Real estate startup HouseCanary made headlines when it secured a $700 million judgment against Title Source, Inc., now known as Amrock, in a trade secrets misappropriation case. In short, HouseCanary claimed that Amrock misappropriated its trade secrets to develop an app to compete with the very product Amrock hired HouseCanary to create—a product HouseCanary never delivered.
Continue Reading HouseCanary Weighs a Bird in Hand… Collect on a $201,000,000 Judgment or Retry the Entire Case

Decision overview

On August 7, 2020, the Fifth Circuit addressed an issue presently undecided by the Texas Supreme Court; namely, whether reformation of an overbroad non-compete restriction is appropriate, and perhaps even required, at the preliminary injunction stage or must occur as a remedy after trial upon the merits.

In reversing and remanding the contrary lower court decision that declined to reform an overboard non-compete due to an inadequate record, the Fifth Circuit held that reformation of an overly broad covenant not to compete agreement was warranted at the preliminary injunction stage. Calhoun v. Jack Doheny Companies, Inc., No. 20-20068, — F.3d —, 2020 WL 4557641 (5th Cir. Aug. 7, 2020).
Continue Reading Fifth Circuit Holds that Reformation of Texas Non-Competes Is Authorized, and Perhaps Required, at Preliminary Injunction Stage

The “return to normal” in courts across the country has brought with it a flurry of trade secrets decisions that address some interesting and instructive issues, both procedurally and substantively. In the last ten days alone, courts in Illinois, Massachusetts, and Texas have weighed in on issues such as the specificity necessary to assert a viable trade secrets claim, the enforceability of a restrictive covenant against an employee who is laid off temporarily but quickly finds a new role and is rehired by the same organization, and the validity of a $700,000,000 jury verdict that was based on a jury question that combined multiple theories of liability. Let’s take a look:
Continue Reading Courts Across the Country Continue to Address Trade Secrets Issues

In a case following a familiar trade-secret set of facts, on April 28, 2020, the Texas First District Court of Appeals in Houston reversed the trial court’s grant of a motion to dismiss under the Texas Citizens Participation Act (“TCPA”) in National Signs, Inc. v. John Graff. In doing so, the First District joined the growing number of Texas Appellate Courts that have held that the TCPA, in its Pre-September 2019 amended state, does not protect private communications that are centered on competition or preparing to compete against the plaintiff.
Continue Reading Houston First Circuit Court of Appeals Joins the Growing Trend by Holding that the Pre-Amendment TCPA Does Not Protect Certain Competitive Behavior

Seyfarth Synopsis: A recent case out of the Court of Appeals in Houston, Texas highlights the challenges in proving liability against a third-party competitor for knowing participation in breach of duty of loyalty/fiduciary duty, tortious interference with contract, and conspiracy when the third-party competitor participates in the solicitation of current employees. The Court’s opinion emphasizes that although an employee owes a duty of loyalty to her current employer, current employees can generally plan to compete—and communicate among themselves to do so—while still employed. The decision further illustrates the difficulty in proving a third-party competitor participated in any unlawful plans to compete, without some evidence showing the competitor had knowledge of the departing employees’ restrictive covenants and directing the wrongful acts. As such, the opinion demonstrates the importance of enforceable non-compete, non-solicit, and confidentiality agreements with key employees.

One of the worst case scenarios for a company is an entire team—including high level executives—jumping ship to a competitor, and directly competing against the former employer in the same space and market. A recent decision from the First Circuit Court of Appeals in Houston, Texas provides an interesting look into just such a situation, and it reinforces that it is difficult for a company to recoup its damages after a max exodus of employees if it hasn’t taken the necessary precautions ahead of time.
Continue Reading A Herculean Task: Proving a Competitor’s Knowledge and Participation in an Unfair Competition Case

Continuing our annual tradition, we have compiled our top developments and headlines for 2019 & 2020 in trade secret, non-compete, and computer fraud law. Here’s what you need to know to keep abreast of the ever-changing law in this area.

1. Another Year, Another Attempt in Congress to Ban Non-Competes Nationwide

Senators Chris Murphy (D-Conn.) and Todd Young (R-Ind.) introduced legislation in 2019 entitled the Workforce Mobility Act (“WMA”). The WMA seeks to ban non-compete agreements outside of the sale of a business or dissolution of a partnership.

Not only would the WMA abolish covenants not to compete nationwide, outside of the extremely narrow exceptions highlighted above, but it would also provide the Department of Labor (DOL) and Federal Trade Commission (FTC) with broad enforcement power. If enacted, the legislation would empower the FTC and DOL to enforce the ban through fines on employers who either fail to notify employees that non-compete agreements are illegal or who require employees to sign covenants not to compete. Additionally, the WMA establishes a private right of action for all employees allegedly aggrieved by a violation of the WMA.

