Biden Executive Order Raises Key Question: Should Texas Abolish its Hiring Tax?

Biden Executive Order Raises Key Question: Should Texas Abolish its Hiring Tax?

No, contrary to what you may have heard, President Biden did not issue an executive order banning non-competes nationwide. More about that later.

His Executive Order on Promoting Competition in the American Economy did get me thinking, though. Should Texas follow the Biden administration’s lead and abolish the Texas hiring tax?

You didn’t know Texas had a hiring tax? Let me explain.

Comparative Non-Compete Law

Texas law is relatively pro non-compete. I say “pro” because the Texas law allows non-compete agreements with at-will employees, provided the scope of the non-compete is reasonable, and if the employer messes up and makes the non-compete too broad, the employer is entitled to have a judge “reform,” or rewrite, the non-compete to make it reasonable in scope.

I say “relatively” because Texas law does have some advantages for employees who challenge non-competes. See my overview in Wolfe’s First Law of Texas Non-Compete Litigation. In short, there’s plenty of Texas case law interpreting “reasonable” in an employee-friendly direction, and the Texas non-compete statute gives employees some significant advantages.

Still, overall Texas law is pretty friendly to non-competes for at-will employees, especially compared to some other states.

California, for example, is well known for its hostility to employee non-competes. They are generally not allowed in the Golden State. See Cal. Bus. & Prof. Code § 16600.

And it’s not just deep blue states. Hostility to non-competes cuts across the political spectrum. Consider deep-red Oklahoma. It also frowns on employee non-competes. See 15 OK Stat § 15-219A.

Plus, the national trend is in the direction of non-compete “reform,” meaning making it more difficult to enforce non-competes with at-will employees. Consider a few examples:

This trend has not made it to the Lone Star State. If anything, the Texas legislature has gone in the other direction.

You may have heard Texas has an “anti-SLAPP” statute, called the TCPA, which allows defendants to move to dismiss unfounded lawsuits before any expensive discovery takes place. That potentially included non-compete lawsuits, until recently. In 2019, the legislature exempted most non-compete lawsuits from the early dismissal procedure provided by the TCPA. See Turn Out the Lights, the Party’s Over: Texas Legislature Takes All the Fun Out of the TCPA.

And in 2021? Governor Abbott called a special session to address numerous issues, including bail overhaul, elections, border security, social media “censorship,” and, of course, Critical Race Theory. But he did not include non-compete reform on the agenda.

The Texas Hiring Tax

Ok, but what does this have to do with a hiring tax?

Well, by continuing to enforce non-competes with at-will employees, Texas effectively imposes a tax on employers who hire employees away from competitors.

The thing you have to understand is that enforcing non-competes with at-will employees does not really prevent competitors from hiring those employees. It just makes it more expensive to do so.

Here’s how it usually goes down. Suppose Dawn Davis is the top sales person at Paula Payne Windows. An upstart competitor, Real Cheap Windows, has its eye on Dawn. Trouble is, Dawn signed a two-year non-compete when she Paula Payne Windows hired her years ago.

Will that stop Real Cheap from recruiting Dawn? Probably not. If Real Cheap really wants to hire Dawn, it’s going to do it, regardless of any non-compete.

This will, of course, provoke a nasty-gram from Paula Payne’s lawyer, demanding that Real Cheap cease and desist from employing Dawn and “stealing” or “poachig” Paula Payne’s customers (as if the customers were property, or wild game). Real Cheap will then hire some smart-aleck lawyer to write a response arguing that the non-compete is unenforceable.

Then, if the loss of Dawn’s customers is a big enough deal to Paula Payne Windows, it’s going to file a lawsuit to try to stop Dawn. The lawsuit will probably include both a request for a temporary injunction ordering Dawn to stop and a demand for damages for the loss of Dawn’s customers to Real Cheap.

I would bet that more than half the time, the lawsuit will get settled before the judge holds a hearing on the requested temporary injunction hearing. And nine times out of ten, the lawsuit will get settled before going to trial.

The end result, typically, is a settlement where Real Cheap Windows agrees to pay some amount of money to Paula Payne Windows and maybe also agrees to some restrictions on Dawn Davis, like maybe she can’t sell to her top three customers for a year. So, the competitor who hired the employee pays its own attorney’s fees plus some amount to settle the litigation with the company the employee left.

That’s the Texas hiring tax.

Is Enforcement of Non-Competes “Pro-Business”?

Isn’t it ironic? I thought Texas was supposed to be anti-tax and “pro-business.” But when businesses have to pay a hiring tax—in effect—to hire the best people, is that really pro-business?

Wouldn’t it be better for Texas to get rid of this hiring tax and abolish non-competes for at-will employees? (It would still make sense to allow non-competes in the sale of a business, for reasons I explain here.)

But wait, defenders of non-competes will say, we need non-competes to protect goodwill and confidential information.

I don’t find either rationale persuasive.

As to confidential information, what if I told you there was already an entire body of law—both state and federal—designed to prevent employees from taking valuable confidential business information to a competitor?

Yes, of course, it’s called “trade secrets” law. Like most states, Texas has a version of the Uniform Trade Trade Secrets Act (TUTSA). You can even make a federal case of it, thanks to the relatively recent federal trade secrets statute, the Defend Trade Secrets Act (DTSA). 

But what about protecting goodwill with customers?

Yeah, about that. Here’s the problem. In most cases, where the goodwill resides in the individual employee’s relationships with certain customers she regularly services, the goodwill walks out the door when the employee clocks out for the last time.

Like I mentioned earlier, customers aren’t property. They have minds (and hearts) of their own. If the person they like to do business with leaves the company, they usually want to follow that person to a new company.

And while a judge can order the employee not to do business with the customers she serviced at her previous employer, a judge can’t make those customers continue to do business with the previous employer. It’s like when Genie explains to Aladdin that he gets three wishes, but he can’t wish for someone to fall in love with him.

So in most cases (not all), an injunction enforcing the non-compete doesn’t really preserve any customer goodwill, it just punishes the departing employee and the customers, third parties who never signed any non-compete.

For these reasons, I think Texas businesses would do just fine if Texas outlawed non-competes with at-will employees. In fact, I think they would do better.

You may be shocked that a lawyer who handles non-compete litigation would make such a statement against interest. Wouldn’t my business dry up if Texas outlawed non-competes?

President Biden’s Executive Order on Non-Competes

My worried mom asked the same thing about Biden’s Executive Order. I told her not to worry.

When the White House announced the President would be issuing an Executive Order addressing non-competes, I made this prediction on Twitter:

In short, I predicted two things. First, the order would be limited in scope. Second, even a national ban on non-competes would not end departing employee litigation, because employers would just shift their legal theory to trade secrets.

How did I do? On the first part, I was spot on. Here’s what Section 5(g) of the Executive Order actually said:

For all the hoopla on the Biden side and the hand-wringing among business lawyers, this was pretty restrained. For one thing, the Executive Order doesn’t change the law at all. It only directs the FTC to consider changes to the law.

As for my second prediction, that the scope of action on non-competes would be limited, the order doesn’t instruct the FTC to outlaw non-competes, it only suggests that the Commission “curtail” the “unfair use” of non-competes.

Only time will tell what that means. I still think any limits the FTC orders are likely to focus on reigning in the use of non-competes in agreements with lower-income workers. That’s the kind of thing that caused a political outcry. Plus, there are sure to be court challenges to any new rules.

Whatever the FTC decides to do, I don’t expect it’s going to materially restrict non-competes for executives and more highly compensated sales people.

And like I said, even if the FTC does something more sweeping than I expect, I will still have plenty of work. Employers will just shift to using trade secrets law to try to impose de facto non-competes on employees who jump ship and go to a competitor.

How do I know this? That’s what they are already doing now when a key employee doesn’t have a non-compete, or has a non-compete the employer realizes is probably not enforceable.

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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

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.

Are Lawyer Dads Paying Enough Attention to Upward Mobility?

Are Lawyer Dads Paying Enough Attention to Upward Mobility?

Editor’s note: On June 29, 2021, the ABA Journal published Are women lawyers paying enough attention to upward mobility? by lawyer and author Susan Smith Blakely. The following column addresses the same issue from the lawyer dad perspective. The column reflects the opinions of the author, and not the views of Five Minute Law – or the American Law Blogger Association. Five Minute Law is committed to covering all issues of importance to serious people in the law, and we acknowledge the many concerns expressed to us by those offended by this piece.

The number of men graduating from law schools and joining the profession of law remains high today, and that is very good news. In the past, many of these men were denied access to blue-chip law firms that demanded “good grades” and “writing samples,” and the ranks of BigLaw lost out on a lot of beer pong talent.

Male lawyers today are highly motivated, remarkably organized, and detail oriented, at least when it comes to managing their fantasy football teams. These traits, together with detailed knowledge of their college’s five-star high school football recruits, are cause for celebration from the generations of male lawyers who came before them.

But more male lawyers know that getting the job and demonstrating potential is only the beginning. While climbing the promotion ladder and buying a Porsche 911 is the goal for many male lawyers, they must be strategic.

The pitfalls

There are pitfalls. What works for male lawyers in the early years of practice may not work as well for them throughout their careers. And that is particularly true for men who choose to have children. There is nothing that can derail a career faster than the responsibilities of fatherhood—ask any successful male lawyer. Trying to remember the names of his kid’s pediatrician and dentist can cause a very busy male lawyer to lose focus.

I applaud lawyer dads for their best efforts in keeping all the balls in the air. But I also know that they can get sidetracked. Living in the moment may be fine when your child takes his first steps, but it is a bad idea when it comes to planning the wine list for the partner retreat in Napa.

Career vs. job

A career is more than a job. A successful career includes a country club membership. In private practice, the trajectory is junior associate to senior associate to getting appointed court of appeals justice by the governor you did keg stands with in college. But some governors also require you raise money for them, and that can make the runway even longer.

And a career is not just about cronyism. More and more law firms are prioritizing profits, and all members of the team have to pay for their vacation homes in Cabo. Team members have to know that help is around the corner, and that 47.5 hours of document review will need to be billed to the Baker matter before the end of the month. And those requirements are equally true for male lawyers—whether they have children or not.

Fatherhood is demanding. Too often, lawyer dads are so stretched and overscheduled that they cannot easily find time in their days to check the leaderboard at the U.S. Open. They focus on their own March Madness brackets and maximize their time between arrival at lunch at Twin Peaks and leaving happy hour at Top Golf. Many of them take two hours at lunch to play basketball at the Skyline Club, and they lose interest in Shephardizing the cases they just plugged into your brief, reading the “new” discovery rules adopted in 1997, and attending mandatory diversity training. They are exhausted.

Many lawyer dads may have trophy wives who hire a nanny to help ease their burden at home, but children typically look to Daddy for permission to do stuff Mommy said no to, rides in the front of the BMW with no booster seat, and when they’re older, some cash for the mall. That is especially true when Mommy is a busy professional, too.

The burden on lawyer dads was increased during COVID-19, when working from home often included taking additional time to yell at the children “dammit, just play some more games on the iPad!” But things will get back to some degree of normalcy soon. Partners will demand more face time at 9:30 pm, and the responsibilities for squeezing more billable hours out of routine cases will increase. The lawyer dads will be expected to meet the challenge just like everyone else.

Finding the time for all that lawyer dads have to do is challenging, but they are often their own worst enemies. They are typically perfectionists, especially about their lazy son’s backhand, which is going to need a lot more work if he’s going to get in good with the tennis coach at Princeton.

