With unemployment levels reaching a new high during the global pandemic, courts across the country have become increasingly reluctant to enforce non-compete agreements in employment contracts. As an example, a recent district court case, Robert Garcia v. USA Industries, Inc., demonstrates what may be a shift in Texas’ formerly lenient approach to non-competes. There, the court granted the plaintiff’s request for a temporary restraining order against the non-compete clause in his severance agreement, finding not only that there was inadequate consideration to enforce the non-compete provision, but that the provision itself was unreasonable. While this is only one case, in light of this shift in the interpretation of non-compete agreements as reflected in this decision, companies should ensure that their non-competes are reasonable as to scope and time, supported by adequate consideration, and narrowly tailored to protect the company’s legitimate business interests so as to increase the chances of the agreement being upheld. This will only become more important as more and more states pass restrictive covenants legislation limiting what is permissible.
Continue Reading Texas Decision Highlights Concerns Regarding Limiting Enforceability of Non-Compete Agreements During COVID-19 Pandemic

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In this fourth installment of our 2021 Trade Secrets Webinar Series, our team will cover recent legal developments in Texas trade secret and non-compete law

After a months-long delay due to an outbreak of COVID-19 during the first trial, a federal jury in Texas awarded a $152 million verdict—including $120 million in punitive damages—in a trade secret misappropriation case between rival software development companies.

Case Summary

In 2019, software company ResMan LLC (“Resman”) sued its former customer Karya Property Management LLC (“Karya”), alleging that Karya provided its third party software consultant, co-defendant Expedien, with unauthorized access to Resman’s trade secrets in order to help it develop a competing product. Resman’s proprietary software is used to manage apartment buildings throughout the United States. In the breach-of-contract lawsuit, Resman alleged Karya gave Expedien access to its trade secrets so that it could develop its own rival property management software.
Continue Reading Texas Federal Jury Awards $152 Million in Trade Secret Misappropriation Case Interrupted by COVID-19

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