United States: Texas High Court Finds Texas Uniform Trade Secrets Act Can Exclude Opposing Party From Injunction Proceedings

On May 20, 2016, the Texas Supreme Court issued its first decision interpreting the Texas Uniform Trade Secrets Act. In In re M-I, LLC, an opinion with significant implications, the Supreme Court held that a trial court may exclude a party's corporate representative from preliminary injunction proceedings where the opposing party's trade secrets will be discussed. The Supreme Court also held that, where one party contends that a document contains its trade secrets, the trial court must examine the document in camera before ordering production to the opposing side.

The opinion arises from the rivalry between two business competitors, M-I, LLC ("M-I") and National Oilwell Varco, L.P. ("NOV"). Both companies provide solid control services and equipment to the oil and gas industry. One aspect of these businesses involved "mesh screens that filter solid matter ... from drilling fluid." In 2014, the business development manager of M-I's screens division left M-I to join NOV. According to M-I, its former employee had "in-depth knowledge of M-I's solid-control business, including M-I's bidding strategies, pricing information, customer preferences, solid-control systems, and deployment strategies." M-I accused its former employee of breaching his noncompete agreement, asserted that he would inevitably disclose M-I's trade secrets, and demanded that he stop working for NOV. The former employee filed a declaratory judgment suit, and M-I counterclaimed for, among other things, breach of the noncompete agreement and misappropriation of trade secrets. M-I also asserted third-party claims against NOV, including one for a temporary injunction.

At the temporary injunction hearing, M-I sought to establish its trade secrets through the oral testimony of one of its current employees, the global business line manager of its screens division. But before it did so, M-I requested that everyone except the parties' counsel, their experts, and M-I's former employee be excluded from the courtroom. In particular, M-I sought to prohibit NOV's corporate representative from hearing this testimony. The trial court refused M-I's request on the ground that it would amount to a "total violation of due process." The trial court instead said that it would order NOV's representative "not to disclose or use any trade secrets he heard." Unsatisfied with this result, and unwilling to disclose its trade secrets to NOV's representative, M-I sought mandamus relief in the court of appeals.

As part of its mandamus petition, M-I submitted in camera to the court of appeals an affidavit from its global business line manager detailing the testimony she had been prepared to offer at the temporary injunction hearing. The court of appeals denied M-I's petition, after which proceedings resumed at the trial court. NOV then moved to compel M-I to produce the affidavit as a discoverable witness statement under Texas Rule of Civil Procedure 194.2. The trial court granted NOV's motion without reviewing the affidavit. M-I then filed a petition for writ of mandamus in the Texas Supreme Court, challenging two rulings by the trial court: (i) its denial of M-I's request to exclude NOV's representative from the temporary injunction hearing, and (ii) its order compelling production of the affidavit of M-I's global business line manager.

The Texas Supreme Court conditionally granted M-I's petition in a unanimous opinion. Addressing the exclusion of NOV's representative, the Court held that the trial court's due process analysis was flawed and not compelled by the Fourteenth Amendment to the U.S. Constitution. The Supreme Court stated that due process creates a presumption in favor of participation and generally prohibits the exclusion of parties or their representatives, but this presumption is not absolute and may be overcome by "countervailing interests" that include protecting trade secret information. The Supreme Court held that the trial court was required to balance the parties' interests, considering "the degree of competitive harm" M-I would have suffered if its trade secrets had been shared with NOV's representative. This determination should include examining "the relative value" of the alleged secrets, as well as whether the representative was a "competitive decision-maker." The trial court also should weigh the degree to which NOV's defense would be impaired if its representative were excluded from parts of the temporary injunction hearing. Having failed to conduct this balancing analysis and, instead, finding that NOV's representative had an absolute due process right to hear M-I's testimony about its trade secrets, the trial court abused its discretion.

The Supreme Court further stated that the exclusion of NOV's representative would not be inconsistent with Texas constitutional, statutory, and common law. In particular, the Supreme Court held that the Texas Uniform Trade Secrets Act "requires trial courts to take reasonable measures to protect trade secrets" including, among other things, "holding in camera hearings." Tex. Civ. Prac. & Rem. Code § 134A.006. Whereas NOV asserted that the phrase "in camera hearings" refers to "proceedings closed to the general public," M-I asserted that this phrase "also refers to proceedings in which a party or its representatives (but not its attorneys) are excluded." The Supreme Court agreed with M-I's interpretation, finding that "the Act granted the trial court discretion to exclude [NOV's representative] from portions of the temporary injunction hearing involving alleged trade secret information about which he was potentially unaware." The Supreme Court further held that this interpretation of the Act was not inconsistent with Texas Rule of Civil Procedure 267(a).

The Supreme Court also held that the trial court had abused its discretion by failing to perform an in camera review of M-I's affidavit before ordering that the affidavit be produced. The trial court believed that the affidavit was discoverable under Texas Rule of Evidence 507(a), even if it included M-I's trade secrets. But the Supreme Court held that the trial court could not have determined if the affidavit were discoverable without first performing an in camera review. This review was necessary to determine which protective measures "were required by the interests of the privilege holder and the parties." The trial court was required to perform the in camera review in order to assess how M-I's interests would be affected by disclosure of the affidavit to NOV's representative.

In re M-I is a significant decision by the Texas Supreme Court. The opinion reaffirms the importance of maintaining the confidentiality of trade secrets, even from competitors in litigation, by using the protections afforded by the Texas Uniform Trade Secrets Act. These protections include the ability to clear the courtroom of even a competitor's representative during proceedings, and to obtain in camera reviews of evidence, documents, and testimony before disclosing trade secret information in open court or to a competitor. Indeed, an opposing party's corporate representative will often be a key decision-maker, knowledgeable of the competitor's business unit, or otherwise able to make at least some use of the opposing party's trade secrets. The same qualities that make the defendant's representative well suited to represent that corporation may also warrant limiting or eliminating that person's additional or continued access to a plaintiff's trade secrets in litigation. The opinion also clarifies that due process and public access provisions of federal and state law must be balanced against protection from public disclosure and misappropriation of trade secret information, particularly to competitors.

The In re M-I opinion may have implications for federal court litigation under the recently passed Defend Trade Secrets Act of 2016. While the persuasive effect of the In re M-I opinion outside of Texas state courts remains to be seen, it seems plausible that federal courts may adopt a similar balancing approach to resolve disclosure and due process concerns under the federal statute.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Richard J. Johnson
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions