The Texas Supreme Court on Friday issued its first decision interpreting the recently enacted Texas Uniform Trade Secrets Act (TUTSA), holding that a defendant’s corporate representative does not have an absolute right to remain in the courtroom while a plaintiff’s trade secrets are discussed. In re M-I L.L.C. d/ba/ MI-Swaco, No. 14-1045 (Tex. Jan. 13, 2016). The Court’s decision is significant both because it is the first time the Texas Supreme Court has addressed the relatively new legislation (TUTSA was passed in late 2013), but also because its signals the Court’s willingness to interpret TUTSA expansively.
The dispute in In re M-I L.L.C., is between M-I Swaco (M-I), which is a subsidiary of Schlumberger, and National Oilwell Varco, L.P. (NOV), both of which provide equipment and services to the oil and gas industry. In 2014 an employee in M-I’s mesh screen division left the company to join NOV’s competing division. Concerned about the disclosure of its proprietary information, M-I accused the employee of violating his non-compete agreement and demanded that he find work in an unrelated division of NOV.
The employee quickly filed suit seeking judgment that the non-compete agreement was unenforceable, and M-I counter-claimed against both NOV and the employee for misappropriation of trade secrets, among other claims.
M-I pursued injunctive relief, and during a hearing on its motion, sought to establish the existence of a trade secret through the testimony of an M-I employee. M-I requested that everyone except the counsel for both parties, their experts, and the counter-defendant, leave the room during the testimony. NOV objected to the removal of its corporate representative, arguing that it violated the company’s due process. The trial court agreed with NOV and allowed the representative to stay, but as precaution, ordered NOV’s representative not to disclose any of M-I’s proprietary information. M-I filed a writ of mandamus challenging the trial court’s decision.
The Texas Supreme Court rejected the trial court’s due process rationale. While concerns of due process create a presumption that parties be permitted to participate in the decision-making process, this right is not absolute. Instead, the trial court must consider whether there is competing interest that overcomes this presumption. In the context of this trade secrets case, the Court held that NOV’s right to participate must be weighed against the potential harm M-I would suffer from dissemination of the company’s trade secrets.
In balancing these interests, the trial court should consider: 1) the relative value of the alleged trade secret, and 2) whether NOV’s corporate representative was a decision-maker at the company. If the corporate representative is in a position to use the information gleaned during the hearing, participation in the hearing is less justifiable. Also relevant, the Court held, is whether NOV’s defense would be curtailed by the corporate representative’s exclusion from the hearing.
The trial court abused its discretion in not considering any of these factors.
The Court found further support for its conclusion in TUTSA’s language, Tex. Civ. Prac. & Rem. Code § 134A.001-.008. “[T]he Trade Secrets Act requires trial courts to take reasonable measures to protect trade secrets and creates a presumption in favor of granting protective orders to preserve the secrecy of trade secrets, which may include provisions for, among other things, ‘holding in camera hearings.'” No. 14-1045, at 12 (quoting Tex. Civ. Prac. & Rem. Code § 134A.006). While the Act does not define “in camera hearings,” the Court held that the Act’s language, which permits attorneys and their experts to participate in the hearing, suggests that corporate representatives may be excluded.
The Texas Supreme Court’s first decision interpreting the TUTSA bodes well for companies dependent on trade secrets protection. The decision not only articulates an additional mechanism for protecting trade secrets during the course of litigation, but it sends a message to trial judges that their decisions—and whether judges are affording sufficient protection to trade secrets—will be scrutinized. This is the first but certainly not the last case that will examine the scope of trade secrets protection under the TUTSA.