© 2015 The Texas Lawbook.
By Dustin Edwards of Winston & Strawn
(May 6) – The Texas Alliance of Energy Producers says the state lost about 84,000 oil and gas jobs in roughly the past 16 months. In Houston, research from the Greater Houston Partnership suggests that one-in-three oilfield services jobs have been cut and one-in-five jobs lost in the energy sector more broadly. Although the price of oil recently has shown positive signs, conditions in the field support a more negative forecast. According to Baker Hughes’ rig data for the United States, 2016 started with 536 working oil rigs, and by mid-April only 343 remain, a decline of 36 percent.
In light of the energy downturn and the release of thousands of former employees, Houston area companies should be keen on the risk of would-be trade secret thieves trying to capitalize on their vulnerability. The federal Defend Trade Secrets Act (DTSA), approved by Congress and now on its way to the president’s desk, initially showed promise as another useful tool for companies to use in combatting trade secret misappropriation. However, based on the bill that was adopted, companies in Texas may do better seeking relief in state court.
The DTSA provides for a federal civil suit for the misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce. The DTSA received strong support from industry, with various companies and organizations expressing the need for a remedy that would provide “a consistent, harmonized legal framework and help avoid the commercial injury and loss of employment that can occur when trade secrets are stolen.”
Opponents of the federal trade secret law argued that uniform state law already exists, citing the fact that the Uniform Trade Secrets Act (UTSA) was built on a century of state case law and has been adopted by 47 of the 50 states. Texas adopted the UTSA on September 1, 2013.
The DTSA does not pre-empt state laws, but rather, provides trade secret owners with a federal cause of action. Companies will still need to evaluate whether the DTSA and federal court is preferable over state law and state court. The injunction provision gives companies the most to ponder when it comes to choice of law and forum.
The bill as originally introduced allowed for an injunction for “threatened misappropriation,” a term borrowed from the UTSA. “Threatened misappropriation” is not defined under either the DTSA or UTSA. While Texas law has not yet developed clear guidelines, courts in some states, such as California, have indicated that “threatened misappropriation” requires something beyond mere possession of trade secrets, such as having misused or disclosed trade secrets in the past, intending to use or disclose the trade secrets, or refusing to return the trade secrets. Some courts, on the other hand, have interpreted this term to permit an injunction under the UTSA via the doctrine of “inevitable disclosure.”
The seminal inevitable disclosure case is PepsiCo. Inc. v. Redmond, where the Seventh Circuit Court, in applying the Illinois Trade Secrets Act, held that “a plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.” Courts adopting the inevitable disclosure doctrine view it as a basis upon which threatened misappropriation can be proven.
While not expressly adopted by the Texas Supreme Court, this doctrine has been applied by several Texas courts and remains a viable basis for companies seeking an injunction in state court. In a 1999 case decided in a Dallas County appeals court, Conley v. DSC Commc’ns. Corp., the court granted a preliminary injunction, writing: “We agree that misconduct on the part of an employee in taking or threatening to use a former employer’s confidential information is a factor supporting issuance of a temporary injunction on the probable disclosure theory. However, the absence of that evidence does not bar the trial court from entering a temporary injunction.” The recent amendments to the DTSA eliminate the ability of a company to obtain an injunction under the inevitable disclosure doctrine by requiring that an injunction “be based on evidence of threatened misappropriation and not merely on the information the person knows.” A related amendment requires that an injunction may not “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.” This provision appears focused directly on states that have expressly rejected the inevitable disclosure doctrine. Texas is not one of them.
Imagine a scenario in which several employees are laid off from Acme oil company, including high-ranking employees with clean disciplinary histories that handled key trade secret information, such as tool drawings and designs, manufacturing techniques and processes, and supplier and customer pricing information. Several months after being laid off, Acme learns that the former employees formed competing Beta oil company. Soon thereafter, Acme loses several jobs to Beta and discovers that Beta is undercutting Acme’s bids. A loyal customer provides Acme with a copy of a Beta quote, which appears to have been copied from an Acme template. Acme also learns that Beta is contacting its suppliers about certain machine parts for Acme.
Acme had established a good trade secret security program several years ago, and as part of the guidelines of that program, imaged the hard drives of the former employees when they left the company. A computer forensic investigation of the former employees’ computers reveals that thumb drives were attached to the computers the day they left Acme. However, a data eradication program was run on the computers just after the thumb drives were attached, making it impossible, without examining the thumb drives, to positively determine whether the trade secret information was transferred to the thumb drives. Unfortunately, the thumb drives are missing.
Acme has no evidence of actual misappropriation. And, with no evidence of the former employees physically possessing Acme’s trade secrets or having misused or disclosed trade secrets in the past, it is unclear whether Acme will be able to show “threatened misappropriation.” Faced with this legal uncertainty and an attack on their business, Acme may be left with no recourse other than pursuing an injunction under the Texas UTSA. The new federal Defend Trade Secrets Act offers little relief to companies in Acme’s situation.
Dustin Edwards is an intellectual property attorney in the Houston office of Winston & Strawn who advises companies on trade secret protection.
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