It is better to do a half-assed job of parenting than to obsess over doing the job to perfection, whether it is loading the dishwasher efficiently or braiding a daughter’s hair. There just does not seem to be any other way to meet all the commitments of being a lawyer dad, and chances are that a half-hearted effort will be enough to make your wife say “jeez, that’s enough, just let me do it!”

Taking credit as the path to promotion

Two of the attributes examined during the decision-making process for promotion from one level of practice to another are success at taking credit and effective blame-shifting to paralegals and associates. Both are strong indicators of leadership potential, and without quality leadership, law firm profits suffer. So promotion committees take these things very seriously.

When I counsel young lawyers, many of them complain about the low quality of energy drinks in the office break room. The young lawyers are concerned about the impact on their own alertness from this perceived lack of liquid stimulants, and the managers they most often complain about are the lawyer dads.

But it is not only the young associates who notice. Promotion committees understand that a manager who shows little interest in increasing the waking hours of his or her reports impacts the “billing mindset” considered essential to the upward mobility of young lawyers and higher billable hours for the firm.

The “billing mindset” versus “client service mindset” debate is fairly new, but it embodies old concepts. It is now recognized that a billing mindset is the belief that timesheets are malleable, and that people can increase their reported hours over time with creativity and determination. By contrast, a client service mindset is the belief that lawyers should prioritize client service over profits.

It stands to reason that the management and leadership of most law firms would embrace a billing mindset because it allows for private school tuition and that ski lodge in Utah. And if that is true, those same law firms should want to help junior lawyers get around the insurance company’s “billing guidelines” with the assistance of more seasoned practitioners.

Effective mentoring and leadership are essential to successful business models, and as challenging as it can be for lawyer dads, they must be willing to be team players and invest time in picking out the right mahogany paneling for the office reception area.

Risky business

To do anything less is very risky. As lawyer dads strategize about their career paths, they must be aware of the pitfalls. They must understand that getting home in time to read Dr. Seuss to their small children, no matter how praiseworthy, can impact their professional upward mobility. They must make time for martinis and cigars with Les Davis, the corrugated box magnate who is pissed at his current firm for telling him he can’t write off the apartment he rents for his mistress.

A wise man, the ancient Chinese philosopher Lao Tzu, is credited with saying that a 12(b)(6) motion with no chance of success is still worth at least 12.7 billable hours. And I would add this nuance—to maximize the number of hours billed to a corporate client, you must be a frat brother of the assistant general counsel.

Middle-level lawyer dads are key components to achieving this goal. They should keep their eyes on the secretary who will be their third wife, embrace opportunities to exclude younger lawyers from the signature block of the brief, and continue the climb the ladder of success that was interrupted by the pandemic. They should be the narcissists and future executive committee members we know they can be.

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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

These are his opinions (well, not really), 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.

Is a Non-Recruitment Agreement a Non-Compete?

Is a Non-Recruitment Agreement a Non-Compete?

When you say “recruitment,” it brings up painful memories of law school. But hey, at least we had free pizza (sometimes).

Speaking of recruiting, the Wall Street Journal recently reported that employee mobility is at a two-decade high. That means a lot of employees are quitting their jobs and going to work for competitors. Anecdotal evidence from my own law practice suggests the same. There are a lot of departing employee disputes and lawsuits in Texas right now, and I suspect the same is true in other states.

In many cases, when those employees leave their employers, they will have employment agreements that restrict them from soliciting the customers or employees of their former employer. People often want to know if that’s a non-compete.

The short answer is yes. Generally, a restriction on soliciting a former employer’s customers or clients is a form of non-compete. I covered this in my popular post Is a Non-Solicitation Agreement a Non-Compete? The answer matters because a non-compete has to be reasonable in scope. See Tex. Bus. & Com. Code § 15.50(a).

Restrictions on soliciting employees get relatively less attention. Lawyers and non-lawyers alike tend to assume such restrictions are enforceable.

In Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011), the Texas Supreme Court said that restrictions on soliciting a former employer’s “customers and employees” are restraints of trade governed by the non-compete statute. But Marsh was not about solicitation of employees, so the part about soliciting employees could be viewed as dicta.

There is conflicting Texas case law on whether a restriction on soliciting a former employer’s employees is a non-compete subject to the requirements of the non-compete statute.

Some Texas courts have held that a restriction on employee non-solicitation is not a restriction on competition. See, e.g., Totino v. Alexander & Associates, Inc., No. 01-97-01204-CV, 1998 WL 552818, at *8-9 (Tex. App.—Houston [1st Dist.] Aug. 20, 1998) (not designated for publication), dismissed pursuant to settlement, 1999 WL 182518 (March 30, 1999); Nova Consulting Group, Inc. v. Eng’g Consulting Servs., Inc., No. Civ. SA-03-CA-305-FB, 2005 WL 2708811, at *18 (W.D. Tex. June 3, 2005) (citing Totino).

(After I published the original version of this post, a little birdie told me that Totino was later dismissed pursuant to a settlement, and sure enough, Westlaw confirmed that.)

Other cases have held that a non-recruitment clause is a non-compete. See, e.g., Smith v. Nerium International, LLC, No. 05-18-00617-CV, 2019 WL 3543583, at *4 (Tex. App.—Dallas Aug. 5, 2019, no pet.) (mem. op.) (citing Marsh).

The better view is that a restriction on soliciting employees is a form of non-compete. (As always, this is just my opinion, not the opinion of my firm or clients.)

Think about it. Imagine that two competitors enter into an agreement not to solicit each other’s employees. Are you telling me such an agreement would not raise any antitrust concerns? No, of course it would.

Both the motive and effect of a restriction on soliciting employees are to prevent competitors from “poaching” employees. The company’s motive is to protect itself from competition. And the effect—if the restriction accomplishes its intended purpose—is to inhibit competition. So, a restriction on soliciting employees raises the same kind of anti-competitive concerns as a restriction on soliciting customers and should be treated as a non-compete.

Plus, If you say that a restriction on soliciting employees is not a non-compete, be careful what you wish for. Let’s assume for the sake of argument it’s not a “covenant not to compete.” In that case, it could still be a contract in restraint of trade or commerce, and that would make it illegal. See Tex. Bus. & Com. Code § 15.05. Or at the least, it would be subject to some reasonableness limitation.

I suppose you could argue that a restriction on soliciting employees is neither a restraint of trade and commerce nor a non-compete. But in that case, there would be no reasonableness limitation, and that seems like an untenable result. Are you saying that a restriction on soliciting employees could have a ten-year term, or no time limit at all? It makes more sense to treat a restriction on soliciting employees as a form of non-compete—as the Texas Supreme Court did in Marsh—which means it has a reasonableness limitation. 

But what about those Texas decisions that said a restriction on soliciting employees is not a restriction on competition?

Some of those cases were decided before Marsh. So you could argue they were implicitly overruled by the contrary statement in Marsh.

Even aside from that, I don’t find the reasoning of those cases persuasive.

In the Totino case, the court considered whether a non-recruitment covenant was a prohibited contract “in restraint of trade or commerce.” The court held it was not, reasoning that a non-recruitment agreement is more like a nondisclosure covenant, which is not a non-compete. Totino, 1998 WL 552818, at *8-9.

Non-recruitment agreements, the court said, “do not necessarily restrict a former employee’s ability to compete with his or her former employer and, like nondisclosure covenants, should not significantly restrain trade.” The court added that an agreement not to solicit employees does not restrict those employees from leaving but only bars the former employee from soliciting them. Id. at *9.      

The reasoning is flawed. First, the premise that a nondisclosure agreement is not a restraint of trade or commerce is too broad. A confidentiality agreement can be so broad that it functions as a non-compete. See Thoroughbred Ventures, LLC v. Disman, No. 4:18-CV-00318, 2018 WL 3752852, at *4 (E.D. Tex. Aug. 8, 2018) (nondisclosure agreement that has the practical effect of preventing the former employee from using general knowledge, skill, and experience should be treated as a non-compete).

Second, even if we assume nondisclosure agreements are not non-competes, comparing a non-recruitment restriction to a nondisclosure clause is inapt. The primary purpose of a confidentiality agreement is to protect confidential information; the effect on competition is incidental. But as noted earlier, with an agreement not to solicit employees, the primary purpose is to protect the employer from competition.

That leads me to the third flaw in the Totino reasoning. The argument that the non-solicitation agreement is not an absolute bar to employees leaving goes to the reasonableness of the restriction, not whether it restrains competition. A contract term does not have to absolutely prohibit competition to implicate the reasonableness concerns of the non-compete statute. Restraining competition—to some degree—should be enough.

I’m not saying that a restriction on soliciting employees is prohibited. I’m just saying that it should be treated as a non-compete subject to the limitations of the non-compete statute, particularly the reasonableness requirement.

Ultimately, I think that was the real rationale of Totino—that the restriction was reasonable. It would have been better for the court to say, “yes, a restriction on soliciting employees is a restraint on competition, but we find this one to be reasonable.”

That was essentially what the judge did in Everett Financial, Inc. v. Primary Residential Mortgage, Inc., No. 3:14-CV-1028-D, 2016 WL 7378937 (N.D. Tex. Dec. 20, 2016). The reasonableness requirement of Section 15.50(a) applies to employee non-solicitation agreements, the court said, citing Marsh. Id. at *8. But the court held that the restriction on solicitation at issue was reasonable in scope, despite the lack of a geographic limitation, and did not have to be limited to soliciting employees with whom the former employee had “personal contact.” Id. at *8-9.

Bottom line: Totino does not provide a solid basis for holding that a restriction on soliciting employees is not a non-compete, especially in the face of the contrary statement in Marsh. The better view is that a restriction on soliciting employees is a form of non-compete, and therefore it must meet the reasonableness requirement of the Texas non-compete statute. (Plus, Totino was an unpublished opinion in an appeal that was later dismissed, if you care about that sort of thing.)

Totino does make a fine cheap frozen pizza though. Law school students take note.

(Thanks to Dallas lawyer Sean Lemoine for pointing out Totino and its progeny, even if he incorrectly thinks Totino was right, and to Houston lawyer Leigh Freeman for pointing out the Thoroughbred Ventures case.)

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Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

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.

“Likelihood of Confusion” in Trademark Litigation

“Likelihood of Confusion” in Trademark Litigation

Man, I miss Dijonnaise.

It was revolutionary. Dijon mustard. Mayonnaise. Mixed together. In one bottle!

And the best part was the theme song, to the tune of Duke of Earl. Dij, dij, dij, dij-o-naise, naise, naise . . . Bet you can’t get that out of your head now.

Sadly, Dijonnaise was a flash in the pan. Maybe too many people asked, why not just put Dijon mustard and mayo separately, then put them together on the same sandwich?[1]

My response would be similar to that of Nigel Tufnel, lead guitarist for Spinal Tap. After showing off his amp with knobs that go up to 11, he was asked why don’t you just make 10 louder, and have 10 be the top number and make that a little louder?

“. . . These go to 11.”

Anyway, blended condiments are on my mind because I recently read Perry v. H.J. Heinz Company Brands, LLC, 994 F.3d 466 (5th Cir. 2021), also known as the “Metchup” case.

The court in that case held that Heinz’s fleeting use of “Metchup” as part of a promotional campaign for “Mayochup” and other branded condiment blends did not infringe on the plaintiff’s rights in the METCHUP trademark. (Trademark lawyers like to put the trademark in all caps, but I’m just gonna do it once.)

