Witness Preparation Lessons from the Waymo v. Uber Trial

Witness Preparation Lessons from the Waymo v. Uber Trial

On February 5, 2018, the day after the real Super Bowl, the Super Bowl of trade secrets trials started in federal court in San Francisco. You might have heard of some of the parties. The defendant was Uber—perhaps the most controversial startup of the last decade. You may not have heard of the plaintiff, Waymo, but you probably know Waymo’s owner, a little company called Google.

The issue in a nutshell: did Google engineer Anthony Levandowski steal Google’s confidential self-driving car technology—they call it “LiDAR”—and take it to Uber?

This is the type of “departing employee” case I like to handle (usually on a slightly smaller scale), so it would have been fun to take the week off just to follow the trial, but alas, I had work to do for my own clients.

Fortunately, I was able to get the flavor of the trial by periodically checking my Twitter feed. Sarah Jeong, Senior Writer at The Verge, live-tweeted the trial and, after the case suddenly settled in the middle of trial, wrote this helpful wrap-up Who blinked first in Waymo v. Uber?

I bet the trial transcript—or even the tweet-stream—is a goldmine of lessons for lawyers who handle departing employee cases, and trial lawyers in general. But for now I’ll just share a little nugget about how to prepare witnesses to answer argumentative questions.

Laser is the Sauce

But first, in case you don’t know the back story, Fortune has a good timeline here. I’ll give you the simplified version:

  • The amount of money to be made from self-driving car technology is roughly equivalent to the GDP of France
  • Google spun out Waymo to develop this technology
  • Levandowski left Google/Waymo to start “Otto” (which apparently rhymes with “Auto” – get it?)
  • Uber CEO Travis Kalanick decided it would be cool to back his bro Levandowski and acquire Otto
  • Waymo sued Otto and Uber for patent infringement and misappropriation of trade secrets

The case was unusual for several reasons: the net worth and public stature of the household-name parties, the high profile of the executives involved, the amount of alleged damages (close to $2 billion), the importance of the technology involved, and the Silicon Valley culture from which all of this emerged, to name a few.

But at its root, Waymo v. Uber was a fairly typical departing employee case: key employee does suspicious things, leaves first company, and goes to second company. First company sues second company for trade secrets misappropriation.

I haven’t studied the allegations in detail, but the picture that emerges from press coverage is bad “liability facts” for Uber—like some bad text messages and Levandowski downloading 14,000 proprietary Google documents shortly before leaving—but a weak damages case for Waymo. Apparently Waymo’s problem was that it couldn’t prove Uber actually received or did anything with the stolen files.

This is common. There are many trade secrets cases where the key employee is caught doing sneaky underhanded things he shouldn’t have done, but where it’s not clear whether those bad things actually caused damage to the employer.

My Witness Preparation Jam Sesh

That leads to my little lesson on witness preparation. Uber’s key trial theme was that it never received and used the alleged trade secrets. Specifically, Uber argued that the 14,000 files never got transferred to Uber. So, when Uber’s lawyer had Waymo’s expert witness on the stand, he zeroed in on that gap in Waymo’s evidence:

Screen Shot 2018-02-10 at 2.58.03 PM

This is a good example of using cross-examination to make your argument. Uber’s lawyer is effectively standing before the jury and saying “ladies and gentlemen, there is no evidence the 14,000 files taken by Mr. Levandowski were ever transferred to Uber.” He’s just doing it in the form of a question to Waymo’s witness.

You can bet that Uber’s lawyer already knew the answer was no (probably from taking the witness’s deposition). So it was a good way to emphasize Uber’s key theme.

But of course, the question was a little misleading. This witness never examined Uber’s computers (assuming he was being truthful). That wasn’t his role. The fact that this witness didn’t find any evidence that the files got to Uber’s computers didn’t really mean a lot.

Still, I like the question. Part of the point of cross examination is to emphasize the points the witness has to concede that help your client’s case.

I also like the answer (at least on paper—it’s harder to say how it came off in person). Crain admitted the answer was no but got his little counter-jabs in at the same time. And that’s usually a good way to answer this kind of question, if you don’t take it too far.

Three Ways to Answer Argumentative Questions

There are basically three ways to answer this kind of argumentative question:

(1) The Just Answer the Question approach

(2) The Dog With a Bone approach

(3) The You Get to Argue Once approach

The first two approaches have some merit, but overall I like the third. Let’s break these down.

Just Answer the Question

The Just Answer the Question approach is just like it sounds. Let’s say the question is “did you take your employer’s customer list when you left?” If the answer is yes, then the witness just answers, “Yes.”

There are two main advantages to this approach. First, it is simple and easy to remember. As I explained in my post What the Ken Starr Interview Can Teach Lawyers About Witness Preparation—and Golf, a lot of witness preparation advice, even from professionals, is too complicated. It’s like telling a golfer to think about a dozen different things when swinging the club. Most witnesses are just not skilled enough to follow so many tips, especially under stress. So, there is some advantage to the simplicity of Just Answer the Question.

The second advantage of just answering the question is that the witness avoids looking evasive, arrogant, or overly defensive. That’s obvious. To avoid this risk, lawyers will sometimes coach the witness just to answer the question and not to throw in their counter-argument. “Save that point,” the lawyer will tell the witness, “and I’ll bring it up on re-direct.”

But there is a disadvantage to this approach. It makes it too easy for the questioning lawyer to get on a roll. Remember, what the cross-examining lawyer is really doing is making her argument in the form of questions to an adverse witness. If all the witness does is play along, he’s making it too easy. Maybe the witness will get a chance to bring up the point on re-direct, but the moment has passed. The damage has been done.

So there is something to be said for taking a more argumentative approach. When asked “did you take the customer list,” you can say “yes, but I never used it or gave it my new employer.”

Just don’t take this too far.

