Litigator’s thoughts on Schlumberger trade secret case

Editor's note: The lawsuit referenced in this article has been dropped and was nonsuited with prejudice late summer 2014.

The article originally appeared on Burleson’s website. The June 13 post was written by Randy Burton, a litigation partner in the law firm’s Houston office.

On June 10, 2014 Schlumberger Technology Corp. filed suit against a newly hired vice president of “pressure pumping” at Baker Hughes for, among other things, stealing trade secrets. This is an important case because of the potential application of the new Texas Uniform Trade Secrets Act (TUTSA) that became effective on September 1, 2013.  

The lawsuit alleges that Humair Shaikh, who worked at Schlumberger from 1998 until March 2014, violated his confidentiality and non-compete agreements by taking trade secrets on four different USB drives when he left to join Baker Hughes. Shaikh apparently was a “high-level, highly compensated” operations manager who was responsible for a “highly confidential next generation stimulation project that included pressure pumping, proppants and multistage completion technologies” while at Schlumberger.

Schlumberger accuses Shaikh of breaching his various restrictive covenants under a Confidentiality, Non-disclosure, Intellectual Property, Non-solicitation, and Non-competition Agreement. It also alleges that Shaikh breached his fiduciary duty to Schlumberger by stealing the confidential and trade secret information while still employed at Schlumberger and after accepting the VP position at Baker Hughes. Of course, Schlumberger also claims that Shaikh has stolen its trade secret information for which it seeks injunctive relief.

Oddly, however, Schlumberger, which filed its suit in a Harris County court, does not appear to be aware of the new TUTSA. In fact, there is not a single mention of it in the petition. It also makes reference to what sounds like the Inevitable Disclosure Doctrine claiming that Shaikh has either used the data at Baker Hughes “or will inevitably do so.” The Inevitable Disclosure Doctrine is not recognized in Texas and is no longer needed since the passage of TUTSA became effective on September 1, 2013.

Prior to TUTSA, Texas courts only allowed injunctive relief in cases of actual misappropriation. While the issue was often argued, trade secret owners were not allowed a “pre-emptive strike” against the potential misuse of its trade secrets. In addition, Texas courts were hesitant to apply injunctive relief in the event of “merely” threatened disclosure of trade secrets - even though the most practical time to protect a trade secret is before it is misappropriated and causes injury to its owners. The old law required a showing of actual, imminent, and irreparable harm in order to obtain injunctive relief; because “An injunction should not issue to prevent speculative harm.”

It is precisely this old Texas trade secret law that has heretofore failed to provide the sort of broad protection many companies have desired for sensitive and/or proprietary information. This could explain why exasperated employers had, prior to TUTSA, asked Texas courts to apply what is referred to as “The Inevitable Disclosure Doctrine,” which presumes that a former key employee who goes to work for a competitor will invariably disclose company secrets with no proof of actual harm to the former Employer required. Yet, the Inevitable Disclosure Doctrine was never expressly adopted by Texas.

Enter TUTSA, which allows for injunctive relief for both actual and threatened misappropriation. This is true even when the employer fails to obtain a covenant-not-to-compete or confidentiality agreement from their employees. When a key employee who has had access to a company’s trade secret information leaves to work for a direct competitor, with or without evidence of secrets in hand, the TUTSA effectively creates an implied covenant-not-to-compete.

Another positive development is a provision entitled “Preservation of Secrecy” which requires Texas courts to “preserve the secrecy of an alleged trade secret by reasonable means." This includes a legal “presumption” in favor of granting protective orders to preserve the secrecy of trade secrets.

Though Schlumberger’s lawsuit seeks the recovery of its attorneys’ fees via its breach of contract claim, this, too, is no longer necessary. Now, TUTSA expressly provides for the recovery of attorney’s fees where “willful and malicious misappropriation exists.”

 

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