In a misappropriation of trade secrets case under the Texas Uniform Trade Secrets Act (TUTSA), the trial court must “preserve the secrecy of an alleged trade secret by reasonable means.”  TEX. CIV. PRAC. & REM. CODE § 134A.006 (Westlaw 2016).  TUTSA, however, provides only scant guidance for the courts on how to preserve that secrecy.  Under TUTSA,  “[t]here is a presumption in favor of granting protective orders to preserve the secrecy of trade secrets.”  Futher, TUTSA states that these protective orders may include, among other things, “limiting access to confidential information to only the attorneys and their experts, holding in camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.”  Beyond these two sentences, TUTSA is not specific as to what the trial court must do in order to preserve the secrecy of the alleged trade secret.

In re M-I, LLC is the first Texas Supreme Court case to attempt to provide trial courts with more guidance.  In In re M-I, LLC, plaintiff, during the temporary injunction hearing, wanted to offer the testimony of one of its employees to establish its trade secrets.  In doing so, plaintiff asked that everyone except the parties’ counsel and experts be excluded from the courtroom.  The trial court, however, refused to exclude the defendant’s designated corporate representative, holding that to do so would violate due process.  Instead, the trial court stated that it would order defendant’s representative to not disclose the trade secrets he heard.

Plaintiff, rather than offer the testimony in front of defendant’s representative, asked that the hearing being recessed so that it could appeal the court’s decision.  On appeal, the Texas Supreme Court addressed whether the trial court erred in refusing to exclude defendant’s corporate representative from the hearing.  The Court rejected the defendant’s argument that due process required its representative’s presence during at the hearing during the testimony on trade secrets.  Instead, the Court stated that the trial court was required to balance the due process presumption in favor of the defendant’s participation at trial against the degree of competitive harm the plaintiff would have suffered from the dissemmation of the trade secret.  To make that determination, the trial court needed to consider the following factors:

  1. The relative value of the plaintiff’s trade secrets.  The higher the value of the trade secret, the more competivite harm would come from the trade secret’s dissemination;
  2. Whether defendant’s representative acts as a competitive decision-maker for defendant.  According to the Court, if the representative acted as competive decision maker, then the disclosure of plaintiff’s trade secrets to him “would necessarily entail greater competitive harm because, even when acting in good faith, [the representative] could not resist acting on what he may learn.”  (The Court’s language here seems to be an implicit acknowledgement of the inevitable disclosure doctrine, a topic to address in a future blog post.)
  3. The degree to which the defendant’s claims would be impaired by the representative’s exclusion.  To make this determination, the trial court needed to consider the representative’s role at the defendant and whether, by virtue of that role, the representative possessed specialized expertise that would not be available to defendant’s outside experts.
  4. The stage of the proceedings. 

In this case, the trial court considered none of these factors in determining that the defendant’s corporate representation should be allowed to remain at trial.  Therefore, the Texas Supreme Court remanded the case for the trial court to make a determination.  The Court further noted that this same balancing analysis would apply to the extent Texas’s Open Courts provision applied.