Dog With a Bone

For example, I worked on a case involving a real estate deal gone bad. Our client was seeking millions in lost profits damages resulting from another real estate developer effectively “stealing” the deal. The defense lawyer’s key theme was that his client couldn’t steal any deal because the deal hadn’t been finalized.

That led to the defense lawyer asking the plaintiff a series of questions that looked kind of like this:

Screen Shot 2018-02-10 at 5.55.59 PM

You can see the problem here. While the witness does a good job of making his point, he takes it too far. This makes him look stubborn and defensive. The jury may start thinking, “this guy seems really difficult, maybe he never would have gotten approval from the City.”

That leads me to the You Get to Argue Once approach.

You Get to Argue Once

This is a middle ground. When the opposing lawyer asks an argumentative question that could give the jury a misleading impression, the witness makes the point he wants to make—but only once. If pressed after that, he just answers the question.

In the real estate case, it would go something like this in the courtroom:

Screen Shot 2018-02-10 at 6.30.16 PM

Point made, but not overdone. And this is pretty similar to what Waymo’s witness did when asked if he found any evidence the 14,000 files were transferred to Uber’s computers.

Different Strokes for Different Folks

In general, I think the You Get to Argue Once approach is superior to the Just Answer the Question approach, and it is certainly better than the overly stubborn approach.

But of course, like everything in the law, it depends.

It depends in part on the personality of the witness. You tend to get two types: Nervous Ned and Alpha Dog.

Everybody gets a little nervous about testifying under oath, but Nervous Ned gets really nervous. This type just wants it all to be over as soon as possible. If just answering the question will end the ordeal faster, then this type is fine with just answering the question.

Alpha Dog is almost the opposite. This kind of witness relishes going toe-to-toe with the opposing lawyer. The witness can’t wait to unleash the counter-arguments when asked the tough questions. You know the type. Often this kind of witness is a CEO, executive, or self-made entrepreneur. And—let’s just be real about it—this type tends to be a certain gender.

If you’re the lawyer, you’ve got to coach Nervous Ned to stick up for himself a little more, and coach Alpha Dog to dial it down a notch or two. For the first type, the You Get to Argue Once approach means arguing a little more (unless that’s just too difficult, and then you may have to stick with baby steps and Just Answer the Question). For the second type, it means arguing less. In either case, you have to adjust for the personality.

And in both cases, the cardinal rules remain the same: listen carefully to the question, and always tell the truth.

Even if that means admitting you took the 14,000 files.

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head-shot-photo-of-zach-wolfeZach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. He has never used Uber, but he has Googled stuff before.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

 

Trade Secrets 101 – What Texas Businesses and Lawyers Need to Know

Trade Secrets 101 – What Texas Businesses and Lawyers Need to Know

I was listening to Huey Lewis in my garage recently and started singing to myself, I Want a New Goal.

See, I often write about issues of trade secrets law that come up in new cases or that I find interesting, but I got to thinking that people who don’t regularly deal with trade secrets litigation might just want to know the basics. So, I made an ambitious goal for myself: write a memo that talks, right down to earth, in language everyone can easily understand, about the basics of trade secrets law.

Easy, right? But here’s the catch: it has to be 5,000 words or less.[1]

After accomplishing this goal, I wondered if anyone would really care about my memo. But then the drumbeat started. I kept seeing tweets about “Release the Memo,” and then even the President weighed in.

After careful consideration, I have decided to de-classify and release my memo: “Trade Secrets 101” – Texas Trade Secrets Law in 5,000 Words or Less.

Please let me know what you think of it. Did I leave out something important? If so, what would you delete to make room for what I left out? Is it too technical for non-lawyers? Too superficial for practicing lawyers? I want to know.

And here is a little background to the memo, to give you some context.

Is trade secrets law hard to understand? 

Let’s back up and look at trade secrets law in general. Is it hard to understand?

Not especially. The good news is that trade secrets law is fairly intuitive, at least compared to other areas of intellectual property law.

For example, take the question “can a plaintiff claim trade secret protection for information that it did not keep secret?” If a company publicizes information, you wouldn’t think it can claim the information is a trade secret. On the other hand, you wouldn’t think the mere fact that confidential information escaped from the company would be sufficient to destroy the information’s trade secret status.

Your intuitions on this issue would be correct. The company is required to show that it took “reasonable measures”—not perfect measures—to maintain the confidentiality of the alleged trade secrets. That’s just common sense.

The “bad” news—at least for business people who want certainty—is that trade secrets issues tend to be fact-intensive, making it difficult to give categorical answers to client questions.

Where do the statutes define “hard” and “soft” trade secrets?

They don’t.  This is terminology I made up (although I’m sure I wasn’t the first) to help make sense of a basic factual distinction in trade secret cases.

“Hard” trade secrets are the kinds of things you traditionally think of as trade secrets.  The paradigm of hard trade secrets is the “secret sauce,” e.g. the formula for Coke, the Colonel’s secret herbs and spices, the recipe for the creamy jalapeño dip at Chuy’s, etc.

Secret technology is another obvious type of hard trade secret.  If you come up with a new secret technology that allows you to drill an oil well sideways, for example, that’s obviously a trade secret. If competitors can’t readily figure out your technology, it gives you a competitive advantage.

Secret business plans—when truly valuable to know—are the third thing I think of as a “hard” trade secret.  Let’s say you’re buying up land in the middle of nowhere in Florida because you’re secretly planning to build a massive theme park.  That would obviously be an extremely valuable thing for a real estate speculator to know.

“Soft” trade secrets, on the other hand, are the kind of confidential information that almost every business has: things like customer lists, vendor lists, pricing information, and financial information about the company.

I don’t mean to suggest that soft trade secrets aren’t really trade secrets.  If the information meets the statutory definition (discussed in the memo), it’s a trade secret, regardless of whether it is hard or soft.