Besides containing some of the best deadpan judicial humor I have read in a long time, the Metchup opinion is also a good case study for understanding how courts decide “likelihood of confusion,” the key issue in most trademark lawsuits.

Even aside from trademark law, the Metchup opinion is a tutorial on how to write a humorous judicial opinion. Not a cringe-inducing attempt like what you usually see from a judge who should have just played it straight, but something actually funny.

The key is not to try too hard. Check out this understated introduction by Judge Graves:

Mr. Dennis Perry makes Metchup, which depending on the batch is a blend of either Walmart-brand mayonnaise and ketchup or Walmart-brand mustard and ketchup. Mr. Perry sells Metchup exclusively from the lobby of a nine-room motel adjacent to his used-car dealership in Lacombe, Louisiana. He has registered Metchup as an incontestable trademark. Though he had big plans for Metchup, sales have been slow. Since 2010, Mr. Perry has produced only 50 to 60 bottles of Metchup, which resulted in sales of around $170 and profits of around $50. He owns http://www.metchup.com but has never sold Metchup online. For better or worse, the market is not covered in Metchup.

Perry, 994 F.3d at 468.

This is how you do it. It paints a picture. It subtly indicates where this is going. And it doesn’t make light of a serious situation too much. I mean, sure, it pokes fun at Mr. Perry, but lightly, and no more so than he deserves.

This intro also sets up our first non-obvious trademark law lesson for non-trademark lawyers.

Lesson 1: Registration of a trademark isn’t that big a deal

Perhaps the most important and non-obvious thing to understand about trademark law is that trademark rights arise largely from use of a trademark, not registration of a trademark. Trademark lawyers probably say this to people at least ten times a week.

So in the Metchup case, Mr. Perry started to build his trademark rights the moment he started using Metchup as a mark to sell bottles of his special blend. When he later registered the trademark with the U.S. Patent and Trademark Office, affectionately known as the PTO, he acquired certain additional rights.

Bottom line: the mere fact that Mr. Perry owned a registration of the Metchup mark did not necessarily give him priority, and it did not necessarily mean that someone else’s use of “Metchup” would create a likelihood of confusion.

Like many trademark owners, Mr. Perry was probably very proud of his registration certificate for “Metchup,” but it’s only a piece of paper. His biggest problem was that his use of the trademark was miniscule. He produced only 50-60 bottles of Metchup and had only 34 documented sales. He never sold Metchup online. Id. at 468.

Enter Heinz, the global condiment behemoth. To promote Mayochup, its own mayonnaise-ketchup blend, Heinz held an online naming contest, and one fateful fan proposed “Metchup.” Heinz then posted mock-up bottles bearing various proposed names, including Metchup, but Heinz never sold a product labeled Metchup. Id. at 468-69.

This was Mr. Perry’s moment. He made a federal case of it, suing Heinz for trademark infringement in the Eastern District of Louisiana.

Lesson 2: You can get summary judgment on likelihood of confusion—sometimes

But it was not to be. The district court granted summary judgment for Heinz on the ground that Heinz’s use of “Metchup” and “Mayochup” did not create any likelihood of confusion with Mr. Perry’s Metchup.

A little background for non-lawyers and non-litigators: there are essentially three ways a key issue like likelihood of confusion can be decided in a lawsuit. First, on a motion to dismiss, where the judge decides the issue based purely on whether the plaintiff has pleaded a plausible claim. Second, on a motion for summary judgment, where the judge decides whether the evidence submitted by both sides presents any fact issue for a jury decide. Third, in a trial, where the jury decides (or the judge decides, if it’s a bench trial).

It’s possible to win a motion to dismiss a trademark infringement suit, if the court can see from the plaintiff’s own pleading that there is no likelihood of confusion. But it’s rare. In most trademark infringement lawsuits, the key procedural question will be whether likelihood of confusion will be decided through summary judgment or in a trial.

It is possible to get summary judgment on infringement, either for the plaintiff or for the defendant. It is also possible for the plaintiff to get summary judgment on likelihood of confusion. See, e.g., Epic Tech, LLC v. Fusion Skill, Inc., No. 4:19-CV-2400, 2021 WL 1599378, at *3-4 (S.D. Tex. April 23, 2021) (granting summary judgment on infringement to plaintiff based on the similarity of the marks coupled with the absence of any evidence in defendants’ favor on any other digits of confusion).

In the Metchup case, the Court of Appeals affirmed summary judgment for Heinz, the defendant. The court held that “no reasonable jury could conclude that Heinz’s use of Metchup in advertising or the sale of its own product, Mayochup, created a likelihood of confusion.” Therefore, Heinz was entitled to summary judgment dismissing the claim. Id. at 473.

But how did the court get there? Enter the digits.

Lesson 3: Some digits are more equal than others

To decide whether the defendant’s use of a trademark creates a likelihood of confusion with the plaintiff’s trademark, courts look at eight non-exhaustive factors. In the Fifth Circuit, we call the factors digits.

I don’t know why we don’t just call them factors. Someone should write a blog post on that.

Anyway, the digits of confusion are:

(1) the type of trademark (some types are stronger than others)

(2) the similarity of the marks

(3) the similarity of the products or services

(4) outlet and purchaser identity

(5) advertising media identity

(6) the defendant’s intent (this one can be tricky)

(7) care exercised by potential purchasers

(8) evidence of actual consumer confusion

Id. at 471.

The digits usually do not have equal weight. The last one—instances of actual confusion—can be an ace in the hole for the plaintiff. For example, if Mr. Perry had testimony from his good neighbors in Lacombe, Louisiana that they confused Heinz’s “Metchup” with Mr. Perry’s Metchup, that would be pure gold. That would make it almost impossible for Heinz to get summary judgment, meaning a jury would decide.

On the other hand, the absence of evidence of actual confusion doesn’t necessarily kill the plaintiff’s infringement claim. Many cases will not have any evidence of actual confusion. In most cases, the two key digits are the similarity of the trademarks and the similarity—or “relatedness”—of the products or services.

It’s easy to see why. There could be a likelihood of confusion where the trademarks have significant differences but the products are identical. Imagine a trademark that looks just like the Apple computer logo, except it’s an orange, used for computers. Apple’s lawyers would be all over that.

Conversely, you could have similar or even identical trademarks, but very different products, and have no likelihood of confusion. For example, people are unlikely to confuse APPLE as a trademark for computers with APPLE as a trademark for used car sales.

Similarity of the marks and similarity of the products. Those are the key digits.

Most of the time. In the Metchup case, not so much. The Metchup case was unusual, in that both the trademark—“Metchup”—and the product—a blended condiment—were identical, yet the court found no likelihood of confusion. Why?

First, the court noted that although both trademarks used the same word, the labels and bottles looked “nothing alike”:

Id. at 471-72. “The products’ distinguishable packaging mitigates against Heinz’s use of the word Metchup because the packaging differences make confusion less likely.” Id. at 472.

In addition to the differences in packaging, the huge differences in sales outlets and advertising were crucial. “Mr. Perry markets his products to the guests at his nine-room motel,” the court said, “Heinz to the shoppers at most every grocery and to online customers through an extensive web store.” “Sensibly speaking,” the court said, “Mr. Perry has no presence in Heinz’s market and Heinz no presence in his.” There was also the stark difference in advertising. “Mr. Perry does not buy print ads, issue coupons, enter his sauce in contests, or advertise Metchup on signage.” Id. at 472.

Plus, there was the lack of evidence of actual confusion. There was no evidence that “any consumer actually got confused by Heinz’s use of Metchup on a mock-up bottle or confused Heinz’s Mayochup with Mr. Perry’s Metchup.” Id. at 473.

I think this was really the key in the Metchup case. Remember, Heinz only used “Metchup” on a mock-up as part of a contest. If Heinz had actually named its product Metchup and put Metchup on the shelves of grocery stores across America—including Lacombe, Louisiana—the case might have come out differently. But Heinz’s fleeting use of “Metchup” as an example of a contest entry just wasn’t enough to create any likelihood of confusion.

Was there anything Mr. Perry’s lawyers could have done to avoid this conclusion? Suppose they hired an expert to do a consumer survey in Louisiana, showing random consumers a photo of Heinz’s “Metchup” mockup and asking, “who do you think makes this product?” And suppose a significant percentage of surveyed consumers said “oh, that’s the stuff Dennis Perry sells at that motel in Lacombe!”

In that case, it’s unlikely Heinz would get summary judgment. So why didn’t Mr. Perry do a survey?

Lesson 4: to survey or not to survey

Whether to hire an expert to do a consumer survey on likelihood of confusion is one of the key decisions in a trademark lawsuit. The benefit of survey is obvious. If an expert testifies that a significant percentage of surveyed consumers were confused, that suggests there’s a likelihood of confusion.

But there are two obvious reasons not to do a survey. First, it’s expensive. Second, the results probably won’t be good.

Think about it. The owner of a trademark always thinks his trademark is hot stuff. Ordinary consumers? Not so much. Based on the facts recited in the Metchup opinion, we can all guess how a survey would have come out. Hardly anybody was going to see Heinz’s Metchup bottle and think of Mr. Perry’s Metchup.

Mr. Perry did have an expert, though. Dr. Lucy L. Henke, a marketing professor with a doctorate in communication studies, testified that “the typical consumer would confuse Mayochup and Metchup due to visual and auditory similarities between the two names.” Id. at 473.

The court wasn’t buying it, especially when the expert “neither presented consumer survey data no provided an analysis of such data.” “Her testimony amounts to her personal opinion on the topic of actual confusion and does not address evidence where potential consumers were asked to offer their opinions or tested to see if they actually got, or were, confused by either Heinz’s use of the name Metchup in advertising or by it selling Mayochup.” Thus, the court said, her testimony “provides no evidence of actual confusion.” Id.

Ouch. The lesson for trademark litigators? If you’re going to have an expert testify on likelihood of confusion, that expert best come armed with a survey.

Otherwise, you’ll be playing ketchup.

_______________________

Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

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] My crack research team informs me that you can buy “Maille Dijonnaise Sauce” on Amazon for $12.63 a bottle. 

How do you prove your employee electronically signed that agreement?

How do you prove your employee electronically signed that agreement?

Remember Dawn Davis, the paralegal? She left her job at a Dallas law firm and moved to the Austin suburbs with her two kids, hoping she would eventually make more money as a sales person for Paula Payne Windows.

I wrote about this typical scenario in The Problem With Non-Competes. But I need to update it.

My original fact pattern had Dawn’s boss giving her a stack of documents to sign on her first day. But that’s so, like, GenX. You can’t expect Gen Y to sign documents on paper. And Gen Z? You might as well expect them to answer their phones when you call.

No, today Paula Payne Windows has an automated onboarding procedure. They worked with a software developer to build an online-only hiring application. The app automatically sends a welcome email to the email address Dawn provided when she was recruited and interviewed.

The email provides a unique hyperlink that leads to an online account-registration page where Dawn creates a unique user ID and password and selects security questions. Dawn has to enter her ID, password, and security-question answer every time she logs in.

Once the account is set up, the program presents Dawn with several agreements, starting with an Electronic Disclosure Agreement in which Dawn consents to be bound by her electronic signatures on the agreements, as if signed in writing. She has to agree to this before going any further.

Once Dawn agrees that her electronic signature is binding, the app presents her with three additional agreements, including an Employee Confidentiality, Non-Solicitation, and Non-Competition Agreement. The program allows her to sign the agreements in any order, but all of the agreements have to be signed before the app allows her to complete the electronic onboarding process.

