Liquidated Damages Lessons from the Stormy Daniels Settlement

Liquidated Damages Lessons from the Stormy Daniels Settlement

Five Minute Law has obtained a top secret legal memo prepared for Donald Trump’s personal lawyer, Michael Cohen, shortly before the 2016 presidential election. The memo provides valuable lessons on the use of “liquidated damages” clauses in confidentiality agreements and other contracts, e.g. non-competes. The memo also reveals that, unlike the author of the Stormy Daniels settlement agreement, Cohen’s associate writes memos in plain English. Enjoy.


TO:                  Michael Cohen

FROM:            Alex Associate

RE:                  Enforceability of Liquidated Damages Clause

DATE:             October 15, 2016


Our client, “David Dennison,” is a public figure concerned with protecting his reputation.  An “adult film” star named “Peggy Peterson” claims she had a sexual relationship with Dennison.  Peterson has offered to sign a strict confidentiality agreement in exchange for a one-time payment of $130,000.

Dennison says that disclosure of the relationship with Peterson will cause severe damage to his relationship with his third wife. He also fears the damage it will cause to his public reputation and the resulting effect on an upcoming public event of some importance to him. Dennison has also implied that disclosure could be embarrassing for additional unidentified reasons.

Dennison has tasked us with preparing “the greatest non-disclosure agreement you’ve ever seen, with real teeth.” In the event that Peterson violates the agreement by disclosing information about the affair, he wants the ability to “sue the pants off her.”

You have prepared a non-disclosure agreement with a liquidated damages clause, i.e. a provision specifying in advance the amount of damages Dennison gets if Peterson breaks the agreement. The clause states that in the event of a breach by Peterson, Dennison can choose to recover either his actual damages or liquidated damages in the amount of $1 million per violation.

The draft agreement also says that a violation will cause Dennison “irreparable injury,” and that Dennison therefore can get a temporary restraining order or injunction to bar disclosure of information about the alleged affair.

Issues Presented

1. Is the $1 million per violation liquidated damages clause enforceable, or will it be considered an unenforceable penalty?

2. Does it make any difference if news of the alleged affair is already public?

3. Does Dennison’s right to elect actual damages or liquidated damages affect enforceability of the liquidated damages clause?

4. Does the liquidated damages clause undermine Dennison’s right to get an injunction to prevent disclosure of the confidential information?

Short Answers

1. The liquidated damages clause is likely enforceable if Dennison can show that $1 million per violation is a reasonable forecast of his actual damages resulting from disclosure of the affair.

2. It may be harder for Dennison to argue that $1 million per violation is a reasonable forecast of actual damages if the affair has already become public information.

3. The fact that Dennison can elect actual damages could support an argument that the liquidated damages clause is an unenforceable penalty.

4. The liquidated damages clause could undermine Dennison’s right to get an injunction because it implies that damages are adequate compensation.


1. Reasonable forecast?

A liquidated damages clause that functions as a “penalty” is unenforceable.  This is consistent with the fundamental principle of contract law that the remedy for a breach should put the non-breaching party in the same position as if the breaching party had performed the contract.

Remember, contract law is essentially amoral. Students arrive at law school with quaint moral notions about keeping one’s word, that a covenant is sacred, etc. The goal of the first-year Contracts course is to beat this moral sense out of the students. Contract law is supposed to compensate for actual loss, not punish wrongdoing.

This is why a contractual penalty is unenforceable. Different states formulate the test for liquidated damages differently, but the Texas version is typical. A liquidated damages clause is enforceable if (1) the harm caused by the breach is “incapable or difficult of estimation” and (2) the amount of liquidated damages is a “reasonable forecast” of just compensation. Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1992).

Courts have applied this standard to various types of contracts, including non-competes. Sometimes a non-compete will have a liquidated damages clause stating that, because actual damages from the employee competing are difficult to measure, the employer can recover a set amount of liquidated damages.