But from both a practitioner’s and a public policy perspective, we should be a little more skeptical about soft trade secrets.  The company is almost always going to claim that its customer lists and prices are trade secrets.  Whether you’re the plaintiff’s lawyer, the defense lawyer, or the judge, you should always ask “why?”

More than a feeling, that’s the Power of Law.

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head-shot-photo-of-zach-wolfeZach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

[1] I realize that “5,000 words or fewer” might be more grammatically correct, but it just doesn’t have the right ring to it.

Lessons From “I Have a Dream”

Lessons From “I Have a Dream”

On August 28, 1963, Dr. Martin Luther King, Jr. stepped up to a podium in front of the Lincoln Memorial and delivered what would become the signature speech of the American civil rights movement. You know the words. “I have a dream that one day this nation will rise up, live out the true meaning of its creed: ‘We hold these truths to be self-evident, that all men are created equal.’”

Today, the high points of King’s “I Have a Dream” speech are so familiar to most Americans that there is some danger of the speech fading into mere orthodoxy.

But it was not always so. In a confidential memo following the speech, the head of the FBI’s domestic intelligence division gave this assessment of King:

Personally I believe in the light of King’s demagogic speech yesterday he stands head and shoulders over all other Negro leaders put together when it comes to influencing great masses of Negroes. We must mark him now, if we have not done so before, as the most dangerous Negro of the future in this Nation . . .

In a sense, the FBI was right. King was the most “dangerous” leader of the civil rights movement, just not in the way the FBI thought. The danger King posed was his ability to influence the nation to effect real change in the advancement of civil rights for African-Americans. If he was dangerous, it was because he was inspirational and persuasive.

Persuasiveness is critical for lawyers, especially litigators, who are called upon to persuade judges, juries, and arbitrators—and from time to time their own clients and the opposing party. So aside from the obvious political and historical significance of the “I Have a Dream” speech, I wondered what it could teach lawyers and other humans about effective persuasion.

There is of course King’s incomparable speaking style. Just the sound of his voice still gives me goosebumps. And the brilliant way he wove Biblical references and imagery into his message must have resonated with a large part of his audience.

But for most of us, adopting King’s speaking style would be too much to pull off. So what can the substance of the speech teach us about effective persuasion? For me, two things stand out.

First, King rejected radicalism. He brilliantly characterized his demand for civil rights as delivering on the nation’s founding principles, not as a revolution seeking to establish new principles. Second, King rejected what we might call moderate gradualism. He made it clear his movement was insisting on immediate and substantial political change.

As we will see, these were two sides of the same coin.

FBI memo on MLK
Excerpt from FBI memo shortly after the “I Have a Dream” speech

King’s first rhetorical move was to characterize the struggle for civil rights as the fulfillment of the promises made in the founding documents of the Declaration of Independence and the Constitution, using the metaphor of a check or promissory note:

In a sense we’ve come to our nation’s capital to cash a check. When the architects of our Republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men—yes, black men as well as white men—would be guaranteed the unalienable rights of life, liberty and the pursuit of happiness.

This interpretation of the nation’s founding seems almost obvious now, but it is not universally shared. The “white nationalist” would say that when Thomas Jefferson wrote “all men are created equal,” he really meant that all white men are equal. After all, Jefferson himself was a slaveholder.

And this view is not necessarily confined to neo-Nazis or white supremacists. There are radicals on the left who effectively agree with the white nationalist view that America’s founding was essentially racist. “We didn’t land on Plymouth Rock,” Malcolm X said, “Plymouth Rock landed on us.”

In a sense, the radicals agree with the white nationalists that America’s founding documents excluded non-whites (this is before we even get to the further complication of the status of women). The difference is whether they view this as a good or bad thing.

On the whole, I disagree with the radical interpretation, but reasonable people have to concede that it is at least a plausible interpretation. So Martin Luther King could have adopted the radical view in the “I Have a Dream” speech. He could have rejected America’s founding documents as excluding African-Americans. He could have proposed a revolution, a new founding. But of course that’s not what he did.

Instead of rejecting America’s founding as racist, or as a fraud, King interpreted America’s founding documents as a promise of equality encompassing all races. He interpreted “all men are created equal” as universal.

But King did not sugarcoat the blunt reality that America had reneged on the promise:

It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked “insufficient funds.”

This was a brilliant rhetorical device. With the promissory note metaphor, King laid claim to America’s founding principles on behalf of all races, while simultaneously acknowledging that his race had been excluded from enjoying the benefits of those principles.

And here’s the important thing for persuaders to understand: Whether this interpretation of the founding was historically or philosophically accurate was not the point. The point was to inspire and persuade the audience.

The “I Have a Dream” speech really had two audiences: followers who were already committed to civil rights and moderate whites who were on the fence. King needed to inspire his followers to continue the struggle and to persuade the moderates to get off the fence.

King saw that reinterpreting the American founding as universal was the right way to persuade the moderates. “I’m not leading a revolution against your values,” he was essentially saying to them, “I’m leading a movement to require you to live up to your own stated values.” Paradoxically, his rejection of the radical approach was part of what made him so “dangerous,” to borrow the FBI’s term.

And this leads us the second key point about the “I Have a Dream” speech: the rejection of moderate gradualism. King made it clear his movement insisted on real, immediate reform:

We have also come to this hallowed spot to remind America of the fierce urgency of now. This is not time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism. Now is the time to make real the promises of democracy. . . .

Those who hope that the Negro needed to blow off steam and will now be content will have a rude awakening if the nation returns to business as usual. There will be neither rest nor tranquility in America until the Negro is granted his citizenship rights. The whirlwinds of revolt will continue to shake the foundations of our nation until the bright days of justice emerge. 

These words made it plain that King’s earlier invocation of America’s universal principle of equality was not merely abstract or aspirational.

