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Texas Appellate Court Clarifies Scope of Remand

The Texas Fourth Court of Appeals found that a new trial on misappropriation and fraud claims must include a non-appealed breach of contract claim arising from the same set of facts. Title Source, Inc. v. HouseCanary, Inc., Case No. 04-19-00044-CV (Tex. App. – San Antonio Aug. 26, 2020) (Watkins, J.). On June 3, 2020, the Texas Fourth Court of Appeals issued an opinion remanding HouseCanary’s Texas Uniform Trade Secrets Act and common-law fraud claims for a new trial because the jury instructions permitted the jury to consider both permissible and impermissible theories of recovery. (IP Update, June 18, 2020). Acting on Title Source’s motion for rehearing, the Court issued a substitute opinion with additional language clarifying the scope of the remand and making clear that HouseCanary may elect to recover on its non-appealed breach of contract claim and forego recovery (along with the new trial) on its misappropriation and fraud claims. To the extent...

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Epic Punitive Damages Award Violates Due Process

Addressing the appropriateness of three separate damages awards totaling $520 million, the US Court of Appeals for the Seventh Circuit affirmed the lower court’s award of $140 million in compensatory damages, but found that $280 million in punitive damages does not meet the Due Process Clause of the Fourteenth Amendment. Epic Systems Corp. v. Tata Consultancy Services Ltd., Case Nos. 19-1528, 19-1613 (Aug. 20, 2020) (Kanne, J.). Epic Systems is a leading developer of electronic health record software, which it licenses to top hospitals in the United States. Each customer-licensed module is specific to the customer’s needs and can be customized to ensure proper integration with the customer’s systems. In order to facilitate customization and updates to the software, Epic provides a web portal called “UserWeb,” which provides access to various resources including administrative guides, training materials, software updates and forums. UserWeb also contains...

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Attorney’s Fees Properly Awarded in Unsuccessful Trade Secret Misappropriation and Civil Theft Suit

The US Court of Appeals for the Fifth Circuit affirmed a take-nothing judgment and an attorney’s fees award against plaintiffs in a trade secret misappropriation and civil theft suit under Texas law, finding that the fee award did not need to be segregated to various claims. ATOM Instrument Corp. v. Petroleum Analyzer Co., L.P., Case Nos. 19-29151, -20371 (5th Cir. Aug. 7, 2020) (Southwick, J.). The Court also remanded for an additional award of appellate attorney’s fees. Olstowski was a consultant for Petroleum Analyzer Co., L.P. (PAC), during which time he developed a krypton-chloride-based excimer lamp to detect sulfur with ultraviolet fluorescence. Although he developed the lamp independently, he used PAC resources to test the technology.  Olstowski and PAC negotiated but failed to agree on licensing. Olstowski founded ATOM Instrument to assist him in the licensing discussions. Subsequently, PAC filed a declaratory judgment action in Texas court alleging...

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Without Personal Jurisdiction or Causal Relationship, Wheels Come Off Misappropriation Claim

Without addressing the merits of the claim, the US Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a trade secret misappropriation action based on lack of personal jurisdiction, finding no causal relationship between the competitors’ dealings in Illinois and the asserted claims. J.S.T. Corporation v. Foxconn Interconnect Technology Ltd., et al., Case No.19-2465 (7th Cir. July 13, 2020) (Barrett, J.). In 2005, General Motors (GM) retained Robert Bosch LLC to build a part for some of GM’s cars. To build the part, Bosch required a connector. Bosch turned to JST to design and build the part, which it did for years, becoming the sole supplier of the product to Bosch. After buying 15 million connectors, Bosch allegedly tricked JST into handing over its proprietary technical schematics and designs under the guise that GM required the materials and Bosch would keep them confidential. Instead, Bosch allegedly gave the materials to...

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Improper Use of Voluntarily Communicated Trade Secrets Sufficient to Maintain Action for Misappropriation in Texas

The US Court of Appeals for the Fifth Circuit held that, under Texas law, a plaintiff can sustain an action for trade secret misappropriation even if the plaintiff voluntarily communicated the alleged trade secrets to the defendant. Hoover Panel Systems, Inc. v. HAT Contract, Inc., Case No. 19-10650 (5th Cir. June 17, 2020) (per curiam). HAT Contract hired Hoover Panel Systems to design and manufacture a power beam for desks in an open office environment. The parties engaged in oral negotiations that culminated in a written contract, which provided that “any . . . proprietary information shall be considered confidential and shall be retained in confidence by the other party.” The contract also provided that the “parties agree to keep in confidence . . . all information disclosed by the other party, which the disclosing party indicates is confidential or proprietary or marked with words of similar import.” Hoover developed a prototype and forwarded it to HAT,...