For example, in Nacogdoches Heart Clinic, P.A. v. Pokala (it’s pronounced “Nak-uh-doach-us”), a doctor agreed to pay liquidated damages of $100,000 per month for each month he violated the non-compete. This amount was based on his earnings while working for the clinic, not the actual loss the clinic expected to suffer if he left. The clause therefore was unenforceable because it was not a reasonable forecast of just compensation.[1]

We can draw two lessons from Nacogdoches Heart Clinic. First, maybe I should have picked medical school over law school. Second, a liquidated damages clause in a non-compete should not be based on the amount the employee earns at the company.

Another problem with a liquidated damages clause in a non-compete is that actual damages for breach of a non-compete are usually not that difficult to measure. The typical measure is lost profits. While calculating lost profits is not necessarily easy, it’s not exceedingly difficult either, especially if you hire a good CPA as an expert witness.

Damages for harm to reputation, on the other hand, are more difficult to measure. It won’t be hard for Dennison to argue that damages from Peterson revealing information about the alleged affair are “incapable or difficult of estimation.”

It’s the second prong of the liquidated damages test that will be more of a challenge for Dennison: showing that $1 million per violation is a reasonable forecast of actual damages.

One million per violation does not appear to be a reasonable forecast of the actual damage. It’s almost eight times the amount of consideration Dennison will pay to obtain Peterson’s commitment to non-disclosure. Presumably, $130,000 is a reasonable estimate of what it is worth to Dennison to keep Peterson’s information from becoming public.

2. What if the information is already public?

If information about the alleged affair is already public, it may become more difficult to argue that $1 million per violation is a reasonable forecast of actual damages.

If the public had no inkling about the alleged affair, Dennison could argue that any public disclosure of the information would cause great harm to his reputation.

But what if facts about the alleged affair—including details shared in a 2011 tabloid interview—are already public knowledge? In that case, Dennison would have to make the difficult argument that $1 million is a reasonable forecast of the additional harm to his reputation that the additional disclosure would cause.

And proving additional harm to his reputation would become even more difficult if, hypothetically, it is well known that Dennison has a history of adultery, or if multiple women have accused him of sexual harassment or assault.

3. Election of actual damages

You have advised me that our client likes to have his cake and eat it too. Accordingly, the draft settlement agreement says that if Peterson violates the non-disclosure agreement, Dennison gets to choose between recovering actual damages or liquidated damages.

This is problematic. First, the fact that Dennison can recover actual damages could weaken the argument that actual damages are “incapable or difficult of estimation.” If recovering actual damages is an option, that implies that actual damages can be reasonably calculated, making enforceability of the liquidated damages clause less likely.

To illustrate, one Virginia case said that allowing a party to choose between actual damages and liquidated damages suggested that the liquidated damages clause was an unenforceable penalty.

Second, the ability to elect between actual or liquidated damages could render the agreement “unconscionable.”

Courts generally don’t second-guess whether a contract is fair. In the absence of fraud or duress, private parties are generally free to enter into unfair contracts. But this freedom is not without limits. At some point, a contract provision can be so fundamentally unfair that a court will rule the contract unconscionable and unenforceable.

In this case, a judge or arbitrator might think giving Dennison the right to choose between actual damages and liquidated damages is just too much.

4. Can Dennison have liquidated damages and an injunction too?

Not only does the draft agreement allow Dennison to elect whether to recover actual or liquidated damages, it also expressly gives him the right to get a temporary restraining order or injunction to prevent threatened disclosure of the confidential information, i.e. a “gag order.”

But would the liquidated damages clause undermine Dennison’s ability to get an injunction?

It is typical for a confidentiality agreement to recite that disclosure of the information would cause “irreparable injury” and entitle the non-breaching party to get an injunction. This type of clause is also found in non-competes and other employment-related agreements.

There are essentially three views of these “irreparable injury” clauses:

(1) They have no legal effect whatsoever, because private parties don’t get to tell courts how to decide whether to grant an injunction.

(2) They conclusively establish that the non-breaching party is entitled to an injunction.

(3) They are not dispositive but are a factor to be considered.