The rhetoric of “whirlwinds of revolt” may have been jarring to white moderates, but it was an essential counterpart to invoking the nation’s founding principles. Without the insistence on immediate change, the promissory note metaphor would have been merely abstract. The other side of the coin was that “gradual” change wasn’t going to cut it.

Urgency of Now MLK
Excerpt from “I Have a Dream”

This is not to say that moderation and gradualism are always wrong. Depending on the situation, the right approach to any political problem could be conservatism (maintaining the status quo), radicalism (revolting against the status quo), or moderation (gradual reform).

But I think Martin Luther King correctly sensed in 1963 that it was time to push for immediate and lasting reform. The arc of history may ultimately bend towards justice, but windows of opportunity don’t stay open very long in politics. You have to know when to seize the opportunity to make a major change. And major change would come soon after the “I Have a Dream” speech, including the Civil Rights Act of 1964 and the Voting Rights Act of 1965.

This gives us the second lesson about persuasion. It’s usually not enough to persuade the audience that your point of view is correct. You’ve got to persuade them to do something about it, even if it’s something they wouldn’t ordinarily do. Once you’ve got people nodding their heads in agreement with you, then you have to push them out of their “comfort zone.”

You have to convince them that, in King’s words, “now is the time to make justice a reality.”

What a dangerous idea.

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head-shot-photo-of-zach-wolfeZach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. He’ll probably get back to non-compete and trade secret law in next week’s post.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

Top 5 Productivity Tips for Lawyers and Other Humans

Top 5 Productivity Tips for Lawyers and Other Humans

This is a special day. It’s my first new blog post of 2018. On top of that, my daughter is 17 years old today. More about that later.

Do you want to be more productive in 2018? Start by reading How to Be More Productive Without Burning Out by Matt Plummer in the Harvard Business Review. Plummer recounts a productivity experiment he started with bi-weekly meetings with a co-worker at a consulting firm.

The key to the experiment was the counter-intuitive way they measured productivity: reducing the number of hours worked per week. Over six months they reduced their average weekly hours worked by 15-20% and considered that a success.

But here’s the kicker. Plummer says “we were still getting just as much done as before.”

That’s productivity.

This is not the typical way law firms measure “productivity.” The vast majority of law firms generate the vast majority of their revenue through hourly billing. Not surprisingly, this results in measuring productivity by billable hours.

This, of course, is not true productivity. And tracking productivity this way contributes to some familiar pathologies law firms are known for: overbilling, inefficiency, lawyer burnout.

This is not to say that lawyers should ignore billable hours. Every good business has to watch its revenue like a hawk. Whether you’re an associate trying to make partner, a partner trying to stay a partner, or a managing partner trying to keep a firm afloat, you ignore billable hours at your peril.

But don’t start thinking that increasing billable hours—at the individual level or at the firm level—equals increasing “productivity.” That’s a lawyer-centric definition of productivity. It would be better to adopt a client-centric definition of productivity.

Of course, this advice is not limited to lawyers. Any profession that provides services to clients can benefit from focusing on generating quality work for the client in less time.

Increasing Your Productivity

Ok, you say. This year I will measure my productivity by overall work generated, not by billable hours. How do I increase that kind of productivity?

One option, of course, is to work more hours. Generally, if you spend more time working, you will increase the amount of output you generate.

But if you’re a lawyer or other professional, I’m guessing you are probably already close to your limit. As Plummer notes, a 2008 survey found that 94% of professionals worked 50 hours or more per week, and almost half worked more than 65 hours per week. That’s a lot of hours. And I doubt those numbers have dropped much in the last ten years.

pouring coffee
Trying to do too much can decrease your productivity

Plus, there is the problem of diminishing returns. People are not robots. Initially, when we increase the number of hours worked, we increase output. But eventually mental and physical fatigue sets in, and each additional hour produces less and less output (diminishing marginal returns).

And here’s the somewhat surprising news: as we get close to our upper limit, our marginal output actually falls close to zero. As Stanford economist John Pencavel detailed here, a classic study from World War I found that for most people, this starts to happen around 55 hours per week, and I doubt that has changed much in the last 100 years.

The 60/70 Rule

I find the 55-hour figure interesting because it roughly correlates with a way I’ve always looked at work hours. You might call it the 60/70 rule.

You hear a lot about “work-life balance.” I find that phrase too abstract. For most people, it comes down to two questions: do you see your kids for dinner, and do you see your kids before they go to bed? (I don’t mean to exclude you if you don’t have children; it’s just that this is the issue for most people.)

When you have young children, the length of your work day really comes down to two things. If you work more than 60 hours a week, you probably don’t get home for dinner with your kids most nights. If you work more than 70 hours a week, you probably don’t even see your kids before they go to bed most nights.

Now, if you’ve made a conscious decision that getting ahead in your profession is worth sacrificing that daily time with your kids, that is fine (I guess).

But for those of you who don’t have children yet or have children still in diapers, let me mention something you may have heard before: They grow up fast.

Yeah, I know, you say. Everybody knows that.

No. Really. They grow up fast. I’m serious. You won’t really understand that until it has happened.

And here’s something to consider that may be less obvious. Working 60+ or 70+ hours a week during that 17-year blur is no guarantee that you will achieve whatever professional success you were hoping for. You just may find that you missed your child growing up and don’t have that much to show for it.

With that in mind, let’s get back to the research finding the point of diminishing returns starting at 55 hours per week. If working more than 60 hours per week doesn’t materially increase your productivity, is it really worth it not to see your kids?

Of course, the 55-hour threshold may not apply to you. Your number may be less or more. The point is that the threshold exists, and I would be willing to bet that most of you are already at or above the threshold.

If I’m right, then working more hours is not a sustainable strategy for increasing your productivity.