This onboarding app keeps an electronic record of each document the candidate electronically signs, assigning a unique identifier and timestamp to each signed document. Once the app records that information, there is no way to change it (absent some extraordinary measures).

Dawn, of course, is not about to say “sorry, I can’t agree to this non-compete.” She already quit her old job, her kids are registered at new schools, and she paid a security deposit at a new apartment. So she doesn’t say anything about it.

For the next few years, Dawn doesn’t even think about the non-compete. Turns out she has a knack for the window game, and she becomes Paula Payne’s top sales performer. She’s so good that a competitor, Real Cheap Windows, offers her more money to take over its sales department. Dawn accepts.

You know the rest. The lawyer for Paula Payne Windows sends Dawn a nasty gram, files a lawsuit, and asks the judge for an injunction enforcing the non-compete.

“This is unfair,” Dawn tells her lawyer, “I never agreed to any non-compete when I accepted the job.”

“Ok,” her lawyer says, “but did you sign it?”

No way, Dawn says. “I never signed that non-compete agreement with Paula Payne Windows, electronically or otherwise.” And she signs an affidavit swearing to that.

But the HR manager at Paula Payne Windows signs an affidavit detailing how the electronic onboarding app works. “There’s no way Dawn could have completed the onboarding process without signing the non-compete agreement,” she says. “Plus, the electronic records show she signed it.” “Someone very sophisticated would have to hack into the system to change a record,” the HR manager says, “and there is no indication that has ever happened.”  

Suppose you’re the judge in Paula Payne Windows v. Dawn Davis. Paula Payne Windows files a motion for partial summary judgment, asking you to rule as a matter of law that Dawn signed the non-compete. Dawn’s lawyer argues that her affidavit creates a fact issue for the jury to decide, precluding summary judgment.  

What’s your ruling?

If you would grant summary judgment for Paula Payne Windows, then you’ll like the Texas Supreme Court’s decision in Aerotek, Inc. v. Boyd, No. 20-0290, 2021 WL 2172538 (Tex. May 28, 2021). (Justice Boyd wrote a dissenting opinion.)

Aerotek was an employment discrimination case, not a non-compete case, and the agreement at issue was an arbitration agreement called an MAA. But the facts concerning the computerized onboarding process were essentially the same as what I outlined in my hypothetical.

If you know something about summary judgment procedure, you might be thinking “wait, this is all wrong, how does the employee’s testimony not create a fact issue?”

But there’s one thing I’ve left out: The Texas Uniform Electronic Transactions Act (TUETA), found in Chapter 322 of the Texas Business and Commerce Code.

Under the TUETA-lage of SCOTX

The purpose of TUETA is “to facilitate electronic transactions” consistent with “reasonable practices concerning electronic transactions and with the continued expansion of those practices.” Tex. Bus. & Com. Code § 322.006.

With some exceptions, like signing a will, the statute applies to most transactions, including business and employment transactions. See Tex. Bus. & Com. Code § 322.003.

Duke Ellington released “East St. Louis Toodle-O” in 1927. 80 years later Texas enacted TUETA. Coincidence?

Assuming TUETA applies, it has two major policies. First, if a law requires an agreement to be in writing, an “electronic record” satisfies the law. Second, if a law requires a signature, an “electronic signature” satisfies the law. Tex. Bus. & Com. Code § 322.007.

This makes sense in today’s digital world, but it doesn’t really answer our question. Dawn isn’t arguing that an electronic signature on the agreement is invalid, she’s arguing that she never signed the agreement. The question isn’t whether an electronic signature is valid, but how you prove someone electronically signed.

But TUETA touches this topic too. And that’s really what Aerotek was about. As the court said:

Once parties to a transaction have “agreed to conduct [it] by electronic means”, the Act provides a standard for attributing electronic signatures to them. Section 322.009(a) provides that an “electronic signature is attributable to a person if it was the act of the person.” That “may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.”

Aerotek, 2021 WL 2172538, at *5.

TUETA defines “security procedure” to include . . . well, you get the idea. Bottom line: “A record that cannot be created or changed without unique, secret credentials can be attributed to the one person who holds those credentials.” Id.

Aerotek offered detailed evidence that, if believed, was sufficient to satisfy this standard. But the trial court wasn’t having it. The trial court judge in Aerotek denied the motion to compel arbitration, impliedly finding that the employees did not sign the MAA. Id. at *3.

A little background on procedure: On a motion to compel arbitration, the trial court judge is the finder of fact. If there is conflicting evidence about whether the employee signed the agreement, the trial court judge decides. The trial court is free to disregard evidence it does not find credible. And the trial court’s decision will be upheld on appeal, unless the evidence “conclusively” establishes that the trial court judge was wrong.

The Texas Supreme Court does not make factual determinations (in theory), so Aerotek had the heavy burden of showing that the evidence before the trial court conclusively established that the employees signed the MAA.

The employees argued that the trial court judge was free to disregard the testimony of Aerotek’s witnesses and to credit the testimony of the employees, but the Texas Supreme Court disagreed, for several reasons.  

First, the employees conceded that they completed the computerized hiring application and electronically signed the documents included, except for the MAA. Id. It might have been different if the employees claimed they didn’t use the electronic onboarding system at all.

Second, Aerotek offered specific, detailed evidence showing that the employees must have electronically signed the MAA:

  • To enter the application, a candidate was required to create for himself a unique identifier, a user ID, a password, and security questions, all unknown to Aerotek.
  • The candidate was required to enter personal information and sign documents by clicking on them.
  • The application recorded and timestamped the candidate’s every action.
  • The application’s business rules made it so that the application could not be submitted until all steps were completed and all required signatures provided, including on the MAA.
  • Once a candidate submitted his application, Aerotek could not modify its contents.
  • Aerotek provided the signed MAAs marked with timestamps identical to those in its database records showing each Employee’s progress through the application.

Id. In short, the testimony from Aerotek’s program manager, Marsh, showed that “it was impossible to complete the hiring application without signing the MAA.” Id. at *6.

Third—and this is probably the key—Marsh’s testimony was uncontroverted.

Yes, the employees testified they did not sign the MAA, but that’s all they said. They did not offer any evidence disputing the points made by the program manager.

For example, “the Employees could have requested forensic tests of the hiring application to show that it did not operate as March described, but they did not.” Id. The employees were “free to seek discovery to discredit Aerotek’s evidence,” the court said, but “[t]hey chose not to.” Id.

TUETA-loo to signing employment documents on paper?

We can draw several practice tips from Aerotek.

First, if you represent employers who have employees sign agreements when they start—and who doesn’t, these days—you should recommend an electronic onboarding process. (I’m assuming software for this is readily available and doesn’t have to be custom-made.)

Aerotek shows us that not only is an electronic onboarding process adequate, it is in some ways superior to getting wet signatures on paper.

Think about it. Suppose Dawn Davis signs the non-compete agreement, you scan it in to the system, and the hard copy gets shuffled away to who knows where. Years later, the company offers a signed copy of the agreement as evidence. “Yes, that looks like my signature,” Dawn testifies, “but I’m quite sure I never signed that document.” Someone must have faked it, she says.

How is the employer going to refute that testimony? Maybe if they’re lucky, Paula Payne Windows has a witness who will testify, “I have a clear recollection of watching Dawn sign the agreement that day.” But even then, Dawn’s contrary testimony is still going to create a fact issue. See Ward v. Weaver, 34 S.W.2d 1093, 1094 (Tex. Comm’n App. 1931, judgm’t affirmed) (discussed in Aerotek).

An electronic process like the one in Aerotek avoids that problem.

Second, if you represent the employer in a lawsuit and the employee denies signing the agreement, offer specific testimony as close to the evidence in Aerotek as possible. You can use the bullet-pointed facts above as a checklist.

Third, if you represent an employee who swears up and down she never electronically signed that agreement, just offering the employee’s denial is not going to cut it (assuming the employer offers evidence like the testimony in Aerotek). You’re going to have to offer something more to discredit the employer’s evidence.

This may require some judgment calls. Do you really want to embark on an expensive forensic inquiry into the employer’s onboarding system just because your client says “I’m pretty sure I didn’t sign that”?

On the other hand, if the client is 100% certain she didn’t sign the agreement at issue, and if the issue is important enough—often it will be—then you may have no choice but to roll up your sleeves and get your hands dirty (electronically speaking).

Maybe Dawn should consider forensic investigations for her next job.

_______________________

Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

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.

Motions to Seal in Texas Trade Secrets Litigation

Motions to Seal in Texas Trade Secrets Litigation

If you’re a Texas litigator, like me, then you probably already know that filing documents in state court under seal can be kind of a pain. There’s this pesky Rule 76a of the Texas Rules of Civil Procedure.

Rule 76a reads like it was written by some real do-gooder types:

  • Court records are “presumed to be open to the general public.”
  • Sealing court records requires showing a “specific, serious and substantial interest” that outweighs both the “presumption of openness” and “any probable adverse effect that sealing will have upon the general public health or safety.”
  • You have to file a motion to seal that is “open to public inspection” and “post a public notice” at the courthouse.
  • The public notice must contain “a brief but specific description of both the nature of the case and the records which are sought to be sealed.”
  • The court must hold a public hearing on the motion to seal.
  • The sealing order must state the “specific reasons” for finding the required showing has been made.
  • A non-party—oh, I don’t know, like maybe, the press?—can intervene to oppose a motion to seal.
  • Anyone who participated in the hearing can appeal the ruling.

This is great, right? We can’t have a Ford Pinto situation where Big Corp seals the court records that show its product explodes on impact and kills unsuspecting consumers. Openness! Transparency! Sunlight is the best disinfectant! The public has a right to know!

That all sounds great, but for most practicing litigators, this just sounds like stuff from the movies.

In a typical lawsuit I handle, my client cares a lot about the case, as does the opposing party, but nobody else cares. So, when I file a sealing motion under Rule 76a and post a notice on the courthouse door, I know that no one is going to read that notice or show up at the hearing to contest the motion. Ronan Farrow just isn’t going to care about the confidential profit margins inside Jim Bob’s Valve Supply Shop.

So for me, Rule 76a is just a hoop to jump through, with no public benefit, and it’s kind of annoying. It’s not that big a deal, but it is one more thing my client has to pay for.

This is especially likely to be an issue in my focus area, departing employee litigation, because that kind of case usually includes claims between competitors regarding confidential information and trade secrets. If the point of the lawsuit is to try to protect my client’s trade secrets, the last thing I want to do is reveal the trade secrets in documents publicly filed with the court.

Enter TUTSA, the Texas Uniform Trade Secrets Act. While Rule 76a establishes a presumption of openness designed to protect the public’s right to know, TUTSA has a whole section designed to do the opposite. 

Specifically, Section 134A.006(a) of the Texas Civil Practice and Remedies Code commands that “a court shall preserve the secrecy of an alleged trade secret by reasonable means.” Then it goes on to say that “[t]here is a presumption in favor of granting protective orders to preserve the secrecy of trade secrets.” And the options available to the judge include “sealing the records of the action.”

But how do we square this more permissive sealing rule for trade secrets cases with the more restrictive Rule 76a?

Well, TUTSA itself tells us how. “To the extent that this chapter conflicts with the Texas Rules of Civil Procedure, this chapter controls.” Tex. Civ. Prac. & Rem. Code § 134A.007(c).

And just in case that wasn’t clear enough: “the supreme court may not amend or adopt rules in conflict with this chapter.” Id.

Well, that settles it. If a case involves alleged trade secrets, then a motion to seal is governed by the more flexible provisions of TUTSA, and the hoop-jumping exercises of Rule 76a don’t apply, right?

