Is misappropriation of trade secrets actionable under the TTLA? [Texas Theft Liability Act]

   

TRADE SECRETS & Texas Theft Liability Act Claim

Is the misappropriation of trade secrets actionable under the TTLA?

  

The Texas Theft Liability Act. See Tex. Civ. Prac. & Rem. Code Ann. §§ 134.001-.005.

The Texas Theft  Liability Act imposes civil liability for, among other actions, “unlawfully appropriating property” as described by Texas Penal Code section 31.05. Id. §§ 134.002(2), 134.003.

Under penal code section 31.05(b), a person commits theft of trade secrets if, without the trade-secret owner's consent, he knowingly: (1) steals a trade secret; (2) copies an article representing a trade secret; or (3) communicates or transmits a trade secret. Tex. Penal Code Ann. § 31.05(b) (West  2011).
 

A person who sustains damages resulting from the unlawful appropriation of property under section 31.05 may recover actual damages, as well as additional damages not to exceed $1,000 and  attorney's fees. Tex. Civ. Prac. & Rem. Code Ann. § 134.005.

SOURCE: DALLAS COURT OF APPEALS – 05-11-00409-CV – 4/11/12

CASE CITE: Twister B.V. v. Newton Research Partners, LP, 364 S.W.3d 428 (Tex. App.-Dallas 2012, no pet.) 

Read more from the opinion …

364 S.W.3d 428 (2012)

TWISTER B.V., Appellant,
v.
NEWTON RESEARCH PARTNERS, LP, Appellee.

No. 05-11-00409-CV.

Court of Appeals of Texas, Dallas.

April 11, 2012.

432*432 Jennifer Heather Davidow, Phillip B. Dye, Jr., Vinson & Elkins, LLP, Houston, Tyler J. Bexley, Vinson & Elkins, LLP, Dallas, for Appellant.

Jim L. Flegle, Carol E. Farquhar, Corey Weinstein, Loewinsohn Flegle Deary, L.L.P., Dallas, for Appellee.

Before Justices O'NEILL, FRANCIS, and MURPHY.

OPINION

Opinion By Justice MURPHY.

Twister B.V. appeals the trial court's order denying its special appearance in a theft of trade secrets suit filed against it by Newton Research Partners, LP. See TEX. CIV. PRAC. & REM.CODE ANN. § 51.014(a)(7) (West 2008) (interlocutory appeal). We affirm.

BACKGROUND

Both Twister and Newton are involved in the business of natural gas processing. Twister is a Dutch private limited liability company located in the Netherlands town of Rijswijk. Twister was formed in 2001 by Shell International Exploration and Production B.V., a company of the Royal Dutch/Shell Group of Companies and an investment partner to "market innovative gas processing technologies to the global exploration and production market." One of Twister's products is a supersonic separator, which separates hydrocarbon liquids and water from natural gas. Twister's gas-processing technology was developed by Shell International and transferred to Twister at the time of its incorporation. A Shell International employee involved in the development of the technology, Cornelis Antonie "Kees" Tjeenk Willink, became Twister's Chief Executive Officer.

Newton, a Texas limited partnership, owns what it claims are confidential and proprietary trade secrets related to natural gas processing. The alleged trade secrets were developed by Michael Bloom and concerned technology used to separate and remove contaminants from natural gas. For descriptive purposes only, this information is referenced simply as the "trade secrets." Bloom was a limited partner in Newton and manager of Newton's general partner, Newton Research, LLC. Newton obtained ownership of the trade secrets through a series of assignments and agreements.

In 1997, Bloom disclosed the trade secrets to Shell E & P Technology Corporation, a division of Shell Exploration & Production Company, under a promise of confidentiality. According to Newton, Shell Exploration later violated that promise and shared the trade secrets with a Shell affiliate in the Netherlands and others, including Twister. Newton claims Twister then unlawfully used Newton's trade secrets in Twister's gas-separation products and that Twister marketed and sold those products in Texas and elsewhere.

