HOUSTON – A recent appeals court opinion in a trade secret case is being touted as a victory for the impacted company and a watershed ruling in the state of Texas.
In January, the Texas 1st District Court of Appeals in a unanimous opinion reversed a permanent injunction and remanded a lower court’s ruling of injunctive relief for further proceedings in a trade secrets lawsuit involving Inhance Technologies LLC and TMRJ Holdings.
However, the panel, which included Justices Jane Bland, Laura Carter Higley and Harvey G. Brown, upheld the district court ruling awarding Inhance Technologies LLC $4 million in reasonable royalty damages and $10,500 in lost profits.
Jessica Glatzer Mason, a partner at Houston-based Gardere Wynne Sewell LLP, served as lead counsel representing Inhance. She called the Jan. 9 appeals court decision “a clear victory” for the company.
“We look at this as very much a win,” she told the Southeast Texas Record. “We had a very strong victory down below. The jury awarded almost $10 million against the defense. After the election of remedies, it was brought down to $4 million.”
The competing company, TMRJ Holdings, founded by former Inhance executives Paul Banks and David Molthen, appealed the decision from the 269th District Court of Harrison County.
In its appeal, TMRJ argued that the trial court was wrong in awarding both damages and permanent injunctive relief, maintaining that the two remedies are duplicative and to award both violates the one-satisfaction rule.
Mason noted that a key point of the case of first impression in Texas is whether you can have a reasonable royalty award in conjunction with a permanent injunction.
“The appellate court came down and said that you can have under the Texas Uniform Trade Secrets Act a reasonable royalty and a permanent injunction,” she said.
In the issue of first impression in Texas, the case may serve as a benchmark among 48 Trade Secret Act states.
“This is really a very clear pronouncement on this legal issue,” Mason said. “It is an issue that hasn’t been fleshed out previously.”
In similar cases, the parties now know that a reasonable royalty does not necessarily give them permission to engage in the practice going forward.
“Their point was that if they are going to pay a reasonable royalty, it shouldn’t prevent them from engaging in this line of business,” Mason said. “The appellate court said ‘Yes, you can.’”
TMRJ can appeal the case to the Texas Supreme Court, but that would be discretionary and the court would have to agree to hear the case.
If the case is not heard by the Texas Supreme Court, it would go back down to the trial court where the permanent injunction would be re-written.
“The trade secrets in this case are technical and scientific,” Mason said. “Many times, these cases are argued over customer lists, which can diminish over time. With science and technology, a process that works can work perpetually.”
It is interesting that a case like the Inhance case hasn’t happened before, forcing the courts to rule.
Mason noted that the law only went into effect in Texas in 2013. The Inhance case is among the first cases to go to trial under the current laws.
“The reasonable royalty cases that have included permanent injunctions have been a little different in the facts,” she added. “Other parties may have had lost profits, so there was another model and they didn’t resort to the reasonable royalty.”