I’m also guessing that Plummer’s experiment—increasing productivity by reducing your hours worked while maintaining the same output—is not a viable option either. You just have too much work you need to get done each day, and that’s before you take your kid to ballet class, coach the basketball team, or sew the costumes for the school play.

That means the challenge for most of us is to maintain the same basic number of hours worked per week while accomplishing more work during those hours. To do that, we have to identify the things that reduce our productivity.

Top Five Productivity Killers

So I looked back at 2017 and did a little self-assessment. I tried to identify the things that reduce the amount of work I get done while I’m at the office and narrowed it down to five things. (Obviously, I have a thing for the number five.)

  1. Interruptions

This one is pretty obvious. Read just about any article about workplace productivity and you’ll see something about interruptions. The classic examples are phone calls and people walking into your office needing something. And today, of course, we have emails.

Smarter people have studied the psychological reasons that interruptions hurt productivity, so I won’t belabor the point. Suffice to say that interruptions are a major productivity killer.

  1. Social Media and Internet

You could look at this as a sub-category of Interruptions, but I think social media and Internet are important enough to get their own category. How many times during a work day do you get tired or bored and click on Facebook, Twitter, Instagram, Five Minute Law, whatever?

This is not necessarily a bad thing. If you actually use social media to interact with people, that can have professional benefits. And even if you’re just mindlessly surfing, that can serve a purpose too. Everybody needs little breaks to stay fresh and productive, and checking out cute photos of your niece on Facebook is better than taking a smoke break.

beach-1404880
Too much surfing can kill your productivity

But have you ever tracked your social media and Internet time and added it up? I have. Believe me, it can take up a bigger chunk of your day than you expected. To be more productive this year, you need to keep it under control.

  1. Disorganization

This one sounds really boring, but it is critical. Being disorganized will kill your productivity.

If you’re not organized, how much time do you spend each day looking for whatever document you need at the moment? How many times have you sat in a meeting where an important question came up that could be answered in seconds if someone in the meeting just had a laptop—or even a good old-fashioned three-ring binder—containing some basic working files?

The trouble is that most lawyers and other professionals are not naturally organized. I certainly wasn’t when I started law practice. I kind of looked down on “organized” people. When I saw the rare lawyer with a neat and tidy office, I would think, “that guy obviously isn’t a litigator” or “he must not have much work to do.” When you’re a very stable genius, you don’t need to be organized.

How wrong I was. If you spend chunks of your day searching through piles of documents scattered around your office, you are wasting time. It’s hurting your productivity, and it’s probably costing your clients money they shouldn’t have to pay.

  1. Fatigue

This one overlays the others. Think about your work day and what causes you to stop working on something productive. In most cases, it’s because you’re mentally and/or physically fatigued. And the main reason you’re fatigued is that you didn’t get enough sleep. I definitively covered this topic in I’ll Sleep When I’m Dead: The Ignored Epidemic in the Legal Profession.

I think fatigue is also the main explanation for why returns start diminishing, for most people, around 55 hours per week. If you’re working more than 55 hours per week, you’re probably not getting enough sleep, and if you’re not getting enough sleep, you’re getting less done per hour, whether you know it or not.

  1. Boredom

But it’s not just fatigue that causes us to stop working on the tasks we need to accomplish for the day. I know, we all love our jobs and can’t wait to get to work in the morning, but let’s face it. Sometimes we get bored.

No matter what your profession, there are probably some things you have to do that are simply boring. For litigators, the usual suspects are document review and legal research. That’s partly why these tasks are often assigned to young associates.

Personally, I usually enjoy doing legal research, even after 20 years of practice. One of the great things about my profession is that knowledge really is power, and every time you research a new legal issue, you add another arrow to your quiver. Legal research is only a drag when someone orders “find me case law that says X,” and X is either so obvious that courts haven’t needed to say it, or X is the opposite of what courts have said.

Same thing with document review. Sifting through boxes of documents produced by your adversary—or the digital equivalent—can be fun detective work, at least when you are looking for evidence concerning substantive issues. It’s more of a drag when you’re just mechanically reviewing documents, e.g. to identify documents that are attorney-client privileged.

In the inevitable situations where the work really is boring, it’s hard to stay productive. It takes an enormous amount of discipline to keep plugging away hour after hour at a really tedious task.

The Solution

So those are the five things I find hurt my productivity the most. Are they the same for you? Post a comment and let me know.

And now that we’ve identified the top five productivity killers, we can increase our productivity by eliminating them. All we need to do this year is (1) minimize interruptions, (2) put a reasonable cap on our daily social media and Internet time, (3) get organized, (4) get enough sleep every night, and (5) find ways to make our boring tasks more stimulating.

Easy, right? The hard thing is finding a way to turn the clock back 17 years.

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head-shot-photo-of-zach-wolfeZach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. This post is dedicated to Hailey. 

These are his opinions, not the opinions of his firm or clients. 

 

Blown Call: The Thing Texas Courts Get Wrong About Non-Competes

Blown Call: The Thing Texas Courts Get Wrong About Non-Competes

Is the reasonableness of a Texas non-compete a question of law or a question of fact?

I was once defending a Texas non-compete lawsuit and taking the deposition of the business owner who was trying to enforce the non-compete. I asked if he had any view of what a reasonable length of time for the non-compete would be. His answer: “when hell freezes over.”

That’s why I love litigation.

Recalling that answer got me thinking about an important issue in non-compete law: Is the reasonableness of a non-compete a question of law or a question of fact? If you’ve read a few Texas non-compete cases, you may already know the answer. There are dozens of cases reciting that the reasonableness of a non-compete is a question of law.

And all of those cases are wrong.

Or at least they are only partially correct. Why?

Before we can answer that question, we need to tackle a deeper jurisprudential question, the kind that law professors love: what is the difference between a question of law and a question of fact?

