Trade Secrets Requested to be Sealed in $706 Million Dispute

Originally published by Brent Perry.

In a previous blog, we discussed trade secrets and how such confidential information can often be ambiguous with regard to how it is classified. This specifically came up in a recent case in Bexar County where a jury found both company models and data could be classified as trade secrets. A jury decided Title Source had stolen proprietary data from startup HouseCanary as it allegedly readied to build its own software suite. This resulted in a $706 million verdict in favor of HouseCanary, which the trial increased to nearly $740 million after denying Title Source’s request to vacate the jury’s decision. Now, Texas justices, have been asked to consider the proper standards and procedures for sealing trade-secret information.

In August of this year HouseCanary Inc. petitioned the Texas Supreme Court to review a ruling from the Fourth Court of Appeals in San Antonio in Title Source, Inc. v. HouseCanary, Inc., f/k/a Canary Analytics, Inc., Cause Nos. 04-18-00509-CV and 04-18-00844-CV, regarding proper document sealing procedures under Texas Rule of Civil Procedure 76a, which had left its documents unsealed after Title Source and two intervenors, media interest group Reporters Committee for Freedom of the Press and the Houston Forward Times, a weekly newspaper, opposed HouseCanary’s request for a permanent sealing order. HouseCanary argued that to leave this decision in place would only facilitate the trade-secret misappropriation.

More than six weeks after its win in trial court, HouseCanary moved to have thirty trial exhibits sealed, relying on Rule 76a as the express basis for sealing and complying with the public notice requirements under Rule 76a. Judge Canales initially denied the motion to seal but subsequently sealed fourteen exhibits after granting HouseCanary’s motion to reconsider, in which HouseCanary relied solely on the Texas Uniform Trade Secrets Act (TUTSA) as the basis for sealing and specifically disclaimed reliance on Rule 76a.

In the appellate court, HouseCanary argued that the court lacked jurisdiction over Title Source and the two intervenors’ appeals because, although Rule 76a allows for an immediate appeal of “any order” “relating to sealing or unsealing of court records,” TUTSA, does not. TUTSA expressly preempts any Rule of Civil Procedure in the event of a conflict. According to HouseCanary, because TUTSA was the sole basis for sealing and because TUTSA preempts Rule 76a on the issue of appealability, the appellate court had no power to consider the appeal. According to HouseCanary, even if Rule 76a applied, the sealing order “was mandated by law” because TUTSA explicitly required the trial court to preserve the secrecy of its trade secrets.

The Fourth Court of Appeals overturned the trial court’s sealing order, however, rejecting HouseCanary’s argument that TUTSA preempted Rule 76a and it of power to consider the appeals. The appellate court found no conflict between TUTSA and Rule 76a on the issue of immediate appeals.

The appellate court further found that Rule 76a supplied the standards and procedures for the trial court to evaluate HouseCanary’s motion to seal because HouseCanary had agreed in a stipulated protective order that Rule 76a would apply to any request to file material under seal, including trial exhibits, and because TUTSA did not override the stipulated protective order. The court of appeals also held that TUTSA does not mandate sealing but instead only imposes on a trial court a duty to use “reasonable means” to preserve trade secrets. By expressly ordering the exhibits sealed under TUTSA rather than Rule 76a when it granted HouseCanary’s motions to reconsider, and without complying with Rule 76a’s standards and procedures, the trial court abused its discretion.

In its petition, HouseCanary contends that the trial court exercised proper discretion afforded to it by TUTSA by sealing the exhibits under TUTSA rather than Rule 76a and that TUTSA’s broad mandate to preserve trade secrets controls over Rule 76a burdensome requirements. Additionally, HouseCanary argues that the stipulated protective order did not govern the sealing of trial exhibits and that the Fourth Court of Appeals’ ruling “vitiates the Legislature’s direct policy pronouncement” in enacting TUTSA.

Houston Trade Secrets Attorneys

At Burford Perry LLP, our experienced Houston trade secrets attorneys are well versed at handling complex and difficult trade secret matters, including issues that arise when attempting to preserve the secrecy of the information while pursuing claims against those who have stolen a company’s trade secrets. We can help you put a stop to trade secret violations and seek compensation for the economic impact of violations. Contact us today to schedule an appointment with one of our attorneys.

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