Courts tend to sidestep the issue by choosing option (3). So, let’s assume the irreparable injury clause will not necessarily relieve Dennison of the burden of showing that a threatened violation would cause him irreparable harm.

The problem is that the liquidated damages clause weakens the claim of irreparable injury. Irreparable injury means harm that cannot be adequately compensated by damages. But if $1 million is a reasonable forecast of actual damages, that suggests that $1 million is adequate to compensate Dennison.

On the other hand, Dennison could argue that the liquidated damages clause is inadequate if Peterson lacks sufficient assets to satisfy a judgment of $1 million or more.

Perhaps the solution is to add a clause to the agreement allowing Dennison to obtain a confidential ex parte temporary restraining order from an arbitrator without notice to Peterson. This will give Dennison the relief he needs, and no one will ever know.


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

Any opinions expressed are his own, 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] Nacogdoches Heart Clinic, P.A. v. Pokala No. 12-11-00133-CV, 2013 WL 451810, at *7 (Tex. App.—Tyler Feb. 6, 2013, pet. denied) (mem. op.) (citing Phillips v. Phillips).

“You Like-a-the-Juice, Eh?” Lessons from the Greek Yogurt Wars

“You Like-a-the-Juice, Eh?” Lessons from the Greek Yogurt Wars

I have to admit it. When I saw the headline Dannon Defector to Chobani Ignites Yogurt Trade Secrets Battle, I laughed. Trade secrets? In the Greek yogurt business?

But trade secrets lawsuits are no laughing matter, whether you’re the employer trying to protect your business, the employee trying to start a new job, or the competitor who just hired the new employee. And thanks to the 2016 Defend Trade Secrets Act, the company claiming theft of trade secrets can now make a federal case out of it.

So I’m sure Federico Muyshondt, a former Senior Sales VP at Dannon and current Senior VP at Chobani, is not laughing about getting sued by Dannon in the U.S. District Court for the Southern District of New York.

And once you dig into the allegations in Dannon’s complaint, you can see that the claim is not as silly as it may sound. If the evidence backs up Dannon’s assertions, Dannon has a real case for trade secrets misappropriation.

In fact, the Dannon complaint reads like an all-too-typical script for how these departing employee scenarios usually go down.

1. Employer adopts ordinary “reasonable measures” to protect confidential info

Both federal and state trade secrets law require an employer to take reasonable measures to protect the secrecy of its alleged trade secrets. Fortunately for employers, most courts set the bar pretty low for “reasonable measures.” It is usually enough for an employer to do the basics: have employees sign confidentiality agreements, require protection of confidential information in the employee manual, and have password-protected computers. The Dannon complaint alleged each of these basics. (¶¶ 18, 22)

2. Employer adopts additional measures to protect confidential info

There are additional measures employers can—but are not required—to take to protect trade secrets. Imagination is the only limit to how far you can go to protect confidential company information. According to the Dannon complaint:

  • Dannon requires outside agencies, consultants, and brokers to sign non-disclosure agreements (¶ 21)
  • The confidentiality policy requires employees to take various precautions including:
    • using privacy screens for laptops
    • not viewing highly sensitive company information in public places
    • keeping mobile devices secure and password protected
    • never using Dannon’s name when speaking about Dannon in public places
    • reporting lost or stolen devices to IT immediately
    • using only encrypted USB devices (¶ 24)
  • Employees must follow a “Clean Desk Policy” of locking confidential documents in a desk drawer and only printing documents using a “secure print” option requiring an employee PIN (¶ 26)
  • The company conducts random, periodic sweeps of work areas to verify adherence to the “Clean Desk Policy” (¶ 27)
  • Dannon does company-wide compliance training on protecting company information (¶ 28), including a training course that required test-taker to certify compliance with the company’s information security policies (¶ 29)

You’d expect this kind of thing from, say, a defense contractor working on a next-generation fighter jet. It’s pretty strong stuff for a yogurt company.

Of course, it’s possible that a company could adopt a written policy that requires jumping through all kinds of hoops to protect company information and then not actually follow the policy. But any company that makes a good faith effort to follow policies like this probably won’t have much trouble clearing the “reasonable measures” hurdle for trade secret protection.