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Damages Award Crumbles in Texas Concrete Manufacturing Row

The Supreme Court of Texas held that a limited partner had standing to sue for alleged loss in the value of its interest in the partnership, but reversed a damages award in favor of that limited partner for insufficient evidence. Pike v. Texas EMC Management, LLC, Case No. 17-0557 (Tex. June 19, 2020) (Busby, J) (Bland, J, dissenting). Texas EMC Products (the partnership) was formed between investors (Wilson and Walker, both individually and through Walker’s company Few Ready Mix) and a Dutch company, EMC Cement BV, which held technology in “energetically modified cement.” Texas EMC Management, LLC, was the general partner. EMC Cement BV, Wilson and Walker were all limited partners with minority shares. The partnership established an EMC plant in Texas. Pike was hired as general manager of Texas EMC Management and the plant. The partnership’s technology did not work as hoped, and the partnership never made a profit. At some point, Walker and Wilson refused to...

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Texas Appeals Court: Try Again, and This Time Get the Jury Instructions Right

A Texas Court of Appeals reversed a jury verdict for the plaintiff on claims of trade secret misappropriation under the Texas Uniform Trade Secrets Act (TUTSA) and fraud. The Court reversed the misappropriation verdict because the jury form commingled valid and invalid theories of liability, and reversed the fraud verdict because the jury instructions permitted a finding of liability under theories that were closely related to trade secret misappropriation and therefore preempted by TUTSA, as well as theories that were not. The Court ordered a new trial on both claims. Title Source, Inc. v. HouseCanary, Inc., Case No. 04-19-00044-CV (Tex. App. – San Antonio June 3, 2020) (Watkins, J.). Title Source (TSI) provides title insurance, property valuations and settlement services. HouseCanary is a real estate analytics company. TSI hired HouseCanary to build an iPad application for its appraisers to use. The app would be based on HouseCanary’s automated valuation...

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South Carolina Supreme Court Cannot Find “Economic Value” to Support Trade Secret

The South Carolina Supreme Court (S.C. Supreme Court) affirmed a state Court of Appeals finding that information taken by a minority LLC member did not have the requisite independent value to be considered a “trade secret” under the state’s Trade Secrets Act. Wilson v. Gandis, Case No. 27980 (S.C. June 3, 2020) (James, C.J.). In response to what the trial court classified as an “unconscionable,” “brazen,” “classic squeeze-out,” Wilson brought an action against his business partners, Gandis and Shirley, along with Carolina Custom Converting (CCC), a broker of industrial film materials. Wilson was a 45% member of CCC, while Gandis and Shirley were 45% and 10% members respectively. Starting in 2011, Gandis and Shirley made multiple efforts to remove Wilson as a member of CCC. The laundry list of “oppressive acts” cited by the trial court included Gandis and Shirley’s (1) withholding guaranteed monthly distributions to Wilson, (2) monitoring Wilson’s private...

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Willfulness Allegation, Failure to Appear Lead to Nondischargeable Judgment

The US Court of Appeals for the Sixth Circuit affirmed that a state court’s finding of “willful and malicious injury” in connection with the misappropriation of trade secrets entitled the plaintiff, in the defendant’s subsequent bankruptcy proceeding, to summary judgment of nondischargeability on collateral estoppel grounds. In re Hill, Case No. 19-5861 (6th Cir. May 4, 2020) (Donald, J.). Aaron Hill and the other principals of First Meridian Mortgage Corporation agreed to sell First Meridian to CMCO Mortgage, where the former principals would build and manage an internet division. After the sale, Hill accepted an offer to work for CMCO’s competitor, Peoples Bank. CMCO later terminated Hill, alleging that he had breached his contract, provided trade secrets to Peoples and unlawfully recruited CMCO employees to Peoples. CMCO sued Peoples and Hill in Kentucky state court on a variety of theories, including misappropriation of trade secrets and tortious...

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Trade Secret Misappropriators Fail to Launch in Rocket Facility

Addressing a variety of challenges to a judgment against defendants in a trade secret misappropriation action, the US Court of Appeals for the Third Circuit found that the plaintiff had standing on the basis of lawful possession (as opposed to ownership) of the trade secret materials and that the damages awarded, including punitives, was supported by sufficient evidence. Advanced Fluid Systems, Inc. v. Huber, Case Nos. 19-1722; -1752 (3d Cir. Apr. 30, 2020) (Jordan, J.). Advanced Fluid Systems (AFS) makes hydraulic systems. Kevin Huber was a sales engineer for AFS, and later founded INSYSMA. Livingston & Haven competes with AFS. Clifton Vann is the president of Livingston and the CEO of its holding company. Thomas Aufiero worked at AFS from 1989 to 2011, then became a regional sales manager at Livingston. In 2009, AFS contracted with the Virginia Commonwealth Space Flight Authority to install hydraulic systems for the NASA rocket launch facility on...

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