Not so fast. TUTSA only displaces Rule 76a where the two are in conflict. In HouseCanary, Inc. v. Title Source, Inc., No. 19-0673, 2021 WL 1711123 (Tex. April 30, 2021), the Texas Supreme Court held that TUTSA only displaces some of Rule 76a.

(If the name of the case sounds familiar, maybe it’s because I wrote about the substantive issues in HouseCanary in The Jury Charge in Texas Trade Secrets Litigation.)

Writing for the majority, Justice Busby explained that TUTSA partially displaces the substantive sealing standards of Rule 76a, but “does not provide a separate, self-contained pathway—independent of Rule 76a—for seeking and ordering the sealing of court records.” In other words, “Rule 76a provides procedures and standards for sealing court records that include trade secrets, while TUTSA provides standards for protecting secrets by means including sealing.”

So what does TUTSA displace and not displace?

Specifically, HouseCanary held that TUTSA replaces the Rule 76a presumption that court records are open with a presumption “in favor of granting protective orders to preserve alleged trade secrets, including those in court records.”

But HouseCanary rejected the argument that “TUTSA supplants all of Rule 76a and provides an entirely separate path to sealing.” “Showing a conflict between TUTSA and one part of Rule 76a does not displace the whole rule,” Justice Busby reasoned. “Those procedures include public notice, the prohibition against motions for reconsideration absent changed circumstances, and the right of appeal.”

But how do you give public notice without spilling the beans? Easy. “[H]olders of a trade secret can notify the public of the type of information they seek to seal without disclosing that information,” the court said.

This is perhaps the most important practical result for practicing litigators: even in a trade secrets case, if you want a sealing order you still have to post the public notice required by Rule 76a.

And you still have to show that less restrictive means than sealing entire records—such as redaction—would be effective to preserve the trade secrets. That’s because TUTSA “lists a sealing order as only one of several means of preserving a trade secret.”

Thus, TUTSA is not necessarily a free ticket to seal any document filed with the court that a party claims contains alleged trade secrets.

So, the upshot of HouseCanary is that if you want to file a document in Texas state court under seal, on the ground that it contains alleged trade secrets, then you should:

  1. File a motion to seal under Rule 76a.
  2. Cite the presumption of protection of trade secrets from TUTSA, Tex. Civ. Prac. & Rem. Code § 134A.006(a).
  3. Point out the presumption of openness in Rule 76a(1) does not apply (citing HouseCanary).
  4. Explain why less restrictive means, such as redaction, would not be adequate to protect the secrecy of the information. Tex. R. Civ. P. 76a(1)(b).
  5. Post the required public notice, including a “brief but specific description of . . . the nature of the case,” Tex. R. Civ. P. 76a(3), and a description of the “type of information” you seek to seal “without disclosing that information.” HouseCanary.
  6. Present your proposed sealing order at the hearing.
  7. Make sure your proposed order recites all the things required by Rule 76a(6) (except you probably don’t have to include “the specific reasons for finding and concluding whether the showing required by paragraph 1 has been made,” because under HouseCanary, that requirement is displaced by TUTSA).

Yes, this is kind of a pain, but no, you don’t have to reinvent the wheel every time you do it. I’m sure some helpful blogger will publish a form Motion to Seal soon.

And assuming nobody shows up at the hearing to oppose the motion, your motion will usually be granted.

But there’s still one problem. This procedure is all well and good for pretrial filings with the Court, but what about evidence at trial? In a trade secrets trial, there will be both testimony and exhibits that reveal the alleged trade secrets. Trials are generally open to the public.

So if you offer evidence of your client’s trade secrets, or fail to object when the other side does so, have you waived trade secrets protection?

This was also an issue in HouseCanary. Title Source argued that HouseCanary waived trade secret protection by offering exhibits containing the trade secrets and discussing them in open court.

But the Texas Supreme Court said these facts alone did not conclusively establish a waiver. The court reasoned that information does not have to be kept “absolutely secret” to maintain trade secret status. Only “reasonable measures” are required. Tex. Civ. Prac. & Rem. Code § 134A.002(6)(A). Whether secrecy has been lost is a “fact-intensive determination,” and publicly filing a document containing the trade secrets is just one factor to consider.

“Other relevant considerations include whether and when subsequent measures were taken to preserve the document’s secrecy, whether a competitor could readily ascertain the information, and whether the document was further published or disseminated outside court records.”

Thus, Title Source did not conclusively show that the exhibits lost their trade secrets status just because they were offered in a trial open to the public.

Dealing with trial exhibits containing alleged trade secrets is still a practical problem. But HouseCanary at least establishes that trade secrets status is not automatically lost just because an exhibit is admitted in the trial without a sealing order.

_______________________

Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

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.

Forensic Expert Fees as Actual Damages?

Forensic Expert Fees as Actual Damages?

Welcome to the final exam in Advanced Remedies: Departing Employee Litigation. Before we get to the exam question, let me remind you what we learned this semester about Texas law on expert witness fees:

“It is the general rule in Texas that expenses incurred in prosecuting or defending a suit are not recoverable as costs or damages unless recovery of those items is expressly provided for by statute, is available under equitable principles, or is expressly provided for by contract. The rule [applies] to attorney’s fees, costs of experts, and other expenses in preparation for trial.”

Shenandoah Assocs. v. J&K Props., Inc., 741 S.W.2d 470, 486 (Tex. App.—Dallas 1987, writ denied).

The fact pattern

With that in mind, here’s our hypothetical:

Dawn Davis is a sales person for Paula Payne Windows. One day Dawn warns Paula, the owner, that she is not going to send inflated bills to customers. The next morning, Paula walks into Dawn’s office and tells Dawn she’s fired. Dawn leaves her company-issued laptop on her office desk, packs up her personal belongings, and leaves.

A few days later, Paula finds out that Dawn has started working for a competitor, Real Cheap Windows. Paula calls up her lawyer who files a lawsuit against Dawn claiming she breached her confidentiality agreement and non-compete.

Paula’s lawyer also hires a forensic expert to examine Dawn’s laptop for evidence of wrongdoing. The expert finds no evidence of wrongdoing, but in the lawsuit the jury finds that Dawn breached her employment agreement.

Assume that Dawn’s employment agreement does not provide for recovery of expert witness fees.

That’s Scenario A. If Paula Payne Windows prevails on the breach of contract claim, can it recover the expert’s fees for examining Dawn’s laptop?

Now consider Scenario B. This time, Paula Payne hires the forensic expert after discovering that Dawn took the laptop home when she was fired. Dawn returns the laptop four days later. Does that change your answer? Remember, no fidgeting or looking away from your computer while you decide.

How about Scenario C: Assume the same facts as Scenario B, except this time Paula Payne specifically tells Dawn to leave the laptop in her office, even threatening to call the police, but Dawn walks off with the laptop anyway. Does that justify recovery of the forensic expert’s fees?

And finally, consider Scenario D: In addition to Scenario C, suppose the forensic expert conducts an extensive investigation and discovers that Dawn copied numerous confidential Paula Payne Windows files to a USB drive the night before she got fired. The expert’s fees for the investigation alone are about $22,000.

Assume the jury finds that Dawn Davis breached her employment agreement and finds actual damages of $22,000 based on the evidence of the expert’s fees. Should the court enter judgment awarding the $22,000?

And just to make it a little more interesting, suppose the jury also finds that Paula Payne Windows’ reasonable and necessary attorney’s fees through trial were $1.3 million. So if Paula Payne Windows gets the $22,000 in actual damages, it also gets the $1.3 million in attorney’s fees.

Under this last scenario, the answer is yes. Paula Payne Windows gets the $22,000 in expert fees as actual damages, plus a cool $1.3 million for the legal fees.

At least that’s what Dallas Court of Appeals said in a case with similar facts, Sandberg v. STMicroelectronics, Inc., 600 S.W.3d 511 (Tex. App.—Dallas 2020, pet. filed).

The Sandberg case

ST was a semiconductor company, not a windows company, and Sandberg, the employee, was a tax attorney and CPA. He signed an agreement that required him to promptly deliver all ST documents to ST on termination of employment. Id. at 519.

Sandberg became concerned that ST was cooking the books. He reported his concerns to ST’s management, telling them he would not sign tax returns and other documents he suspected contained incorrect numbers. ST’s HR manager, Quill, then met with Sandberg and told him to clear out. Id.

So far Sandberg sounds like a straight shooter he got canned because he wouldn’t vouch for fraudulent financials, right?

But then Sandberg made a series of unfortunate decisions.

During the meeting, Quill specifically told Sandberg he needed to return ST’s laptop without copying any files from it. But shortly after that meeting, Sandberg began downloading emails and other files onto three thumb drives. Id.

(Caveat: I’m just taking the facts stated in the opinion at face value. Who knows what actually happened.)

When Quill came back to conduct an exit interview, Sandberg handed over his security badge, keys, and company cell phone, but he refused to return the laptop. Quill threatened to call the cops, but Sandberg held firm and walked out of the building with the laptop. Id.

Quill then sent Sandberg an email telling him you’d better (1) return the computer by noon the next day, (2) not copy any files, and (3) certify that you have not copied any computer files. Id.

Sandberg did not comply. Instead, he copied more files from the computer to a thumb drive. Id. at 519-20.

When Sandberg did not return the computer, ST emailed him that he was terminated for cause and sued him. Sandberg eventually dropped off the laptop with ST’s receptionist four days after his termination, but without telling ST he had copied files and without providing the requested certification. Id. at 520.

The same day Sandberg returned the laptop, ST hired an expert to conduct a forensic examination of the computer to determine whether Sandberg had copied any files after his termination. The expert found that Sandberg had copied files to the three thumb drives. Id. 520.

This is starting to look worse for Sandberg, right? But wait, there’s more.

ST demanded that Sandberg turn over any files he had copied, but Sandberg did not turn over the thumb drives to ST until after the trial court ordered him to do so. The forensic expert then found that Sandberg had used some other computer to copy files, and that files had been deleted from one of the thumb drives. Id.

This looks pretty bad for Sandberg.

But ST’s trial counsel apparently had one major problem: damages. It does not appear that there was any evidence of actual damages other than the expert fees for the forensic examination.

That sounds like a case that should have settled, right?

Apparently not. ST claimed breach of contract and misappropriation of trade secrets, seeking as actual damages the fees it paid the expert for the forensic investigation, plus attorney’s fees, and the case went to trial.

(Remember the part about refusing to cook the books? Well, Sandberg asserted what we call a Sabine Pilot claim in Texas, but Texas courts have made it all but impossible to prevail on such a claim, and the court dismissed the claim, so I’m setting that aside.)

The jury found that yes, Sandberg breached the contract but no, he did not misappropriate trade secrets. The jury found actual damages for the breach of contract of $22,034.46 and attorney’s fees through trial of $1,346,658.79.

Look, I’m no math genius, but that’s an attorney’s fee award that is 61 times the amount of actual damages. More about that later.

The attorney’s fees were how much?

One of the issues on appeal was whether ST could recover the expert fees as actual damages. Sandberg cited the general rule that costs of experts and other expenses in preparation for trial are not recoverable. But ST argued that in this case, it could recover the expert fees not as litigation expenses, but as actual damages caused by Sandberg’s breach of contract.