3. Employee signs non-compete and confidentiality agreement

Trade secret issues often intersect with non-compete issues. Like many employees, Muyshondt signed a non-competition and confidentiality agreement with Dannon

4. Employee meets with competitor

According the Dannon complaint, Muyshondt attended a seminar on August 2, 2017 where Chobani’s COO was speaking. Less than two weeks later, Muyshondt forwarded his resume to his personal email account.

So far, this doesn’t allege anything unlawful. Generally employees are allowed to make plans to leave to work for a competitor. But employees often go wrong by doing more than this.

5. Employee forwards company documents to his personal email account

Employees planning to leave a company—and competitors looking to hire them—should use common sense to avoid becoming an episode of Employees Behaving Badly.

On my YouTube channel That Non-Compete Lawyer, I recently posted a video on the Top 5 Dumb Things Employees Do Before Leaving, like forwarding company documents to your personal email account. These things are pretty obvious, but apparently Muyshondt doesn’t watch my videos.

After attending the seminar, Muyshondt allegedly forwarded several confidential Dannon documents to his personal email account, including his non-compete, the non-competes of members of his sales team, contact information for his sales team, confidential information about Dannon’s advertising and promotional spending, and an email laying out Dannon’s strengths and weaknesses, potential strategies, and plans for certain products. (¶¶ 31, 34, 36)

Ok, but at least he didn’t download thousands of company files right before leaving, like the key employee in the Waymo v. Uber case, right?

Well, actually . . .

6. Employee downloads thousands of company files right before leaving

Dannon claims that Muyshondt downloaded thousands of Dannon files to a USB device, including confidential salary information and “merch calendars” containing confidential plans for pricing promotions and other sales strategies. He also allegedly removed the SIM card from his company-issued mobile phone and substituting a new SIM card without telling Dannon. (¶ 31)

Downloading company files was no. 4 on my Top 5.

7. Employee deletes documents from his computer and resigns

Finally, Dannon also alleges Made a “massive effort” to delete documents from his work computer. (¶ 31) That was no. 2 on my list.

8. Employer conducts exit interview, employee isn’t completely honest

Dannon alleges that it held an exit interview with Muyshondt. This is generally a good practice for employers. It’s an opportunity to ask the employee what he plans to do and to remind the employee of his confidentiality and, if applicable, non-competition or non-solicitation obligations.

It’s also an opportunity for the employee to dig a deeper hole by not being completely honest, which is what Dannon claims Muyshondt did.

9. Employer conducts forensic examination, finds bad stuff

If the employer suspects something fishy, a forensic examination of the employee’s computer and phone is usually the next logical step. Dannon claims that it did just that, uncovering the evidence of email forwarding, file downloading, and file deleting described above.

10. Employer alleges misappropriation of soft trade secrets

Even when the employer discovers an employee behaving badly, stating a trade secrets claim still requires showing that the information at issue is a trade secret.

“Hard” trade secrets—like the literal or figurative “secret sauce”—are the easiest to understand.

To obtain trade secret status, confidential information must have “independent economic value” and be “not readily ascertainable” to competitors. It’s easy to see how hard trade secrets meet these requirements. For example, if Dannon has a secret recipe or ingredient that makes its Greek yogurt tastier and creamier than Chobani’s, that’s a trade secret. Similarly, if Dannon has a secret technology for making Greek yogurt better than everyone else’s, that’s a trade secret.

But the Dannon complaint—like most—focuses on a different kind of information.

Most trade secrets lawsuits do not involve secret sauce or secret technology. Instead, the typical trade secrets lawsuit alleges misappropriation of the kind of customer information almost every company has.

The Dannon complaint, for example, alleges misappropriation of:

  • research and development information
  • strategic growth plans
  • customer pricing information
  • long term and short-term business strategies
  • future product plans and launches, innovations, sales strategies, market trends
  • customer lists
  • customer and other third-party contacts
  • an email laying out Dannon’s strengths and weaknesses, potential strategies, and plans for certain products
  • confidential salary information
  • “merch calendars” containing confidential plans for pricing promotions and other sales strategies

These “soft” trade secrets are more common. Whether they are actually trade secrets is usually a fact-intensive question.

