintiffs seek to enjoin Tian from every using or disclosing it.

Plaintiffs offered specific details regarding the events leading up to the lawsuit. Tian was a Senior Development Engineer on Plaintiffs’ “Flow Assurance” work group, as part of which he played “a critical research and development role,” had access to confidential information and was “a listed inventor on several patents and patent applications.” Tian entered into an explicit “Employment Agreement” with Plaintiff that barred him from disclosing Plaintiffs’ confidential information. After resigning, Tian allegedly acted “suspiciously” and was “tight-lipped” at his exit interview. This, combined with reports from fellow employees that Tian had downloaded work files to an external harddrive prior to his departure, lead Plaintiffs to perform a forensics investigation of Tian’s harddrive. At the close of the investigation, Plaintiffs concluded that Defendant had transferred proprietary information to an external harddrive without authorization.

In addition to the trade secrets misappropriation claim, Plaintiffs also allege causes of action for breach of contract, threatened misappropriation/inevitable disclosure, breach of fiduciary duty, unjust enrichment and conversion.

One of the first issues that will likely arise is the fact that Plaintiffs did not specify exactly what confidential information Tian allegedly took. Plaintiffs are understandably hesitant to commit this information to public record, and will likely seek a protective order and/or in camera review by the Judge. Interestingly, even if Plaintiffs fail to prove that Tian took confidential information, the court could still bar Defendant from working at Multi-Chem through the inevitable disclosure claim.

Texas Court of Appeals
Texas Appeals Court Strikes Overly Broad Trade Secret Injunction

On August 26, 2013, the Texas Court of Appeals struck down part of a temporary trade secret injunction, finding the injunction overly vague. In Ramirez v. Ignite Holdings Ltd., an energy services provider (Stream) and its marketing subsidiary (Ignite) brought several claims including breach of contract and trade secret misappropriation against four former sales associates who had started directly competing businesses, which Stream claimed was a violation of the associates’ non-compete agreements. The trial court granted a temporary injunction which, among other things, barred the sales associates from possessing, disclosing, or using any of Ignite’s or Stream’s trade secrets, “including but not limited to proprietary information, confidential information, training materials, templates, or sales or customer lists.”

On interlocutory appeal, the Texas Court of Appeals found that this provision was too vague to warrant enforcement. Specifically, the court held that terms used or cross-referenced in the provision such as “confidential information,” “proprietary information,” “techniques,” and “materials” were not well-defined enough to provide the sales associates with sufficient guidance on what acts they were restrained from doing. As a result, the court reversed this provision of the injunction and remanded for further proceedings.

United States Court of Appeals for the Fifth Circuit
5th Circuit Affirms Sanction for Law Firm Based on Accidental Disclosure

In Trenado v. Cooper Tire & Rubber Co., the surviving members of the Trenado family brought a products liability suit against Cooper Tire & Rubber Co. (“Cooper”), alleging the manufacturer was responsible for the family’s tragic rollover car accident. A jury returned a verdict in favor of the defendant, which the Fifth Circuit Court of Appeals affirmed in March, 2012.

As part of the litigation, plaintiff’s attorneys (“Smith & Fuller”) were privileged to Cooper’s trade secrets and confidential information. Smith & Fuller accidentally disseminated the information when it mistakenly copied the confidential files onto compact discs, which were then distributed to other personal injury attorneys. According to court documents, the recipients were attending a conference that specifically discussed “obtaining discovery from Cooper,” and were lawyers that generally “sue[d] Cooper and other tire manufacturers.”

Smith & Fuller’s dissemination violated the trial court’s Protective Order of Confidentiality regarding Cooper’s trade secret and confidential information. Following trial, the district court held that Smith & Fuller did not willfully violate the Protective Order. It determined, however, that sanctions should be imposed based on: (i) Cooper’s vigorous enforcement of the protective order prior to the violation; (ii) the costs Cooper incurred as a result of the violation; and (iii) the fact that Smith had previously violated similar protective orders. Pursuant to Rule 37(b)(2)(C), the court ordered Smith & Fuller to reimburse Cooper $29,667.71 in attorneys’ fees and expenses incurred as a result of Smith’s violation.