The Court of Appeals agreed with ST and said the evidence of Sandberg’s conduct was sufficient to support the jury’s finding of actual damages. “The jury could find that, when Sandberg returned the computer four days later without certifying that he had not copied any files, ST had to have the computer examined to determine whether Sandberg had copied any files.” In other words, there was sufficient evidence that the forensic examination fees were the “natural, probable, and foreseeable consequence” of Sandberg keeping the computer and not returning it until four days later. Id. at 528.

Specifically, “[t]he jury could conclude that Sandberg’s taking the laptop computer with its confidential information home with him after he was terminated and not returning it for four days created a need for ST to know whether Sandberg had compromised the confidentiality of its data by copying it.” Id. at 529.

Thus, the Court of Appeals rejected Sandberg’s argument and affirmed the award of expert fees.

Oh, and Sandberg’s argument that awarding attorney’s fees of 61 times the actual damages was excessive and unreasonable? The Court of Appeals rejected that argument too. It said the relationship between the amount of attorney’s fees and the amount recovered is just one factor in assessing the reasonableness of the fees, and Sandberg failed to address the other factors.

Ouch.

Why the Sandberg opinion is scary for employees

I’ll be honest, this is a scary opinion, especially for a lawyer like me who often represents employees who are sued by their former employers for alleged violations of their employment agreements and misappropriation of trade secrets.

A lot of times the employee makes bad decisions about copying company files and returning company documents and devices. Sometimes these decisions are part of a deliberate scheme, other times they are totally innocent, and sometimes they are somewhere in between.

But regardless of the motive, it is a common scenario that the employee’s failure to comply with the employment agreement to the letter does not cause the employer any actual damages. “No harm, no foul,” is a common refrain when you represent employees in these cases.

As it should be. Contract law doesn’t care about the employer’s feelings. The purpose of contract damages in these cases is to compensate the employer for any cold hard financial harm caused by the breach, not to punish the employee for breaking the agreement.

The employer’s ability to recover forensic expert fees as actual damages shifts the balance of power significantly. Now, even a technical breach of the employee’s agreement could open up the employee to a claim for actual damages.

And a claim for actual damages for breaching the contract provides a basis for recovering attorney’s fees which, as we see in the Sandberg case, can easily reach a sum that is financially ruinous for most employees.

This is a problem.

On the other hand, maybe we don’t need to worry too much. The Sandberg case had some pretty egregious facts:

  • The HR manager specifically told the employee to return his laptop without copying any files from it.
  • After getting fired, the employee downloaded multiple company files from his computer to thumb drives.
  • The employee refused to return the laptop and left the building with it, even when the HR manager threated to call the police.
  • The employee failed to comply with the HR manager’s email demanding the laptop be returned the next day.
  • The employee copied more files from the computer to a thumb drive after bringing it home.
  • The employee failed to return the laptop for four days, without any reason.
  • The employee did not provide the requested certification that he had not copied any files.

There’s no way to know which of these facts were essential to upholding the award of expert fees as damages, but take away some of these facts, and the result could change.

Suppose the delay in returning the laptop was only one day. Would that justify sticking the employee with the entire cost of a forensic examination? Maybe not.

Suppose Sandberg immediately lawyered up, and there was some legitimate wrangling between the lawyers over a protocol for returning the laptop and preserving evidence, causing a delay of a week. Would that excuse the failure to return the laptop immediately? 

Or suppose the employee’s lawyer got the HR manager to admit under cross examination that the company would have hired the expert to do the forensic exam regardless of when the laptop was returned—a likely scenario in most cases. That would suggest a lack of causation between the delay in returning the laptop and the company incurring the expert fees.

Finally, there’s an odd fact about the Sandberg case that I’ve left out. Remember the opinion said Sandberg was a tax lawyer? Well, I looked him up and the curious thing is, he’s not just a tax lawyer. He’s also Board Certified in Civil Appellate Law.

That’s right, the employee defendant in Sandberg is a bona fide appellate lawyer. Wait until #AppellateTwitter hears about this.

And guess who represented Sandberg in his appeal to the Dallas Court of Appeals?

That’s right, Sandberg.

It appears the final exam in appellate law may have left out a key question: is it a good idea to represent yourself?

_______________________

Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

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.

Lawyer Lessons from Fly Fishing

Lawyer Lessons from Fly Fishing

This is an edited transcript of my interview with appellate lawyer Kendyl Hanks about lessons for lawyers (and others) from fly fishing. You can watch the video of the interview here.

Z: I’m Zach Wolfe. I’m here with Kendyl Hanks. Kendyl, welcome.

K: Thank you for having me.

Z: Thanks for joining us on the show. So, a lot of viewers probably already know Kendyl Hanks, the outstanding appellate practitioner in Texas, greenhouse gardener, dog lover, and all those good things. But you are also a fly-fisher.

K: I am. Yeah.

Z: We’re going to talk a little bit about fly fishing today and maybe how it applies to practicing law or maybe other things, but first, let me give you a chance to introduce yourself and talk a little bit about your law practice.

K: Sure. Thank you so much for having me. I’m a huge fan of your blog Five Minute Law. It’s always a good place to start, particularly like employment stuff, I’m always checking out your blog. I’m a shareholder with Greenberg Traurig in Austin. I have practiced in Texas and New York for the last about, I guess this year will be 20 years. I can’t believe it. Oh, I really can’t believe it. And I have had the good fortune to have an appellate practice, most times it’s in Texas, but I have cases throughout the country for some clients. We do a lot of test cases where we’re creating precedent, a lot of big cases, big verdicts, big judgments, things like that. And I was the daughter of a litigator and I love litigating, but I’m a huge fan of the appellate side. So one of my favorite things is to work with really talented trial lawyers, who I think live by the first principle of appellate law, which is the best strategy for winning an appeal is to win the trial. So, that’s a summary of my practice.

Z: I think that’s probably far too modest, and I know that because I experienced this firsthand. I remember one time I emailed you about this really interesting Texas Supreme Court case that came out, and then you emailed me back and you were like, yeah, that was my case.

K: Sorry.

Z: I should have known. But anyway, my favorite saying about trial versus appellate is “trial lawyers drive for show, and appellate lawyers putt for dough.”

K: [Laughing] I like that.

Z: But that’s golf. We’re going to talk about fly fishing now. But before I do that, you’re very popular on Twitter, and I thought, I’d go look at your Twitter profile.

K: Oh, gosh. Have I looked at that recently?

Z: It’s got three things. It’s got #AppellateTwitter, @LadyLawyerDiary, and #FlyFishing. So before we get to the fly fishing, what is #AppellateTwitter for people who don’t know?

K: I’m not a huge fan of social media, surprisingly. I’m not on Facebook. I actually found #AppellateTwitter because I was doing a program in Washington D.C. on recent developments in the U.S. Supreme court with some really wonderful panelists. A reporter from Bloomberg was live tweeting the program, and one of my colleagues said, they live tweeted your program. Now I gotta get on Twitter. So I got on Twitter and I think in the, in the description he had tagged #AppellateTwitter. I was like, oh my gosh, there’s this thing, appellate Twitter, this is amazing.

And, as I know you know, the Texas appellate community is very robust and close-knit community. We all sort of know each other and send each other business. And I saw a lot of those people on Twitter, which was sort of fun and a surprise. And we started talking about big cases, and trends in different courts, and fonts and spacing and footnotes and Oxford commas. I was like, I have found my people. So, appellate Twitter is just a wonderful community of people who sort of nerd out about law and support each other and send each other referrals. It’s a really great community, and I feel very lucky to have found it.

Z: Yeah, same here. And if anybody is not active on appellate Twitter, and you’re interested, go check it out for sure. Now how about this account called @LadyLawyerDiary?

K: Lady Lawyer Diary is an account that grew out of a hashtag, #LadyLawyerDiaries, which was basically a bunch of women who were connected through #AppellateTwitter. So it’s a lot of appellate lawyers, some professors, some in-house, a lot of law firm litigators, and we were talking about not so much appellate issues, although that’s kind of how we connected, it arose in the context of the #MeToo developments, Kozinski, and some of the other issues that were playing out a couple of years ago, and still playing out of course. The hashtag was taking off, and one of the things that we noticed, women in particular felt more comfortable talking about issues when they didn’t necessarily have to do so under their own name, for obvious reasons. There are a lot of fraught issues when it comes to sexual harassment, the pay gap, the lack of diversity, you know, traditionally, and it’s always been a challenge in the legal profession and in the courts.

So we, the group of us, not just me, a group of about a dozen or so of us started the handle as a forum. And we curate that forum, to start conversations, to facilitate discussions. We will post things for people who want to post anonymously. We do things behind the scenes that may not even reach social media, if it’s something particularly sensitive. And one of our co-founders testified before the Senate Judiciary Committee about reforms of the judiciary for reporting with respect to sexual harassment and things of that nature.

So we talk about diversity, inclusion, issues that affect women in the profession, and we try to do our best to promote women’s successes. Women, sometimes we can be really bad about tooting our own horn. And so we try to create a forum where we really encourage that. Like, if you’ve got a big success, a big promotion, and it’s something that’s not privileged, you can talk about it. We want to hear about it. And, and so we’d like to signal boost, things like that.

Z: Well . . . Kendyl, actually . . .

K: Actually . . . Tell me all about it, Zach, I want to hear all about it.

Be sure to follow!

Z: No. Okay. All right. Let’s get to the fly fishing this past summer, you published an article in the ABA Litigation journal called Fly Fishing Lessons. And it’s a great article. Everybody should go read it in addition to watching our fabulous interview, but I’m curious, what kind of feedback have you gotten about the article?

K: It’s been interesting. I’ve gotten a lot of emails from people, some who I’ve known before, and some I’d never met before, who read it and who were either anglers and they were like, wow, I’ve never made this connection, and you’re so right. Or people who are not anglers, but they’re litigators or appellate lawyers and they’re like, wow, now I want to go fishing, which I think is fantastic.

So, great feedback. I mean, we’ve all written a lot of articles and spoken on legal developments and big cases, and this is very different. This is a very personal, almost a thought exercise in some ways about how something that I’m really passionate about in my personal life, I’ve learned has a lot of lessons for my professional life, and I didn’t even really necessarily make that connection until I got deeply into this article, and I was thought, that’s something I do in my career that is also something that is great in fly fishing, or something I don’t do professionally that I really should be doing more of.

Z: Yeah. Well, we’re going to dig into that, but let me start with the most basic question, and I’ll confess, I don’t really fish.

K: That’s ok.

Z: What is fly fishing?

K: So fly fishing, there’s different kinds of fishing, right? I mean, if you there’s commercial fishing with nets, right? There’s spin cast fishing, which is you toss out a heavy lure and then you reel it back in and then you toss it back out. And a lot of spin casting, you might use a fake lure, or you might use a worm, for example, you know, your traditional sitting by the pond with a worm on a hook.

Fly fishing is a different setup. It is a rod that uses the weight of the line to push an artificial fly out onto either the surface of the water or to a spot where you can pull it down through the water. And the idea is that it mimics the food source of the fish, usually the food source. Sometimes if it’s salmon fishing, for example, you might not want necessarily a food source. You might just want to make the fish angry and territorial, so something really flashy and obnoxious. But usually fly fishing is known for trying to mimic the food source of what a trout or something else you might be fishing for is going to go for.

And so there’s a little bit more strategy for it. You’re not actually throwing the worm in the water. You’re trying to recreate a creature on or in the water that is so enticing to the fish that they want to come up and catch it. So it’s not so much tossing something into the water as it is learning how to control the line in the air and how to get this itsy bitsy tiny little thing, you know, 30 feet out into moving water.

Z: Sounds challenging. I can sense the connection to appellate law, but tell me, what’s your earliest memory of fly fishing?

