My last post discussed the “Catch 22” choice that trade secret owners in Texas face when deciding whether to make non-disclosure agreements (“NDAs”) last forever or expire on a specified date. This post discusses damage control steps that a business can take when its trade secrets were disclosed under NDAs that are now expired.
A 2009 opinion by the Houston Court of Appeals provides a good illustration of how defendants in trade secret cases attempt to use expired NDAs to their advantage and what plaintiffs may do in response. Ineos Group, Ltd., et al. v. Chevron Phillips Chemical Company, LP, 312 S.W.3d 843 (Tex. App.—Houston 2009, no pet.). Chevron Philips claimed that the defendants (collectively, “Ineos”) committed a theft of trade secrets by seeking to license Chevron Philips technology to third parties. Chevron Philips sought a pre-trial temporary injunction to prevent Ineos from further licensing the technology.
At the temporary injunction hearing, Ineos presented evidence that Chevron Philips had disclosed its technology to multiple licensees under agreements that contained expired confidentiality provisions. Ineos’ position was:
“NEOS acknowledges that [Chevron Philips’] loop slurry technology was at one time a trade secret. Nevertheless, INEOS asserts that the information lost trade secret status due to [Chevron Philips’] lack of vigilance with respect to guarding the secrecy of the information.”
Chevron Philips clearly was prepared for this defense and had done a lot of damage control in preparation for the lawsuit. To counteract Ineos’ defense, Chevron Philips presented the following evidence at the hearing:
- For one of the licensees whose confidentiality obligations had expired, Chevron Philips entered into a new license agreement with that licensee. The new agreement contained a perpetual confidentiality clause, stated that the obligation applied retroactively, and included a warranty from the licensee that the licensee had not disclosed Chevron Philips’ technology.
- Although they did not apply retroactively, Chevron Philips entered into new license agreements containing perpetual confidentiality obligations with other expired NDA licensees. A witness testified that Chevron Philips was unaware of these licensees having ever disclosed Chevron Philips’ alleged trade secret (note: testimony from the licensee would have been more probative, but that testimony may not have been available to Chevron Phillips).
- Chevron Philips presented evidence that one licensee whose confidentiality obligations had expired was now a wholly owned subsidiary of another company who was under a perpetual confidentiality obligation to Chevron.
- A witness testified that one prior recipient of Chevron Philips’ alleged trade secret had ceased business in the relevant field (presumably, the implication was that there was no longer any risk of disclosure or use of the trade secret by that party).
- Chevron Philips also presented evidence supporting its argument that one 25 year term confidentiality clause was still in force because a force majeure event extended the term.
Expired NDAs can become an important, time consuming and expensive to litigate issue in a theft of trade secrets lawsuit. In a perfect world, the plaintiff will not have expired NDAs covering the trade secret at issue. However, when faced with that problem, a proactive plaintiff can take steps to control the damage.
Unfortunately, the Houston Court of Appeals never ultimately decided whether Chevron Philips still had a trade secret despite the prior expiration of NDAs. The Court stated that issue was not necessary for resolution of Ineos’ appeal of the temporary injunction order. Nevertheless, a proactive strategy of damage control is a lot better for a plaintiff than doing nothing.