Deep thoughts on questions of law and fact

Let’s start with the easy part. A pure question of law is a legal issue that can be stated entirely in the abstract, without any reference to the particular facts of a case. Let’s say you’re in a car crash and the question is “what is the statute of limitations for a negligence claim?” That’s a pure question of law.

That doesn’t necessarily mean the question has a simple answer. It just means you can answer the question without knowing anything about any facts. For example, the general rule in Texas would be that you have to file a negligence lawsuit within two years of the car accident.

A pure question of fact, on the other hand, has nothing to do with law. “Did the defendant run a red light?” is a pure question of fact. (There are also “mixed” questions of law and fact, the classic example being whether a defendant was negligent, but let’s put that aside for the moment.)

It gets more complicated when the question applies an abstract legal principle to a particular scenario. Let’s take the question “does the statute of limitations start running at the time of the accident, or when the plaintiff discovered the extent of his injuries?” That sounds more factual, but it’s still a question of law, because it simply applies an abstract principle to a given factual situation.

Now let’s make it harder. My lawyer readers will know the “discovery rule.” The discovery rule is an exception that keeps the limitations clock from starting until the plaintiff discovered, or reasonably should have discovered, the injury. Is applying the discovery rule in a particular case a question of law or a question of fact?

This is where judges tend to go wrong. Perhaps nothing provides a better opportunity for superficial judicial analysis than whether an issue is a question of law or fact.

For example, if the judge thinks it’s a question of fact, she will typically write “the discovery rule is a question of fact for the jury,” cite some cases that said it was a question of fact, and be done with it. Similarly, if the judge thinks it’s a question of law, the judge will write “the discovery rule is a question of law,” cite some cases that said that, and move on.

This is superficial, and wrong. If judges would only remember what their law school professors said, they would say the answer is “it depends.”

It depends. Of course, it depends! It depends on what the evidence is. For example, if the undisputed evidence shows that the plaintiff discovered his injury more than two years before filing suit, then it’s a question of law. You’re just applying a legal principle to an undisputed set of facts. But if there is conflicting evidence about when the plaintiff discovered his injury (or should have discovered it), it’s a question of fact.

Pretty simple, right? But trust me, courts mess this up all the time. Sometimes it may just be intellectual laziness. But often it’s more than that.

Does it matter whether it’s a question of law or fact?

You may be wondering why it matters. What difference does it make whether we call an issue a question of law or a question of fact? Isn’t this just philosophical musing?

No. It matters whether an issue is a question of law or fact because that determines who gets to decide the issue. If it’s a question of law, the judge decides. But if it’s a question of fact, that means the factfinder gets to answer the question. Depending on the type of proceeding, the factfinder could be the judge, the jury, or an arbitrator.

Now, I know a lot of my Fivers are stone-cold realists. You may question whether there is any principled distinction between a question of law and a question of fact. You might say that asking “is it a question of law or fact?” is nothing more than asking “does the judge or the jury get to decide the question?”

That would be going too far. The distinction between a question of law and a question of fact is real, even if it is sometimes difficult to draw that line. But it is important to understand that the practical effect of the answer is to determine whether the judge or the jury gets to decide.

Whether the issue is a question of law or question of fact also determines who gets to decide the issue on appeal. Generally, the appellate court will defer to the factfinder on questions of fact but will decide questions of law de novo. “De novo” is a Latin phrase that means “I don’t care what a lowly trial court judge thinks.”[1]

Is the picture coming into focus now? If I’m the judge and I have a certain view of what a fair outcome would be, might that have some effect on whether I characterize an issue as a question of law or question of fact?

Let’s take our statute of limitations example. If I think the case should go to trial, I might be inclined to simply proclaim that the discovery rule is a question of fact for the jury and leave it at that. Conversely, if I think the case has no merit, I might be inclined to say it’s a question of law and grant summary judgment for the defendant.

I’m not necessarily suggesting there is anything sinister about this. Even the most impartial judges will tend to characterize the issue in a way that favors an outcome they sincerely believe is fair and just. That’s true even before you add external forces to the mix—say, campaign contributions from “tort reform” groups or plaintiff’s lawyers.

But there is a better way: it depends. It depends on the evidence. If the relevant evidence is undisputed, it’s a question of law. If the relevant evidence is conflicting, it’s a question of fact.

This proposition, though often ignored, shouldn’t be controversial. If you think it’s wrong, please tell me why.

Let’s apply what we’ve learned 

Now let’s apply this not-so-controversial principle to a typical Texas non-compete.

Texas, like most states, requires a non-compete to be reasonable in time period, geographic area, and scope of activity restrained. So, is the reasonableness of a Texas non-compete a question of law or a question of fact?

You already know where this is headed, but let’s break it down.

What do we mean by “reasonable,” as applied to a non-compete? Fortunately, the Texas non-compete statute gives us a clue. It says the non-compete must have “limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”[2] For the typical Texas non-compete, which is tied to a confidentiality agreement, reasonableness comes down to whether the limitations are no greater than necessary to protect the company’s goodwill and confidential information.

So how about a three-year time period? Is that reasonably necessary to protect the employer’s goodwill and confidential information? And what about a geographic area of the State of Texas? Is that reasonable?

You’re probably having trouble answering these questions in the abstract. That’s because you don’t know anything about the facts of the case. It would make a difference whether it takes three months or three years for the confidential information to become outdated and useless. It matters whether the company sells products to customers throughout the State of Texas or in just one city.

If you don’t know the answers to these questions, there is no way you can know if the time period and geographic area are reasonable. You simply cannot determine the reasonableness of the non-compete in the abstract.

And yet, many Texas cases recite that the reasonableness of the non-compete is a question of law. As I said earlier, that is either wrong or only partially correct. Reasonableness could only be a question of law if the facts concerning reasonableness are not in dispute. If there is conflicting evidence material to reasonableness, it’s a question of fact.

