Texas Supreme Court Reverses Trade Secret Award, But Allows Another Opportunity to Prove Damages

The Texas Supreme Court issued another trade secret decision on June 10, 2016. In Southwestern Energy Production Company v. Helfand, the Court reversed an award of over $11 million, but has allowed Helfand a second opportunity to prove damages at a new trial.

Helfund presented confidential, trade secret data to Southwestern Energy Production Company (“SEPCO”) identifying locations to produce natural gas from formations in East Texas. Prior to seeing the trade secrets, SEPCO signed a confidentiality agreement with Helfand, agreeing not to use the trade secrets, except under an ongoing arrangement with Helfand, which never came to fruition.

SEPCO later developed successful wells in the same area that Helfand had identified in the trade secrets. Helfand sued, claiming that SEPCO used the trade secrets in identifying these well locations.  The jury agreed that SEPCO wrongly used trade secrets, and awarded over $11 million in damages.

On appeal, SEPCO argued that Helfand’s damage model at trial was inadequate, and asked the Court to render a verdict that Helfand take nothing. The Court agreed that the damage model was not adequate, but instead of rendering that Helfand take nothing, the Court has allowed Helfand a second chance to prove damages.

Moreover, at the new trial, Helfand will be able to request damages for improperly using the trade secrets and damages for breaching the confidentiality agreement. Also, the Court left open the possibility that Helfand could measure the damages based on disgorgement of the profits that SEPCO may have made from wrongfully using the trade secrets.

SEPCO lacked good documentation to defend itself. SEPCO had harmful documents indicating that it developed wells in the same areas that Helfand identified in the trade secrets. While SEPCO claimed that it developed the well locations independently, SEPCO acknowledged that the same persons who developed these locations also had access to Helfand’s trade secrets.  SEPCO claimed that it had helpful documentation showing its independent research, but SEPCO said that the helpful documents were destroyed.  Now SEPCO faces another expensive jury trial and the continued risk of a jury verdict against it.

Keep and Preserve Documents to Show that “Off Limits” Trade Secrets Were Not Used

If a company receives trade secrets that it has promised not to use, and then develops an opportunity in the subject matter of those secrets, it is imperative that the company make and preserve a good documentary trail that establishes that the trade secrets were not used in the company’s development. Otherwise, it should expect to be a defendant in an expensive trade secret suit.

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