On appeal, Smith & Fuller argued the violation of the Protective Order was inadvertent and that the court erred by imposing sanctions. They further argued that the district court’s remedial powers were limited to the “Inadvertent Disclosure” provision of the Protective Order. However, the Fifth Circuit Court of Appeals affirmed the damages award. The Court held that:

[p]ursuant to Rule 37(b), the [district] court is authorized to impose
sanctions against parties or counsel, “‘including attorney’s fees,’ caused
by the failure to comply with discovery orders.” The district court provided
specific and well-reasoned grounds to impose sanctions as it determined that
any lesser penalty would not have been an adequate future deterrent. Appellants
concede that they violated the court’s Protective Order, and it was well within
the court’s discretion to use sanctions as a tool to deter future abuse of
discovery.

The Court’s decision cleared up ambiguity over whether Rule 37(b) sanctions can be imposed for violating Rule 26(c) protective orders. The Court not only questioned the Eleventh Circuit’s “narrow reading” of Rule 37(b), but moreover held that a Protective Order can also constitute an “order to provide or permit discovery.” The decision further exhibits the extremely delicate nature of trade secrets, such that an even accidental dissemination can destroy the vitality of the secret forever. Courts must decide whether a party should be punished for such a disclosure, and if so, how much.

Supreme Court of Texas
Texas Court to Hear Arguments Over Scope of Protective Order for "Tire Trade Secrets"

On April 19, 2013, the Supreme Court of Texas agreed to hear whether a Houston trial court ordered an overly broad disclosure of Defendant's trade secrets, such that it constitutes a "constitutional taking."

In IN RE CONTINENTAL TIRE THE AMERICAS, LLC,, Plaintiffs' allege that a defect in Continental Tire the Americas' (CTA) tires is responsible for the fatal crash of Juan Hernandez, and his daughter and granddaughter. Plaintiffs are all members of the Hernandez family. CTA claims it possess trade secrets in the tire and its manufacturing process. Furthermore, the company argues that the trial court's flimsy protective order constitutes an abuse of discretion: it not only failed to protect CTA's alleged trade secrets in the present case, but allows potential litigants in other states to access the confidential information in order to promote "shared discovery." CTA claims the extent of disclosure, as proscribed by the trial court, is so egregious it constitutes a constitutional taking without just compensation.

Per CTA's brief, under Texas Rule of Evidence 507, trade secrets, even if relevant, are privileged and not discoverable, unless the requesting party makes a particularized, evidentiary showing that disclosure of the trade secrets is necessary for a fair adjudication of the case. When the requesting party satisfies that burden of proof, the trial court ordering disclosure must issue a protective order sufficient to safeguard the trade secrets from further disclosure. Tex. R. Evid. 507.

Texas Court of Appeals
Texas Court Affirms Reasonable Royalty Damages Award

On July 10, 2013, a Texas Court of Appeals affirmed a jury’s award for damages in a trade secret misappropriation case stemming from proprietary data for natural gas extraction locations. The plaintiff, Toby Berry-Helfand, had conducted extensive geological research to determine locations likely to contain natural gas deposits. After sharing her findings under a confidentiality agreement with defendant Southwestern Energy Production Company (SEPCO) in hopes of forming a partnership, SEPCO declined to partner with Helfand, but commenced drilling in the locations recommended by Helfand’s research.

In affirming the jury’s award of $11,445,000, the court held that the jury had correctly applied the reasonable royalty approach in reaching this figure. Reasonable royalty, a measure of damages borrowed from patent law, is used in trade secret cases where there is no way to quantify the loss to the plaintiff. The approach attempts to determine what the parties would have agreed to as a reasonable licensing fee for the use of the trade secret, calculated at the time the misappropriation occurred.

Here, the court found that the damages awarded, roughly 3% of the revenue SEPCO generated from the drilling sites identified in Helfand’s research, represented a reasonable licensing fee for that information. While courts consider a number of factors in calculating a reasonable royalty, the court here gave particular weight to several factors. Specifically, the court noted that rates used in agreements between Helfand and other drilling companies for comparable information, the extent to which SEPCO made use of Helfand’s trade secrets, and the portion of the profit attributable to Helfand rather than to SEPCO were of particular importance.

While the court affirmed the jury’s award, it also held that the equitable remedy of disgorgement was not appropriate in this case since there was no fiduciary relationship between Helfand and SEPCO.