Appellate / 2 min read
I love trade secret litigation. The cases involve juicy facts, lots of finger pointing, often intense emotions, and, obviously, claims for excessive damages. All things trial lawyers enjoy. Recently, I was proud to be part of a court decision that fundamentally reshapes Texas law governing departing employees and trade secrets.
Lawyers often spend much time in trade secret cases on the bad deeds of the former employees. Attorneys get excited about the "gotcha" evidence: massive data downloads onto external drives, the forwarding of company information to personal email accounts, and the text messages discussing the plans to form the new competitive company. Too few lawyers spend time on the damage model, delegating that task to a retained and expensive expert to handle. I think this goes hand and hand with the expression attorneys say about "going to law school because they were bad at math". (I like math, numbers don't lie.)
A recent opinion on my case from the Houston Fourteenth Court of Appeals—Coe v. DNOW LP reminds lawyers that they must place more attention on the damage model in trade secret cases (I represented the main target defendant in the case, who prevailed on appeal when the Court ruled as a matter of first impression that the Texas Uniform Trade Secrets Act preempts claims of conspiracy). The Court wrote a detailed and extensive analysis of why DNOW (the plaintiff) failed to substantiate all but $11,250 of its millions in claimed damages, and only then, against one of the 12 defendants.
The Court of Appeal's decision provides a powerful lesson for anyone handling trade secret litigation. At trial, DNOW's expert presented three damage theories: (i) lost profits over a period of months at DNOW's Corpus Christi and San Angelo, Texas locations caused by the departure of employees to the defendants new competing business; (ii) the unjust enrichment defendants allegedly obtained from profits derived at its new competing operations in those same cities; and (iii) increased wages, bonus payments and stock grants DNOW made to retain employees it feared would leave to join the defendants.
The jury awarded DNOW all the lost profits for San Angelo, half of the lost profits it sought for Corpus Christi, but only a tiny portion of the compensation damages DNOW requested. The Court of Appeals reversed and found no evidence to support the lost profits. The Court strongly criticized DNOW's expert and said she failed to "distinguish damage caused by misappropriation of trade secrets from damage caused by misappropriation of confidential information that is not a trade secret or by breach of fiduciary duties." The Court said further, the expert could not tie a specific defendant to the misappropriation of any particular trade secret that was used to cause DNOW's claimed damages of losing employees to the defendants' competing company.
The Court went further in explaining that assumptions are not evidence. Here, the expert assumed the misappropriation of information caused employees to leave and join a competitor. But the expert failed to consider critical facts, such as the historic turnover rate, the market attrition rate, or how DNOW's compensation impacted employees' desire to leave.
The DNOW case is an important decision with significant holdings and valuable lessons for attorneys handling trade secret and related litigation.