And I can prove it. My witness is the Texas legislature, and my Exhibit 1 is Section 15.51 of the Texas Business and Commerce Code. It says:

If the primary purpose of the agreement to which the covenant is ancillary is to obligate the promisor to render personal services, for a term or at will, the promisee has the burden of establishing that the covenant meets the criteria specified by Section 15.50 of this code. . . . For the purposes of this subsection, the “burden of establishing” a fact means the burden of persuading the triers of fact that the existence of the fact is more probable than its nonexistence

Let me translate. This means that for a non-compete in a typical employment agreement, the employer has the burden of proving the non-compete is reasonable.

This proves my point that the reasonableness of a non-compete can be a question of fact, provided there is conflicting evidence. How else could there be a burden of proof on the issue? Questions of law don’t have a burden of proof.

Why this matters in non-compete litigation

This explains why I was asking that deposition question about a reasonable time period for the non-compete. I knew it was the employer’s burden to prove that the time period in the contract was reasonable. I wanted to nail down whether the employer had any evidence to offer that the time period was reasonable. He didn’t.

Wait a minute, you say. Even if you’re technically correct, isn’t this just a case of sloppy language? Opinions that say it’s a question of law may still be getting the result right, if the undisputed facts of the case establish that the non-compete was either reasonable or unreasonable.

True. But the issue is not academic. For one thing, treating reasonableness of a non-compete as a question of law tends to favor enforcement of the non-compete. In theory, the judge could just as easily find a non-compete unenforceable as a matter of law. But in practice, the vast majority of cases that say reasonableness is a question of law also say the non-compete was reasonable, and therefore enforceable. So, the outcome of this philosophical issue can make a real practical difference.

Now that I’ve cleared this up, when can we expect Texas appellate courts to stop proclaiming without qualification that the reasonableness of a non-compete is a question of law for the court?

I’d say probably when hell freezes over.

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head-shot-photo-of-zach-wolfeZach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

[1] Appellate lawyers call this the “standard of review.” Standard of review is one of those issues that is really, really exciting for appellate lawyers and boring for just about everyone else.

[2] Tex. Bus. & Com. Code § 15.50(a).

Nothing But Net: Fifth Circuit Reverses Gross Profits Award

Nothing But Net: Fifth Circuit Reverses Gross Profits Award

There’s a joke about a CEO who gets a quarterly profit and loss statement showing his company is losing money. “That’s impossible,” he says to the CFO, “all five divisions reported they were profitable this quarter.”

CPA humor. There’s nothing like it.

How could all five divisions make a profit while the company shows a loss? In a word: overhead. Each division is probably calculating its profits without deducting an appropriate share of the company’s overhead expenses.

This is not just a problem for accountants and CEOs. Litigators have to deal with this issue when there is a claim for lost profits damages. Any time a plaintiff tries to calculate lost profits—with or without help from an expert—there is the thorny issue of overhead.

A recent decision from the Fifth Circuit Court of Appeals shows how important this issue can be.  In Motion Medical Technologies v. Thermotek, the Fifth Circuit reversed a jury’s award of over $1.5 million in fraud damages because the award was based on evidence of gross profits, not net profits.[1]

Why? Gross profits don’t account for the company’s overhead, while net profits do. The plaintiff had only offered evidence of gross profits, and Texas law requires evidence of net profits.

Simple in theory, but not so simple in practice. Let’s take a closer look.

An accounting lesson from a litigator

To illustrate, let’s take my favorite hypothetical company, Paula Payne Windows. Paula Payne buys windows from manufacturers and sells them to its customers.

*WARNING* I have no background in accounting, other than litigating cases with accounting issues, so you could say I know just enough accounting to be dangerous. But here we go.

Paula Payne’s revenue is what the customer pays Paula Payne for the windows. Paula Payne’s cost of goods sold (COGS) is what it pays the manufacturer plus the cost of shipping. Revenue minus COGS is gross margin, or gross profit. Gross profit minus overhead is net profit.

So, Paula Payne’s oversimplified P&L for a big window sale looks like this:

Screen Shot 2017-11-18 at 9.34.00 PM

Yeah, I know, there’s also stuff like interest, taxes, depreciation, etc. That’s why I say oversimplified.

Plus, there’s usually some wiggle room in each line. For example, it’s clear that the money Paula Payne pays the trucking company to deliver the windows is part of COGS, but what about the lady in the office who talks to the trucking companies on the phone all day? Is her salary part of overhead or COGS?

Then there is the question of allocation. What share of Paula Payne’s total overhead should it allocate to one particular sale, or group of sales?

You may be thinking that’s what an accounting expert is for. We’ll just ask a CPA how to allocate overhead based on Generally Accepted Accounting Principles (GAAP), right?

The problem, I’ve learned, is that GAAP doesn’t really care how you allocate expenses for any particular transaction. GAAP deals with “financial accounting,” which is how you get to the P&L statement the company provides to the outside world. GAAP wants to make sure that all expenses are deducted before you get to the bottom line. It doesn’t really care how the company slices and dices those expenses internally.

That’s “management accounting,” which is not governed by GAAP. If a company wants to figure out internally how much net profit it makes on a particular transaction, it can use pretty much any reasonable method it wants.

*Update: Some accountants tell me the right way to allocate overhead expenses is to distinguish between variable and fixed. To determine net profit, you deduct the variable expenses, i.e. the ones that rise and fall with changes in sales volume, not the fixed ones. You can look historically at the company’s P&Ls to see which are variable vs. fixed.

But my accountant readers (I have at least two) are probably cringing at my explanation by now, so let’s get to something I know better: litigation.

How not to calculate lost profits in litigation

In Motion Medical, ThermoTek sold a medical device called the “VascuTherm” system. Orthoflex, a rival company, allegedly misappropriated information about Thermotek’s device and started selling its own knockoff device. ThermoTek sued Orthoflex for unfair competition and fraud.

