Mission Impossible? Protecting Trade Secrets

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The Texas Supreme Court just handed businesses a tremendous victory concerning trade secrets.

The issue – Businesses fight hard and often take extreme measures to protect their trade secrets from falling into the hands of a competitor.  One tactic that is often employed is to have each employee execute a confidentiality agreement.  The conundrum, of course, comes with a business tries to enforce the agreement in Court without actually disclosing the confidential information it is trying to protect as a trade secret.

Today (May 20, 2016), the Texas Supreme Court provided the potential for further protection of a business’ Trade Secrets.   In the case of  In Re: M-I, L.L.C., the business M-I sought mandamus relief for a trial court’s refusal to exclude its competitor’s representative from listening to Trade Secret testimony in a temporary injunction hearing.  The Supreme Court, in a pretty sweeping decision, granted the mandamus relief and found that  allowing the competitor to stay in the room was a clear abuse of discretion by the trial court.

Discussing Due process, the Supreme Court noted that when the Court passes judgment on dueling private interests, it must balance three factors to determine what process is due: (1) the private interest affected, (2) the risk of an erroneous deprivation of such interest through the procedures used and the probable value, if any, of additional or substitute procedural safeguards, and (3) the opposing party’s interest considered against the government interest in providing the procedure or forgoing the greater protections.

In the M-I case , the trial court was required to balance  the competitive harm to M-I from disclosure of its trade secrets by considering the relative value of M-I’s alleged trade secrets, versus the opposing representative’s acts as a competitive decision-maker.  The Supreme Court  found that the record was clear that the trial court did not balance the competing interests.

The Supreme Court  acknowledged that a party has a due-process right to be present at a civil trial (or temporary injunction hearing), but that right is not absolute.  The Supreme Court  also recognized that the corporate representative could not be excluded by “the Rule”, which can be used to exclude non-party witnesses from the courtroom.

However, M-I invoked protection under the Texas Uniform Trade Secrets Act. The Trade Secrets Act requires courts to take reasonable measures to protect trade secrets and creates a presumption in favor of granting protective orders to preserve secrecy, which may include holding in camera hearings.  Under the Act, the trial court had discretion to exclude the competitor’s agent from portions of the temporary-injunction hearing during alleged trade secret testimony.