While the American economy has made significant progress in terms of pandemic recovery, many of the businesses that weathered the past year are still left picking up the pieces and putting them back together. Massive relief spending to support the economy throughout the pandemic has had mixed results for businesses; which speaks to the difficulty of times. Moreover, simply outlasting the pandemic is certainly not enough to end the struggles for many businesses, particularly those with razor-thin margins or leveraged start-ups.
As a light at the end of the COVID-tunnel seems to be within view, many businesses are wondering: what threats lie ahead once the pandemic is behind us?
While the full multitude of challenges are not yet known, one Texas-based attorneyhighlighted worrisome risks posed by the potential for a forthcoming “Flood of Trade Secret Litigation.” A few confounding factors have readied the business landscape for a new surge of trade secret litigation, including fluid stay-at-home orders throughout the pandemic that have shifted workforces and business materials into private households, as well as increased employment turnover throughout the economy.
Those in the tech space have embraced the shift to remote work;Google has already postponed their employees return to office work until late 2021 and Facebook hastentatively pledged to allow remote work on a permanent basis for employees that so wish. Fin-tech, app development, and digital companies are the most susceptible to trade secret litigation thanks to the significant intellectual property associated with the nature of their work, the rapid adaptation to the remote workplace, and high turnover potential.
What’s more is turnover in the tech world already looks to be beginning. As many as 39% of tech workers havesuggested that remote work has made other jobs of interest available while 60% intend to look for a new job within the next 12 months.
Trade secret litigation was already on therise prior to the COVID-19 pandemic. But one particular case, Title Source v. HouseCanary, can serve as a bellwether of sorts for businesses looking to cash out on trade secret litigation.
In early 2015, Title Source, now known as Amrock, sought to license an application that would assist in appraising properties. Title Source sought out help from a third party developer, HouseCanary, who promised a game changing application to better the home valuation process. A contract that paid $5 million annually was struck between the parties for the delivery of the application.
By April 2016, the agreed upon product had not been delivered. When HouseCanary demanded payment in full, Amrock filed a complaint for breach of contract. In turn, HouseCanary filed a countersuit alleging that Amrock had misappropriated its [HouseCanary’s] trade secrets.
The case went to trial and in March 2018 a Bexar County, Texas juryawarded $706million to HouseCanary in what turned out to be one of the largest verdicts of the year. While it is not exactly clear how HouseCanary was able to convince the jury and lead them to this astronomically senseless amount, simple math shows the award to be more than 140 times the agreed upon $5 million annual contract. Fortunately, the Texas Fourth Court of Appeals has brought some common sense to the case and in June 2020 tossed out the award and ordered a new trial after it was determined that the trial jury may very well have considered invalid legal theories in reaching their decision.
Title Source v. HouseCanaryis an informative example because it shows the double edges of trade secret litigation. First, third party partners can easily accuse companies of misappropriating trade secrets. Second, massive awards such as the $706 million set by the trial jury can obviously incentivize companies to seek out litigious arrangements and opportunities. But third, and perhaps most important, this saga indicates that the legal system can work, and that fact and law will ultimately prevail, although it may take time.
The new trial may help set the precedent for future trade secrets cases. This is especially critical given the anticipated surge in trade secret litigation as a result of increased remote work and employment turnover in the tech space. By diluting the standards for what qualifies as intellectual property and trade secrets specifically, overinflating valuations of unproven products and technology based on speculation could force businesses with exposure to either to face a difficult path out of the pandemic.
George Landrith is the President and CEO of Frontiers of Freedom — a public policy think tank devoted to promoting a strong national defense, free markets, individual liberty, and constitutionally limited government. Landrith is also an attorney and member of the bar of the United States Supreme Court.