421 S.W.3d 296
Tex. App.2014Background
- Four former TD Ameritrade employees (including Piccinini and Rockwell) joined startup PrairieSmarts, which developed a product called PortfolioDefense™ and filed a patent application in Jan. 2013.
- TD Ameritrade filed a Texas Rule 202 petition seeking presuit depositions and broad document production to investigate alleged misappropriation of confidential/proprietary assets and claimed similarities between PortfolioDefense™ and TD Ameritrade’s Portfolio Margin model.
- PrairieSmarts asserted trade secret privilege (Tex. R. Evid. 507), submitted affidavits and in camera documents, and denied misuse; it also objected to venue for the corporate-representative deposition.
- The trial judge conducted an in camera review but granted TD Ameritrade’s Rule 202 petition in full, ordering depositions and production subject to an “Attorneys’ Eyes Only” protective provision.
- PrairieSmarts sought mandamus; the appellate court stayed the discovery and reviewed whether (1) the information qualified as trade secrets and (2) TD Ameritrade satisfied the separate Rule 507 (necessity) and Rule 202 (benefit vs. burden) showings required for presuit discovery of trade secrets.
Issues
| Issue | Plaintiff's Argument (TD Ameritrade) | Defendant's Argument (PrairieSmarts) | Held |
|---|---|---|---|
| Whether PortfolioDefense™ materials are trade secrets | TD Ameritrade implicitly disputed trade-secret claim and sought access to determine misuse | PrairieSmarts: code, models, development history and beta testing are secret, guarded, valuable; they asserted privilege and submitted affidavits and documents | Court: PrairieSmarts met burden — nearly all requested items constitute trade secrets (except topic h) |
| Whether TD Ameritrade met Rule 507 necessity standard to compel trade-secret disclosure | TD Ameritrade: timing, personnel overlap, product similarities and timeline justify investigation and make trade-secret discovery necessary | PrairieSmarts: TD’s facts show only suspicion; disclosure would unjustly expose trade secrets and alternatives (beta testing, public comparison) exist | Court: TD Ameritrade failed Rule 507 — it did not specifically show how lack of the trade-secret info would create a real threat of unjust result; mere usefulness is insufficient |
| Whether Rule 202 presuit discovery was justified despite trade-secret status (benefit vs. burden) | TD Ameritrade: alleged “red flags” support that the likely benefit of investigation outweighs burden/expense under Rule 202 | PrairieSmarts: Rule 202 cannot override Rule 507’s necessity protection for trade secrets; burden on startup and risk of exposing secrets outweigh benefits | Court: Because TD Ameritrade did not satisfy Rule 507, trial court abused discretion in ordering presuit discovery; the Rule 202 order was vacated (including topic h due to changed analysis) |
Key Cases Cited
- In re Frank Motor Co., 361 S.W.3d 628 (Tex.) (mandamus proper to correct clear abuse of discretion)
- In re Prudential Ins. Co. of Am., 148 S.W.3d 124 (Tex. 2004) (mandamus standards and availability)
- In re Wolfe, 341 S.W.3d 932 (Tex. 2011) (limited, supervised presuit discovery under Rule 202; cannot obtain by Rule 202 what would be denied in anticipated suit)
- In re Jorden, 249 S.W.3d 416 (Tex. 2008) (Rule 202’s limited, non-routine nature)
- In re Does, 337 S.W.3d 862 (Tex. 2011) (Rule 202 requires finding that deposition may prevent failure/delay of justice or that likely benefit outweighs burden)
- Cont’l Gen. Tire, Inc. v. Hopkins, 979 S.W.2d 609 (Tex. 1998) (trade-secret burden shifting under Tex. R. Evid. 507 — resisting party must show trade secret; requester must show necessity)
- Bridgestone/Firestone, Inc. v. Lara, 106 S.W.3d 730 (Tex. 2003) (necessity requires specific showing that denial would create a real threat of unjust result)
- Union Pac. R.R. Co. v. Wright, 294 S.W.3d 589 (Tex. 2009) (trade-secret factors and consideration of alternative means of proof)
- Bass v. Texas Tech Univ., 113 S.W.3d 735 (Tex. 2003) (trade-secret analysis; not all Restatement factors must be present)
- Hewlett-Packard Co. v. Reed, 212 S.W.3d 356 (Tex. App.—Austin 2006) (Rule 202 and trade-secret protections require satisfying both Rule 507 necessity and Rule 202 benefit/burden)