When Policies Collide: Protecting Trade Secrets in Texas's Open Courts

Last week, a mandamus proceeding was filed at the Supreme Court of Texas that could have a meaningful impact on whether and how parties pursue trade secret misappropriation claims. In In re M-I, L.L.C. d/b/a SWACO, a trade secret theft plaintiff sought to overturn a trial court's refusal to exclude a defendant's corporate representative from a temporary injunction hearing. Essentially, the question before the Supreme Court is whether the trade secret protection goals of the Texas Uniform Trade Secrets Act ("TUTSA") trump Texas's longstanding, constitutionally-mandated[1] open courts doctrine.

The basic facts of the trade secret case underlying the In re M-I mandamus proceeding are fairly typical. An individual left a job for another job with one of his former employer's competitors, and conflict soon followed. Mr. Jeff Russo, the individual in question, quit his sales job at Schlumberger subsidiary SWACO to work for National Oilwell Varco (NOV), even though he apparently had signed a non-compete agreement providing geographic and temporal bars to taking such employment.[2] In response to a cease-and-desist letter from SWACO, Russo filed a declaratory judgment action seeking to invalidate the non-competition agreement. SWACO then counterclaimed against Russo and added NOV as a third party, asserting, trade secret theft claims against both of them and a breach of contract claim against Russo. SWACO sought injunctive relief, including a temporary injunction. The parties soon entered into a protective order with typical provisions, including the ability to designate materials "attorneys' eyes only." On August 8, 2014, the parties appeared for a hearing on SWACO's application for a temporary injunction, with Russo, an NOV employee, present, as well as NOV's corporate representative. Citing TUTSA as support for its position, SWACO asked the court to exclude the NOV corporate representative from the hearing, but the court refused, instead choosing to admonish the NOV representative not to disclose or use anything he heard in the courtroom. Unsatisfied with this protection, SWACO chose not to proceed with the hearing and instead sought mandamus relief from the 14^th Court of Appeals. That relief was denied, and the current case presents the next (and, presumably, last) step in SWACO's efforts to exclude NOV's representative from any temporary injunction hearing.[3]

The Texas Supreme Court must now decide how much protection trade secrets can be afforded once litigation has been commenced. Does TUTSA's trade secret protection and provision for in camera hearings allow for the party representative exclusion sought by SWACO, or does excluding such a representative from a temporary injunction hearing violate due process and the state's open courts doctrine? A ruling in favor of SWACO might encourage more parties to file trade secret claims, as they would be putting less of their secrecy at risk in doing so. On the other hand, a ruling denying the requested mandamus would arguably be less disruptive to the current scheme, as plaintiffs such as (and including) SWACO would still have a number of secrecy protections available to them under the express language of TUTSA, which provides for limited access to confidential information (via a protective order, for example), in camera hearings, sealing of records, and gag orders of the type issued by the district court in this case. Either way, this case is one to watch, and we will provide updates to this blog entry to discuss significant developments.

[1] Tex. Const. Art. 1, § 13.

[2] The authors take no position on the merits of the parties' respective claims and defenses and base this blog post only on publicly available pleadings and orders.

[3] SWACO also challenges the trial court's granting of a motion to compel the production of an affidavit (presumably describing the trade secrets in question) submitted by SWACO at the Court of Appeals. In response, NOV has questioned SWACO's ability to challenge this trial court action for the first time at the Supreme Court level.