The Texas Supreme Court is poised to determine the future of a 30-year old procedural rule that presumes court records are open to the public and how it should apply in trade secrets litigation.
HouseCanary v. Title Source – submitted to the court in late October — concerns whether a post-trial trade-secrets sealing order under a state statute conflicts with Texas Rule of Civil Procedure 76a, which requires public notice of a party’s request to seal court records.
Rule 76a, controversial from its 1990 adoption by the Supreme Court in response to a legislative directive, is being weighed in relation to a 2013 law, the Texas Uniform Trade Secrets Act. TUTSA directs trial courts to take reasonable measures to protect alleged trade secrets at any stage of litigation.
The records battle arose in 2018 after real estate analytics company HouseCanary won a $706 million jury verdict in a trade secrets dispute against Title Source, a property valuation firm now known as Amrock and affiliated with Quicken Loans. The verdict was the largest in any trade secrets case in 2018.
HouseCanary and Title Source developed and compiled algorithms, software and data that each considered proprietary. Title Source sued HouseCanary for breach of contract, fraud and tortious interference. HouseCanary counterclaimed for misappropriation of intellectual property under TUTSA and other common-law theories.
The records-sealing dispute is separate from Amrock’s appeal of what is now, with attorney fees and interest, a $740 million judgment, which was overturned by the Fourth Court of Appeals in June. It arose after HouseCanary won a trial court sealing some of the exhibits presented during the seven-week trial.
Media intervenors argue that retroactively sealing the exhibits would violate the First Amendment and Texas law and prevent news organizations from fully informing the public about the important case.
The parties agreed early in the trade secrets litigation to a stipulated protective order that provided procedures to mark exhibits as confidential and specified procedures for sealing the materials in court. Both sides won temporary courtroom closure during testimony about their computer source code.
Six weeks after the trial ended, HouseCanary filed a motion to seal certain exhibits that had been admitted into evidence. The Reporters Committee for Freedom of the Press and Houston Forward Times and Title Source opposed the request.
The court ordered eight exhibits sealed and six others redacted for trade secret information.
Ruling on the sealing order as the result of Title Source and the media intervenors, the Fourth Court of Appeals in 2019 said the trial court abused its discretion by sealing the exhibits without applying the Rule 76a standards and procedures as agreed and ordered in the pretrial protective order. The appeals court said that TUTSA does not override the protective order.
Oral arguments before the Supreme Court were conducted remotely on Oct. 27 and featured top appellate talent, including two former chief justices of the court who teamed up for HouseCanary.
Tom Phillips, who served as chief justice from 1988 to 2004, kicked off the arguments for the plaintiffs. He said that the Legislature in TUTSA included a presumption in favor of granting protective orders to preserve the secrecy of trade secrets.
“Since 2013, properly reading the rule and the statute together, Rule 76a simply has no application to trade secrets,” said Phillips, now a partner at Baker Botts.
The limited use of some of the exhibits during the trial – in references and brief video displays — did not compromise the protective order, Phillips said.
“You all went to trial using these exhibits,” said Justice Eva Guzman.
“They were not comprehensibly put in the open record and even if they were,” it was not enough to lose protection, Phillips said.
David Keltner, who represents Title Source, said the case turns on whether HouseCanary put the exhibits in the record and left them unprotected for nine months.
“Secrecy can be destroyed or lost if the trade secrets become part of the record at trial. The stipulated protective order says precisely that,” said Keltner, a partner at Kelly Hart.
Justice Jane Bland asked Keltner if such a holding would negate the jury’s conclusion that the records were trade secrets. He said the damages were prospective, and noted that the underlying case was reversed and may also be headed to the Texas Supreme Court.
Bland asked whether TUTSA requires a party to prove the exhibits are trade secrets.
“How in heaven’s name is HouseCanary now going to do that after not following a protective order that they agreed to,” said Keltner. “Nothing in TUTSA authorizes anyone to ignore a protective order and not suffer the consequences.”
Charles “Chip” Babcock represents the media intervenors. He said the case is an effort to exempt intellectual property litigation from the presumption of openness in Rule 76a.
“Is it your contention that TUTSA would be unconstitutional?” asked Justice Brett Busby.
“The whole genius of 76a is it vindicates the public’s right to know what its decision makers are basing their decisions on,” said Babcock, a partner at Jackson Walker. “This was a huge verdict in a highly publicized, important case and the public is entitled to know what it was that went into that decision.”
Wallace Jefferson, who followed Phillips as chief justice and served until 2013, presented rebuttal for HouseCanary. He said the information in dispute is HouseCanary’s source code that was not available for public inspection during the trial and that the jury was instructed not to disclose. The public does have a right to view non-proprietary information through the trial transcript, he said.
“It is not HouseCanary’s burden to prove they are trade secrets but we know they are because of the jury’s findings and the judgment,” said Jefferson, of Alexander Dubose & Jefferson. “The burden is on Title Source and the intervenors to prove” the information was in the public domain in a way that competitors could access it.
The Business Law Section of the State Bar of Texas weighed in with an amicus brief that urges the high court to preserve TUTSA and allow aggrieved parties to pursue their legal rights in court without fear of having to disclose the information they are trying to keep secret.
View the oral arguments in HouseCanary v. Title Source here.