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). (more…)
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).
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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 models (AVM). The parties’ agreement specifically prohibited TSI from reverse-engineering or attempting to discover HouseCanary’s source code or confidential information. Nonetheless, and despite its assurances to the contrary, TSI sought and used HouseCanary’s proprietary information to develop its own AVM. The parties’ contract required HouseCanary to maintain a certain “hit rate” (a metric of accuracy), but TSI’s employees took steps to purposely drive down the hit rate (including searching for an appraisal of the supposed street address: “Wiping a Vendor Wipes the fee”). The parties’ contract originally provided for a per-appraisal royalty to be paid to HouseCanary; the parties later amended the agreement to provide for a flat fee in exchange for TSI’s promise to deliver valuable historical valuation data (which it did not deliver).
TSI sued HouseCanary for breach of contract and fraud, alleging that HouseCanary had failed to deliver the app as promised. HouseCanary counterclaimed for breach of contract, fraud, unjust enrichment, quantum meruit and misappropriation of trade secrets under TUTSA. The jury rejected all of TSI’s affirmative claims and found in favor of HouseCanary on its misappropriation, fraud and breach of contract claims. TSI moved for a new trial, which the trial court denied. HouseCanary elected to recover on its misappropriation and fraud claims. The trial court entered judgment in favor of HouseCanary and awarded almost $740 million. TSI appealed.
HouseCanary’s TUTSA Claim
On appeal, TSI argued that the verdict was insufficiently supported by evidence and that two questions on the jury form commingled valid and invalid theories of recovery (Casteel error). The first question involved ownership of trade secrets. The Texas Court of Appeals held that sufficient evidence had been presented to sustain the finding of trade secret ownership, and that TSI had waived its objection based on the alleged Casteel error.
The second question asked the jury whether TSI misappropriated HouseCanary’s trade secrets, and the corresponding instruction provided that misappropriation could be found on either a “use” or an “acquisition by improper means” theory. The Court found that there was enough evidence to sustain a verdict on the “use” theory, but that the jury instructions regarding “acquisition by improper means” was overbroad, [...]
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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 emails, (3) limiting Wilson’s access to CCC financials, (4) terminating Wilson’s family healthcare plan, (5) surreptitiously forming a competing business, (6) funneling money to Gandis through inflated rent payments to Gandis-owned properties and (7) attempting to physically remove Wilson from his own office using a police officer. In response to these acts, Wilson left his office with his company laptops and Blackberry, which contained information about CCC clients. The trial court and Court of Appeals found for Wilson, forcing Gandis and Shirley to buy out Wilson’s share of CCC and denying all of their counterclaims against Wilson. CCC, Gandis and Shirley filed petitions for writ of certiorari to the S.C. Supreme Court, which were granted.
The issue on certiorari was whether the trial court erred in finding CCC failed to prove its trade secret misappropriation claim against Wilson (and his subsequent employers) under the South Carolina Trade Secrets Act. In a relatively short analysis, the S.C. Supreme Court found that the trial court did not err in finding CCC failed to prove its trade secret misappropriation claim against Wilson. The South Carolina Trade Secrets Act defines a “trade secret” as information that “derives independent economic value … from not being generally known to … the public [and efforts are made] to maintain its secrecy.” The Court applied its own precedent requiring an initial analysis of “the extent to which the [alleged trade secret] is known outside of his business and … the difficulty with which the information could be properly acquired … by others.” Relying on trial testimony by two “experienced film brokers” who stated that the type of business information taken by Wilson was “widely available,” “ascertainable from trade associations [and] publicly available sources,” and that customers “are free to share” that type of information, the Court held that the record supported the trial court’s finding that the information taken by Wilson “did not have the required independent economic value” to be considered a trade secret. The Court affirmed and remanded on an issue related to the details of Wilson’s buyout from CCC.
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.).
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.).
Addressing a decision by California district court denying a motion to remand a trade secret case back to the California state court where it was originally filed, the US Court of Appeals for the Federal Circuit held that the removal to federal court was improper and vacated the district court’s decision. Intellisoft Ltd. v. Acer America Corp., Case No. 19-1522 (Fed. Cir. Apr. 3, 2020) (Dyk, J.).
In a case addressing the applicability of free speech as a defense to trade secret misappropriation, the Court of Appeals for the Fifth District of Texas retracted its previous ruling, holding that communications with customers and suppliers did not involve a matter of public concern and were therefore not an exercise of free speech. Goldberg, et al. v. EMR (USA Holdings) Inc., et al., Case No. 05-18-00261-CV (Tex. App. Jan. 23, 2020) (Myers, J).
Addressing an emergency request for a writ of mandamus to compel discovery of electronically stored information, the US Court of Appeals for the Sixth Circuit declined to set aside a district court’s denial of a request to create forensic images of all the defendant’s business and personal computers and cell phones. In re FCA US LLC, Case No. 19-1923 (6th Cir. 2019) (per curiam).
FCA filed trade-secret misappropriation and other claims against Patrea Bullock, a lawyer who formerly served as outside counsel to FCA. According to FCA, while serving as defense counsel, Bullock had access to extensive confidential and proprietary information belonging to FCA, including its “defense playbook.” After she resigned from her law firm, but before returning her computer, Bullock downloaded her files from the laptop onto several USB drives. Thereafter, she opened her own law firm representing plaintiffs against automobile manufacturers, including FCA. During discovery, Bullock produced 1,345 documents in response to FCA’s requests for the documents she had taken FCA, however, moved to compel a forensic image of all of Bullock’s business and personal laptops and cell phones so an expert could investigate what documents Bullock took.
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