K: My mother’s family is from Idaho, and she grew up fly fishing. Maybe I was nine or ten. Certainly before 12 or 13. When I was about 13, we took a pack trip, like an 11-day pack trip with mules and everything in Yellowstone. So it was before that. Copper Basin is this beautiful basin in Idaho. They have gorgeous streams full of trout and otters and all sorts of wildlife. And I was young enough that I still had a spin rod, and we would put salmon eggs on the spin rod, which is like Ambrosia for trout. So, if you’ve got fish in a river and you want to catch a whole bunch of trout, and this is one of these trips. It was long enough that , we had trout for breakfast, trout with eggs, then we had trout for dinner. So we were literally eating what we were catching.

And so I just got a little bored and my dad was fly fishing. It looked really cool. And I mean, I was catching tons of fish, but this fly fishing thing was really intriguing to me. And so I tried it out. I was terrible at it. I was like 10 and hardly had the coordination. But I sort of got hooked on it after that.

And then, by the time we took our Yellowstone trip, a year or two later—I think I posted this picture on Twitter once—I think my parents were worried about me getting lost in the forest. And so I was dressed in like head to toe bright yellow, right? I mean, I literally looked like a banana walking around Yellowstone park, but this is where I learned how to fly fish, up in Yellowstone, which now as an adult, I know is some of the most pristine and spectacular fly fishing in the world, which I couldn’t have appreciated as a child.

So those are my first memories, getting bored with regular fishing, with bait casting, with bait fishing and saying, you know, I really want to try that, even if I’m not good at it yet.

Z: I see. So you’ve been doing this a long time. Now in the article, you talked about issue spotting, which lawyers are familiar with. So tell us, how does issue spotting apply to fly fishing?

K:  I think one of the challenges in appellate law is there may be 20 things that you think the trial court did wrong. This was clearly a bad decision. The question is what are the issues that are going to make the difference in the case? What are the points of error, the issues on appeal, you can narrow this down to that are going to get the court of appeals’ attention, persuade them that you are right, and reach the result that you want, which is to win. Whether, you know, to reverse, if you’re the appellant, or affirm, if you’re the appellee.

In fishing, I think it’s easy to want to just sort of throw anything out there. It’s like, they want salmon eggs, right? Fly fishing is maybe not for you. You really have to understand your audience. What are you fishing for? Are you fishing for brown trout fishing for rainbows? Brookies? Are you saltwater fishing? Are you fishing for striped bass, what is the water like? What are the aquatic insects like? What is the air like? I mean, you need to understand the environment in which fish are making their choices and you need to understand why fish make their choices, right? So trout care about three things—food, shelter, and sex—and depending on what they’re doing at a particular moment, they’re going to care about different things. And that drives your choices in terms of what flies you might pick.

Choosing a particular kind of fly: Is it a wet fly that goes under the surface? Is it a dry fly that sits on top? Is it a big, huge, obnoxious fly? Is it a teeny tiny—I’ve got some here that are like, you can barely see, that’ll catch enormous fish, even though they’re super tiny.

The process that goes into choosing the right kind of fly for a particular environment and a particular audience, a particular kind of fish on a particular day on a particular river is very much to me, feels like the same process that goes into picking the right issues for an appeal, especially in a high court. So, when you’ve got discretionary review at the Texas Supreme Court, they’re not necessarily going to care about a court of appeals or trial court having done something that should have been different. They’re going to care about the important stuff, the things that are going to set precedent that matters in the state. So for me, it’s not so much translatable in a template way, it’s translatable in a process way, if that makes sense.

Z: Oh, I absolutely see the connection. Just like you might have your favorite flies that you like to fish with, you’ve got your favorite issues, but those may not be the issues that your court of appeals cares about.

K: Exactly. I’ve had plenty of days on rivers where there are some flies that are my favorite flies. I love these flies. They’re pretty, they’re cool. They’re easy to tie on. I know how they go in the air. I know how to get them on the water. But if it’s not what the fish wants, it is going to be pointless. There have been different kinds of flies and kinds of fishing that I’ve had to learn in order to be successful on different kinds of rivers and in different kinds of environments, because the stuff I’m used to and I get excited about isn’t necessarily what the fish gets excited about.

Z: In the article you also talked about the importance of assembling your own fly-fishing outfit. So one, what is the outfit, and two, why is it important to assemble it yourself?

K: When we say outfit, usually what we’re talking about is the rod and the gear-up that we’re putting together. Although there’s plenty of great fly-fishing outfits in terms of, I have my stuff that I go out in, all of which has tons of pockets, which is something that is woefully lacking generally in women’s wear. A lot of people, the first time they learn, there’s a lot that goes into actually putting a rod and a reel and a line and a fly together before you can get on the river. And you’re not going to have those skills the first time you’re introduced to it. So someone is going to show you how to do that. But a lot of people, they may go fishing four or five times in their life, like on a trip with some folks or whatever, and somebody will just hand them a rod that’s already set up right. And say, okay, go out on the river, cast it around, see if you can catch some fish.

I think there is great value in putting that setup, that outfit together yourself. Getting the line on the rod, learning the knots and to tie the line—the line is the weighted part—and you take the line and you attach it to a leader, and then you take a leader and you attach it to tippit, and understanding what those pieces are.

It is very similar to when I was a younger associate, before everything was electronically filed, we’ll walk down to the Dallas courthouse, meet the clerk, see what it is that they do with the document, have a conversation with people. And putting different pieces of a brief together and understanding their role in a brief. An introduction is different from a summary of argument, is different from a statement of facts, is different from a statement of jurisdiction. They have different purposes. They have different consequences if you don’t get it right. So putting together sort of your outfit when you’re getting ready to go fishing helps educate you a lot on how it all works, how it all comes together.

This is so nerdy, by the way, like I’m listening to myself talk and I’m thinking, oh man, I’m going to get so much hell for this.

Z: Yeah, but it’s nerdy in a good way.

K: I hope so. It is very nerdy.

Z: You mentioned pockets, let’s see the vest.

K: Oh, okay. So this is my, I have a bunch of vests because I share them with people when I take them out, but this is my personal vest, that I’ve had for gosh, 20 years maybe. So, as you notice, tons and tons of pockets, pockets everywhere, it’s lined with pockets literally, and it actually has a creel on the back, so if I wanted to keep a fish—I don’t, I do catch and release all the time now—but you can actually stick a fish in the back of your vest.

Z: I could wear one of those to court, and like you’d stick highlighters and flags in it.

K: Right. Everything’s right here, got these little grabber things that, you know, it’s wonderful. I love it.

Z: And you want to show us your hat as well?

K: Oh, my hat. So this is one of the things that I was thinking when I wrote about diversity and inclusion in the article, and it’s something, obviously I care a lot about with @LadyLawyerDiaries. There’s not a lot of gear out there for women. So it’s sort of like when Sarah Weddington argued Roe vs. Wade at the U.S. Supreme Court, there were no women’s bathrooms. She had to go to a totally different floor to find a women’s bathroom. The fly-fishing industry is sort of the same, it’s really geared toward men. And so we’re constantly having to adapt to men’s gear, like men’s shoe sizes and vests and waders. And one of the things recently is that some shops are realizing there are a lot of women out there who like to fly fish. And one of my favorite fly shops is the Taos fly shop in New Mexico. And they did this hat, it’s “fish like a girl”

Z: I like it. Nice.

K: It is utilitarian as well, because it’s, you know, you’re out in the sun, you’re out in the water and you can easily get badly burned up in the mountains. But being a woman and fly fishing, particularly when I was growing up, when I was younger and took a year off from college to go fishing, basically, there just weren’t a lot of women who were out there all the time like I was. That’s starting to change, but not fast enough for me.

Z: Yeah, and in the article, you talked about “fishermansplaining.”

K: It’s like mansplaining. Right.

Z: That sounds pretty self-explanatory.

K: So there’s actually a story about that, that I did not put in the article, but when I was about 14, we were on a raft trip in the middle fork of the Salmon River. You stand up on the bow of the boat, moving through rapids and you’re casting from side to side to side to side. And there was a guy, it was a big group trip, probably about 20 people, or so, and there was this guy who came over and he’s like, wow, you really should be doing it this way and that way and this way.

And he takes my rod away and he starts casting and he grabbed himself right here in the lip, like with the hook. And I thought to myself, I just don’t need men to explain to me how to do it. I will do it the way I want to do it.

So “fishermansplaining” is just one of those things where everyone has their own way of doing it, their own way of learning. There are some truisms about the physics of how a line works, but a lot of it’s about personal style. And, I love learning and from accomplished anglers, but it’s like someone who comes in and edits, not the substance of your brief, but the style. They want to change all of your em-dashes to commas and semi-colons and stuff like that. That’s like, you know, don’t tell me how to cast to my fish. If I ask, you can tell me, but it’s the same in mansplaining, right? Like if I don’t ask for your advice, I actually don’t need it.

Z: Yeah, the catching the hook on the lip kind of makes me think of, it’s like a lawyer being in court and the judge says, what’s the standard of review, and you say “the usual one.”

K: Oh yes. The usual one. What? No, is it regular? Is it strict scrutiny? No, it’s the regular one, or something like that.

You have to learn the fundamentals before becoming a master

Z: The regular one, right. Now, another parallel between the fly fishing and practicing law is you said something about needing to master the basics before you get creative. What did you mean by that?

K: So, like I mentioned, the physics of a line, so this is unlike spin casting, where you have something that’s weighted at the end. So you’re literally tossing the weighted thing into the water. And that pulls the line out. Fly fishing, it’s this very long line. You have to manage that line in the air in order to propel a virtually weightless thing dozens of feet away.

There are certain basic skills that you need to learn about how that works, like riding a bike, right? You need to learn how the pedals work. You need to learn how forward motion goes, how to stop. Same thing in fly fishing, but once you get the basic rhythms down, then it’s a lot more nuanced about what works for your body style, for your height, for your arm length, all of that stuff.

And getting creative, there are a lot of different ways of casting and a lot of different ways of keeping the line in the air, of laying it down on the water, and people have sort of different ways they adapt to their own form. And that’s the creative part. So it’s like art, right, in many ways.  You need to learn the basics of art before you can turn into a Picasso. I mean, not that I’m comparing myself to Picasso, but you know what I mean. Like you hear sometimes people say, oh, abstract art, like any 10-year-old could do that. Well, I mean, a lot of those masters they weren’t making abstract art as young artists. They were learning the fundamentals of art, and the medium, and the canvas, and all of that, before they started getting creative, if that makes sense.

Z: Yeah, and how would you apply that in an appellate practice?

K: You need to understand the court rules. You need to have a good, fundamental writing skill set. And I think a lot of us have voices as lawyers. I can read a brief and be like, I definitely wrote that brief. And I think a lot of people are like that. That was not necessarily the case when I was a younger lawyer, not just in things that were filed, obviously, which went through partners and things, but when I drafted them, I was so focused on just getting the argument, the law, the points, all of that out. I think as you grow as a lawyer, you sort of find your way of persuading that works with your voice, and that authenticity that’s specific to you in some ways, without making it about you. I think part of persuasion is finding a voice that is not just persuasive because it’s right, or it has a really good argument, but because it’s conveyed in a way that is persuasive to this particular audience, and compelling.