The unfair competition claim was preempted by federal copyright and patent law.[2] That’s an important issue in its own right, but I’ll leave it to a smarter IP lawyer to blog about that. Let’s focus on the damages for the fraud claim.

ThermoTek’s expert witness testified that he used ThermoTek’s gross profit margin, meaning gross sales minus cost of goods sold, to calculate lost profits. He determined total lost profits for lost sales of the VascuTherm system by multiplying average monthly sales by unit sales price and relevant time period, and then deducting cost of goods sold.

“But that is the very definition of gross profits,” the Fifth Circuit scolded. “Indeed,” the court said, “the expert himself conceded on cross-examination that his numbers reflected ‘gross profits rather than net profits.'” The expert also acknowledged “his margins were high because they did not account for ThermoTek’s other business expenses.”[3]

The problem for the plaintiff was that Texas law requires the plaintiff to prove net profits, measured by the plaintiff’s total receipts minus all expenses incurred in carrying on the business. So, in the words of Willie Wonka, “You get nothing! You lose! Good day, sir!”

But surely it wasn’t that simple, right?

Well, it turns out there are some exceptions. First, for certain intellectual property claims, the plaintiff can seek an “accounting” of lost profits, where the plaintiff only has to offer evidence of its gross profits, and the burden is on the defendant to prove any costs that should be deducted to get to net profits. But ThermoTek’s common-law fraud claim was not such a claim.

Second, the court acknowledged that a plaintiff’s failure to include overhead expenses in the calculation of lost profits is “not fatal” if, for example, there is evidence the plaintiff was already profitable when the damages began and could have made the lost sales using only its existing resources.[4] But that argument, Judge Higginson wrote for the court, was not made by ThermoTek or supported by the trial record.

Perhaps this part of the opinion points to a solution for plaintiffs. Imagine ThermoTek’s expert had simply testified, “I didn’t deduct any overhead because ThermoTek was already profitable when the lost sales started, and my investigation satisfied me that ThermoTek could have made those additional sales without any increase in its overhead.” Would the gross profits award then be affirmed?

Lessons for litigators from Motion Medical

That last question points to some lessons litigators—and their hired experts—can learn about lost profits damages from Motion Medical.

If you represent the plaintiff, work with your damages expert early on to decide whether to calculate lost profits based on gross profits or net profits. The safer course, of course, is to go with net profits. In that case, the tricky part is figuring out what percentage of the plaintiff’s overhead to allocate to the lost sales. But as long as the expert uses some reasonable method of allocation, you should be ok.

On the other hand, safer isn’t always better. Net profits may undercompensate your client. If the plaintiff company was already profitable, and if you can make a credible argument that the company would have made the additional sales without any increase in its overhead, you may want to be more aggressive and go for gross profits, relying on the second exception cited in Motion Medical. But be careful. Make sure you offer evidence to support those assumptions, and prepare your expert to explain why overhead was not deducted.

If you represent the defendant, you have some strategic choices to make if the plaintiff presents a damage theory based on gross profits.

First, for the defense there is always the dilemma of whether to designate a damages expert at all. You worry that presenting an expert to calculate the plaintiff’s damages implies that your client did something wrong and that the plaintiff was, in fact, damaged. Often you would rather just attack flaws in the plaintiff’s calculation.

On the other hand, if the plaintiff’s expert offers an inflated lost profits calculation, and you offer nothing, you may get stuck with the plaintiff’s number.

The second decision is when to attack a calculation of gross profits that you think is defective. If you’re working hard to settle the case, you may want to press the issue earlier, e.g. hammering on it at mediation.

But generally I prefer to wait until trial, when it is too usually late for the plaintiff to fix a defective damage calculation. If I represent the defendant, it’s not my job to tell the plaintiff how to do a proper lost profits calculation.

Or is it?

Is it unprofessional to wait until trial to attack a gross profits calculation?

On at least two occasions I waited until trial to argue that the plaintiff’s damage calculation was defective because it didn’t deduct all the necessary expenses. It did not make me popular with opposing counsel.

In one case, I sent interrogatories to the plaintiff asking about its calculation of damages. The plaintiff responded with a calculation that was obviously based on lost revenues, not lost profits. I sat back and waited.

Then, less than 30 days before trial, plaintiff’s lawyers realized they had a problem and tried to cure it with a new calculation that included expenses. I objected. Strenuously. The judge said sorry plaintiff, you don’t get to offer any evidence of damages. Opposing counsel was livid.

In another case, the plaintiff offered evidence of the profits my client made from its alleged wrongdoing, without deducting any overhead. When the president of my client took the stand, I asked “what is your monthly overhead?” You’d think I had kicked an anthill. The defense lawyers practically jumped up and down complaining “he didn’t produce any documents showing overhead!”

My response: “you didn’t ask for them.” Objection overruled.

In both cases, the plaintiff’s lawyers kind of took it personally. They were pretty angry with me. Now, when someone gets really angry with you, there’s a part of you that instinctively feels a little guilty, like maybe you did something wrong (unless you are a sociopath).

So it made me wonder, was it unprofessional of me not to warn them that I was going to attack their defective damage theories? In the first case, should I have relented and said, “ok, it’s no big deal, you can offer your revised calculation”? In the second case, should I have provided information on my client’s overhead in advance?

Tell me what you think.

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head-shot-photo-of-zach-wolfeZach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Most of his accounting knowledge comes from watching “Shark Tank” with his son. 

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

[1] Motion Med. Tech., LLC v. Thermotek, Inc., No. 16-11381, 2017 WL 5396406 (5th Cir. Nov. 14, 2017). The jury’s award of $6 million for unfair competition was reversed on other grounds.

[2] Id. at *8-10.

[3] Id. at *10-11.

[4] Id. at * 11 (citing ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 879 (Tex. 2010)).