Newton filed suit against Twister and other defendants^[1] in 2007, charging them with, among other things, stealing Newton's 433*433 trade secrets and violating the Texas Theft Liability Act. See TEX. CIV. PRAC. & REM.CODE ANN. §§ 134.002(2), 134.003(a) (West 2011) (providing for civil liability for certain acts proscribed by the penal code, including theft of trade secrets). Newton also charged Shell Exploration with breaking contractual promises of confidentiality and breaching its fiduciary duty to Newton by unlawfully misappropriating Newton's trade secrets.

In response, Twister filed a special appearance with a supporting affidavit from Tjeenk Willink, who at that time was Twister's CEO and Chief Technology Officer. Tjeenk Willink stated in his affidavit that the technology used in Twister's gas-separation products was not derived from Newton's trade secrets; rather, it was based on technology developed by another company. Newton's response to Twister's special appearance included an affidavit from Bloom, as well as other documentary evidence. Bloom stated that after reviewing certain documents related to Twister's technology and products, he concluded the technology he developed and disclosed to Shell Exploration was being used by Twister in its products. Newton's other evidence related to Twister's marketing and product sales in Texas. Twister later filed an amended special appearance with a supplemental affidavit from Tjeenk Willink in which he explained the extent of Twister's marketing and sales projects in Texas.

The trial court heard argument on the special appearance in October 2008. The parties relied on their documents on file and offered no live testimony; thus, the record consists of the affidavits and other documents attached to the special appearance and response. The trial court did not rule on Twister's special appearance at this hearing or at a second special appearance hearing held one year after the first.^[2] Nearly a year and a half later, in March 2011, the trial court orally denied Twister's special appearance at a hearing on a motion to modify a prior discovery order. The trial court subsequently signed its order denying Twister's first amended special appearance on March 30, 2011. The trial court did not specify the basis for its ruling in the order and did not issue fact-findings or legal conclusions.

DISCUSSION

Trade Secrets and Trade Secret Privilege in Texas

THE TRADE SECRET PRIVILEGE GENERALLY

The trade secret privilege is governed generally by Texas Rule of Evidence 507:

A person has a privilege, which may be claimed by the person or the person’s agent or employee, to refuse to disclose and to prevent other persons from disclosing a trade secret owned by the person, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice. When disclosure is directed, the judge shall take such protective measure as the interests of the holder of the privilege and of the parties and the furtherance of justice may require.

TEX. R. EVID. 507.

In the trial court, the party resisting discovery on the basis of the trade secret privilege must establish that the information is a trade secret. In re Cont’l Gen. Tire, 979 S.W.2d at 613. The burden then shifts to the requesting party to establish that the information is necessary for a fair adjudication of its claims. Id. If the requesting party meets this burden, the trial court should ordinarily compel disclosure of the information, subject to an appropriate protective order. Id. In each circumstance, the trial court must weigh the degree of the requesting party’s need for the information with the potential harm of disclosure to the resisting party. Id. In other words, when trade secret privilege is asserted as the basis for resisting production, the trial court must determine whether the requested production constitutes a trade secret; if so, the court must require the party seeking production to show reasonable necessity for the requested materials. In re Union Pac. R.R. Co., 294 S.W.3d 589, 591 (Tex. 2009) (orig. proceeding) (quoting In re Bass, 113 S.W.3d at 738).

WHAT CONSTITUTES A TRADE SECRET?

Is the information sought trade secret?

A trade secret is "any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it." In re Bass, 113 S.W.3d at 739 (quoting Computer Assocs. Int’l. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1994)).

Texas courts consider the following factors in determining whether the material at issue qualifies for the trade secret privilege: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of the measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. In re Union Pac. R.R., 294 S.W.3d at 592; In re Bass, 113 S.W.3d at 739. Because trade secret materials may not always "fit neatly into each factor every time" and because other factors may also be relevant depending on the circumstances of a particular case, we will weigh the factors in the context to determine whether the materials qualify as trade secret. In re Bass, 113 S.W.3d at 740.

SOURCE: Amarillo Court of Appeals - 07-11-00066-CV - 7/19/11