The case of Phazr, Inc. v. Ramakrishna, No. 3:19-CV-01188-X, 2020 WL 5526554 (N.D. Tex. Sept. 14, 2020), evaluated the pleading requirements expected of a plaintiff in a misappropriation of trade secrets claim under the federal Defend Trade Secrets Act (DTSA) and the Texas Uniform Trade Secrets Act (TUTSA). Ultimately, the Court determined that the plaintiff failed to meet the plausibility standard expressed in Twombly-Iqbal.
In Phazr, the plaintiff Phazr produced various technologies for the wireless communications industry, specifically targeting fifth generation (5G) wireless communication networks. Between July 2016 and October 2017, Phazr hired the named defendants Ramakrishna, Balasekar, Banh, and Patel. At the beginning of each individual’s employment with Phazr, each signed confidentiality, non-compete, and non-solicitation agreements. Between September 2018 and April 2019, each left Phazr and eventually went to work for a competing company called Mavenir, the final named defendant. Phazr alleged that defendants performed confidential tests for Phazr and were bound to keep it confidential. Further Phazr asserted that Mavenir’s software was developed using Phazr’s confidential information.
Phazr filed suit in a Texas state court alleging that the defendants misappropriated Phazr’s trade secrets and asserting that Mavenir did not possess the capabilities to compete effectively with Phazr until Phazr’s ex-employees joined Mavenir. The defendants then removed the case to federal court, and the Court allowed Phazr to amend its complaint. Ultimately, the Court rejected both the first and the second amended complaints for failure to state a claim, the second time with prejudice.
In its final rejection of Phazr’s complaint, the Court expressly noted that pleading for relief under DTSA requires that a plaintiff meet the plausibility standard of pleading rather than the lower, “fair notice” standard applied under Texas law. Phazr failed to meet this standard because it based its claims on “speculation and conclusory allegations.” Specifically, Phazr failed to explain how Mavenir or an individual defendant used the alleged confidential information. The Court thus dismissed Phazr’s federal misappropriation claim with prejudice for failure to state a claim.
Special thanks to Kyle Markwardt for his assistance with this blog post.