11. Employer takes advantage of the Defend Trade Secrets Act and picks federal court

Now, if you’re in Dannon’s position and you want to sue, where are you going to do it?

Before the DTSA, many trade secrets lawsuits had to be filed in state court. The federal Defend Trade Secrets Act effectively gives employers the option to file trade secrets lawsuits in state court or federal court. Federal district court judges are still looking for a way to punish Congress for this.

But note that the DTSA does not preempt state trade secrets law. There was a lot of talk about the DTSA encouraging “uniformity” in U.S. trade secrets law, but that was just talk. The DTSA does not replace state trade secrets laws, so rather than establishing uniformity, it adds a federal overlay to the trade secrets laws of the 50 states.

This is apparent in the Dannon complaint, which states both a federal trade secrets claim under the DTSA and a claim under New York common law (New York being one of the few states that has not adopted the Uniform Trade Secrets Act). While federal and state trade secrets laws are fairly consistent, there are differences. See “inevitable disclosure” below.

12. Employer doesn’t ask for ex parte seizure order

The DTSA’s ex parte seizure remedy received a lot of attention when the statute was passed, but use of this procedure has been—and will continue to be—very rare. Like most trade secrets lawsuits, the Dannon complaint asks for an injunction but does not request an ex parte seizure order.

13. Employer asserts “price undercutting” theory

Dannon claims the information in the merch calendars is highly sensitive because a competitor, such as Chobani, “could use the information to time its own promotions and other sales activity to go into effect just before Dannon’s planned dates.” (¶ 39)

This is a version of the “price undercutting” theory commonly asserted in trade secrets cases. Whether the prices are actually trade secrets is another fact-intensive issue. It depends on multiple factors, including whether prices are widely publicized and how often prices change.

14. Employer asserts “inevitable disclosure” doctrine

The first thing an employer wants in a trade secrets suit is an injunction. But the employer has to show “imminent harm” to get an injunction against a former employee using the employer’s trade secrets. Often the problem for the employer is that it has evidence the employee took the information but no evidence that the employee has used—or is about to use—the information.

The “inevitable disclosure” doctrine fills this gap by allowing a court to enjoin an employee from working for a competitor, even without such evidence, on the theory that the employee will inevitably use or disclose the trade secrets learned from the prior employer. But the status of the doctrine is unclear in Texas, and the DTSA curbs the use of the doctrine by providing that the court cannot “prevent a person from entering into an employment relationship.”

One thing you sometimes see in a trade secrets lawsuit that is lacking in the Dannon complaint is a litany of “bad” emails, like emails between Muyshondt and Chobani talking about their plans for Muyshondt to jump ship and compete with Dannon. Emails like that can help prove the employee’s intent to cause imminent harm to the employer. Without that kind of evidence, the employer usually has to argue inevitable disclosure.

Lessons from the Greek Yogurt Wars

The lessons for an employer: take basic precautions to protect company information, consider taking additional security measures, do an exit interview, and promptly do a forensic exam if you smell a rat.

The lesson for an employee: use common sense (and subscribe to my YouTube channel). Assume that everything you do electronically will leave a trail (because it will). Don’t forward company documents to your personal email account. Don’t download thousands of company files shortly before leaving. Don’t try to cover up the trail by deleting documents; that will leave a trail of its own.

The lesson for a competitor planning to hire away a key employees: tell the employee early and often not to do the things he shouldn’t do.

Because if the employee you hire behaves badly, the joke may be on you.


head-shot-photo-of-zach-wolfeZach Wolfe ( 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.


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.


head-shot-photo-of-zach-wolfeZach Wolfe ( 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.


head-shot-photo-of-zach-wolfeZach Wolfe ( 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.


head-shot-photo-of-zach-wolfeZach Wolfe ( 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.

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.


head-shot-photo-of-zach-wolfeZach Wolfe ( 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.