The WMA contains a carve out for parties to enter into an agreement to protect trade secrets. As currently drafted, the WMA does not abrogate the scope of protections provided by the Defend Trade Secrets Act.

Presently, there are no generally applicable federal restrictions on non-compete agreements, and enacting such a law would have to pass Constitutional muster. We expect to see continued activity at the federal legislative level to attempt to ban or limit the use of non-competes.

2. New State Legislation Regarding Restrictive Covenants


Continue Reading Top 10 Developments and Headlines in Trade Secret, Non-Compete, and Computer Fraud Law for 2019 & 2020

On January 23, 2020, the Texas Fifth District Court of Appeals in Dallas retracted its previous ruling in the trade secrets dispute Goldberg, et al. v. EMR (USA Holdings) Inc., et al. and issued a new opinion upon rehearing. In doing so, the Court reversed course on its previous ruling that communications with customers and suppliers involved a matter of public concern and were an exercise of free speech.

The Court’s new ruling, which was decided under the pre-September 1, 2019, version of the Texas Citizens Participation Act (“TCPA”), makes clear that communications between a company and customers or suppliers that deal only with the sale of a commodity are not protected by the TCPA.[1]

The August 2019 Ruling
Continue Reading The Dallas Court of Appeals Further Expands Goldberg and Holds that Communications Between a Competitor and Customers and Suppliers Do Not Involve Matters of Public Concern

Effective on September 1, 2019, the 86th Texas Legislature’s amendments to the Texas Citizen’s Participation Act, Texas Civil Practices and Remedies Code Chapter 27 (“TCPA”) essentially removed the vast majority trade secret claims from the TCPA’s grasp.[1] These amendments intentionally sought to eliminate the application of the TCPA, an anti-SLAPP statute[2] to certain run-of-the-mill trade secret cases with fact patters arising from independent contractor relationships and departing employees. Nevertheless, the TCPA may apply in light of past precedent to other, less common fact patterns. This article explores other trade secret claims that may still be “slapped” under the TCPA.
Continue Reading Survival by the Thinnest Margins: Potential Trade Secret Claims Post-Texas TCPA Amendments

In a trilogy of recent cases, the Texas Courts of Appeals have employed the “commercial speech” exception to exclude certain business claims from the scope of the Texas Citizen’s Participation Act (“TCPA”). This trend will likely only accelerate now that the legislature has further reduced the TCPA’s reach with additional statutory changes, restricting the protections regarding the right of association and the TCPA’s application to trade secret cases and non-compete cases.

Background

The TCPA is an anti-SLAPP (Strategic Lawsuit Against Public Participation) statute allowing litigants to seek early dismissal of a lawsuit if the legal action is based on, or is in response to, a party’s exercise of the right of free speech, right to petition, or right of association. Like other states, Texas enacted the TCPA to address concerns over the increasing use of lawsuits to chill the exercise of First Amendment rights.
Continue Reading The Halcyon Days Are Over: Texas Courts of Appeals Narrow the Application of the TCPA’s “Commercial Speech” Exception Even as the Legislature Narrows Its Definitions

On August 23, 2019, the United States Court of Appeals, Fifth Circuit ruled that the Texas Citizen’s Participation Act, Texas Civil Practices and Remedies Code Chapter 27 (“TCPA”), did not apply in federal court. Klocke v. Watson, 936 F.3d 240, 244 (5th Cir. 2019). Nine days later, on September 1, 2019, key statutory changes went into effect for cases filed after the amendments’ enactment.[1] See H.B. 2730, Sept. 1, 2019. These amendments changed the requirements of the TCPA in several ways, some of which the Klocke panel had directly addressed when determining the TCPA’s applicability in federal court.

The question therefore arises whether the TCPA remains inapplicable in federal court for cases filed after September 1, 2019.[2] A Fifth Circuit panel addressing this issue today, and applying the rulings in Klocke, would likely rule that the TPCA remains inapplicable. Specifically, despite the various changes, the TCPA still “imposes evidentiary weighing requirements not found in the Federal Rules, and operates largely without pre-decisional discovery[.]” Klocke, 936 F.3d at 246. Accordingly, the TCPA “conflicts with those rules,” “answers the same question” as those rules, and therefore “cannot apply in federal court.” Id. at 244, 245, 246.
Continue Reading Klocke’s Ongoing Viability: Whether the TCPA’s Statutory Changes Have Resurrected Its Applicability in Federal Court