And fly fishing is like that. You can get the fundamentals down, like anybody can toss a line in the water and sometimes catch a fish, even if they have no idea what they’re doing, which is wonderful. I think beginner’s luck is a big thing in fly fishing, just like it is in litigation. But it’s not that one lucky hit, that fish that you managed to land, or that big case that you managed to win. It’s the consistency. It’s developing your practice and your voice and your skill sets so that you know your patterns, you know what battles to pick. Do those corollaries make sense?

Z: It makes a lot of sense. You could have the most creative legal argument in your case, but if you don’t understand the deadlines in the rules of civil procedure.

K: Yeah. I mean, if you just pop out into a local river and start taking fish home, you’re liable to get in a lot of trouble with the local fish and game. I mean, you need a license, there are limits to what kind of bait you can or can’t use, lures, there are regulations about barbless hooks. Flies that you buy have barbs on them, which make it harder for the fish to get off of them. And a lot of rivers that I fish require barbless. And if you don’t know any of that stuff, not only are you not operating correctly in the environment, you can actually get into trouble for it. So mastering the fundamentals is also about understanding the culture in which you’re working, and the rules that govern that culture, and being able to identify the most likely avenues for success.

Z: Can you cite unpublished cases in fly fishing?

K: Well, if fish tales count, then yes.

Z: Yes!

K: Although now nobody has an excuse anymore, because everybody’s got their phones and can take pictures. When I was growing up, 95% of the fish I caught, no one else ever saw them because I didn’t really walk around with a big camera. Maybe a guide took a picture, but everybody was like, I caught this 29-inch brook trout, which is not true, nobody is catching a 29-inch brook trout, you know what I mean? [I just fact-checked myself and indeed found an article pictures of the angler who caught a world-record 29-inch brook trout! So anything is possible.] Now we’ve got little phones. I can pull them out and take pictures. So yeah, everything gets published now, even if it’s technically unpublished.

Z: Right. It’s probably not as fun. Now in the article, you have a quote from Jeena Cho, and it says, “we know that when you’re in a stressed or fight or flight state, you are unable to access higher cognitive functions such as imagination.” What do you take away from that?

K: Well, first of all, Jeena is amazing. You know, she wrote the book Anxious Lawyer, and she writes a lot about mindfulness, mental health, and the legal profession. She’s just amazing, I love her. So I encourage anybody to look her up and read her stuff. What I take away from that is we, our chosen career is a very stressful one. Whether it’s family law, or criminal law, or business litigation with companies and employees and a lot of money on the line, it’s a lot of stress, a lot of pressure. Someone else is putting their future in some respect in our hands. And it’s a lot of stress. It’s not a coincidence that the legal profession has the highest incidents of substance abuse, depression, and suicide.

It takes a real toll. And I think that when you’re living in that constant stress place, it’s difficult to really sort of stretch your wings and get more creative about your practice. And so, Jeena’s talking about  mindfulness, and how important mindfulness is to take us out of that fight or flight sort of mindset, to give ourselves the space to be thinking in a much bigger and creative way, instead of like, Oh my God, I must win, here are the reasons why: X, Y, and Z. Trying to pull ourselves out of that and saying, okay, let’s think about this case big picture. It’s not just about whether, you know, who wins this particular case. It’s about where the law has been, where it’s going, what it’s going to mean for different industries.

Employing that sort of mindfulness to the process makes us better lawyers. I think it makes us more persuasive. I think it allows us to communicate to the court why a particular case is important and why their decision is important and why they should agree with us, of course. But it also, I think, makes our practice more enjoyable and more sustainable long-term. Because if you’re practicing out of a constant sense of fear of failure—what if I don’t get promoted, or what if I don’t make partner, or what if I don’t make this kind of money, and what if I lose my job—if those are the decisions, those are the fears that are driving our decision making, that’s a really hard way to live. And I’ve lived that way plenty, don’t get me wrong. I’ve learned the hard way that that’s not a good way to live. And so I try to be much more deliberate and sort of, you know, coaxing that mindfulness state out of my process in a way that I wasn’t as good at when I was younger.

Mindfulness. Good for fishing. And lawyering (?)

Z: What you just said is something that also comes across at the end of your fly-fishing article. And that was the thing that kind of caught me by surprise. You know, I could kind of guess some of the other parallels, but when you made that turn, that’s what really caught my attention. And especially this statement where you said “fly fishing teaches that embracing the process without judgment is plenty effective in achieving results.”

K: It’s so counterintuitive. We are so focused on quantifiable results and chalking up wins, and don’t get me wrong, those things are important. I have clients. Wins are important to them. You know, I’m a partner in a law firm. Those things are very important. But when those are the driving impulse, when we are so focused on results-oriented achievement, we lose the importance of the process that’s supposed to get us there. And I think that one of the things that fly fishing has really taught me is that if you invest in the process, the moments between the beginning and the end, and you engage in those moments in a meaningful way, you are inherently perpetuating positive results.  hey may not necessarily be the ultimate perfect result that you want, but you’re perpetuating good positive results for yourself, for your client, for your firm, for the legal system. And I think that when people get tunnel vision focused on one specific thing that must be, and anything else is failure, you’re just setting yourself up for that. Because that’s not the way our system is set up, and that’s not the way fly fishing works.

Z: Yeah. That was my number one takeaway from the article.

K: Was it? That’s interesting.

Z: I mean, just the idea, it’s somewhat counterintuitive, but when you’re not worrying as much about the results, but just enjoying what you’re doing, you actually tend to get better results.

K: Yeah. Enjoying what you’re doing and also just being mindful of what you’re doing, even when you may not really love it. There’s certainly, you know, briefs that I’ve written where I was like, I really, this is not my favorite part of the brief, I really don’t want to work on it. But being mindful of that particular piece of the brief, why it matters, what it advances, how it fits into the bigger picture, that investment in the process and enjoying that process, I think really yields results that are good.

Z: Agreed. Now, before we finish up, I do want to mention Project Healing Waters. Tell us a little bit about that.

K: Of course. Project Healing Waters is a national nonprofit that operates throughout the country, that serves men and women in military service in our armed services and veterans who have suffered physical injury or invisible injuries. We work with a lot of service people and veterans who have PTSD or depression, very serious physical injuries, brain injuries, things of that nature. And one of the really amazing things about fly fishing—and this is supported by scientific studies—is that the process of fly fishing, the physical movements, tying flies like that very detailed, small work with your hands, focused attention, it’s amazing for rehabilitation. And so Project Healing Waters operates throughout the country. We have programs for our participants, teaching them how to tie flies, to build their own rods, to fish, and then we even take them out fly fishing places.

We have a place up in Montana called Freedom Ranch where we will bring veterans. They stay in the lodge and they fly fish right there on the water. I personally did not serve, but most of the men in my family have served in the U.S. military. It’s something that I love doing, and fly fishing has been a wonderful thing for my own mental health. When I was struggling with depression, fly fishing was something that really sort of pulled me out of that a bit. And I love being able to share that with people. And so it’s just a way of giving back and it’s a wonderful organization. I would love for people to check it out. We have great fundraisers. We have trips that we sell at these fundraisers and fly rods and all sorts of stuff. So, check it out.

Z: Great. So, we’re doing this interview in February 2021. We’ve all been on some form of quarantine for almost a year, most of us. So I’m guessing that has kind of put a damper on the fly fishing.

K: I have not been fly fishing in over a year, and it’s driving me crazy. I am trying to plan, I don’t have a scheduled vaccination yet, so I don’t know, but, I’m going to try and assume that that happens by the summer. And I’m definitely gonna get a couple of trips in, I’m going to try to do one in the Rockies somewhere, probably Southern Colorado or somewhere in New Mexico where I have family, and then probably something on the coast, either the coast of Texas has some really great flats fishing or, maybe in Florida, I have some pals out in Florida. Maybe we’ll go out to the keys and do some bone fishing or something like that.

Z: That sounds great. Now, when you eventually get to go on one of these trips, does your dog, Molly, get to come with you?

K: Yeah. Oh, do you want to see Molly? Come here.

Z: Oh yeah.

K: Oh, good girl. She’s tired. She was napping. Here’s Molly.

Z: Sleeping on the job.

K: No, she does not. She gets bored. And we’re sort of out in relatively remote places. There’s coyotes and eagles, and Molly is of the size that an eagle could pick her right up. And I’ve actually been with her out in New Mexico, like on a walk, and a coyote came right in between me and her. She was about 15 feet in front of me and had I not pitched an absolute fit . . . So yeah, she’s not much of a fishing dog. You kind of need to have a bigger dog to survive the perils of that kind of wilderness.

Z: Makes sense. Well, Kendyl, this has been great.

K: Are we done already? That went so fast.

Z: Well, is there anything you want to add?

K: It’s such a treat to talk to you. Obviously, it’s something that I’m really passionate about, and I love sharing it with people, and it’s a real treat to be invited. Thank you.

Z: You’re welcome. Yeah. I mean, like I said, I have no experience with fly fishing, but it’s really fun hearing you talk about it,

K: But we’re going to have to change that.

Z: Well, yeah, maybe I’ll learn. We’ll see. All right. Thanks, Kendyl. K: Thank you.

________

Kendyl T. Hanks is an appellate shareholder with the Austin office of Greenberg Traurig. She has earned some professional recognitions, but none has made her feel more alive than disappearing into the mountains, messing about in a river, and catching these fish (which were promptly released).

Zach 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 caught a trout, but Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

The Originality Requirement in Copyright Law

The Originality Requirement in Copyright Law

On April 9, 2021, Taylor Swift released the album Fearless (Taylor’s Version), her re-recording of her second album, originally released in 2008 when she was 18.

This was a big deal. I’m not really a huge Taylor Swift fan, but she’s undeniably talented, and my daughter was seven when the original Fearless album came out. So you do the math.

I also love the fact that the origin story of Fearless (Taylor’s Version) is found in the nuances of U.S. copyright law. If you want to understand why, check out this excellent lawsplainer thread from law school student “Mauv” on Twitter.

I can’t improve much on Mauv’s explanation, but it got me thinking about the originality requirement in copyright law, an issue I sometimes grapple with in my law practice. It’s a requirement that is easy to explain in theory, but often difficult to apply in practice, as we will see.

Copyright law protects original works of expression. We’re talking stuff like movies, artwork, sculpture, novels, musical compositions, poetry, and yes, recordings of pop songs.

This is not to be confused with trademark law, which protects source identifiers for goods or services—usually a word, short phrase, or logo. A trademark doesn’t have to be original or creative to function as a trademark; it just needs to create an association in consumer minds between a product or service and its source.

Copyright law, in contrast, is about protecting creativity. The copyright owner must create an original work of expression.

The originality requirement in copyright law

This doesn’t require any evaluation of artistic merit, which would be pretty subjective. And original doesn’t necessarily mean novel. As the U.S. Supreme Court held, the originality requirement “means only that the work was independently created by the author (as opposed to copied from other works), and that it possesses at least some minimal degree of creativity.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991).  

That’s a good thing for creators, because you could make a case that there’s nothing really new under the sun, especially in music. Did Beethoven invent the simple melody in Ode to Joy? Copland the folk melody featured in Appalachian Spring? Even the great Stevie Ray Vaughan borrowed plenty of blues guitar licks from Albert King.

You can always identify components of music taken from previous works. Most of the songs on Fearless, for example, use the same four chords as hundreds of other pop, rock, or country songs. And lyrically, Taylor wasn’t exactly breaking new ground: girl meets boy, boy lets down girl, girl grows up a little.

But you put those old musical cliches together in a new way, and that’s where the magic happens. There’s no question a Taylor Swift song meets the originality requirement.

At the other end of the spectrum, consider the old White Pages. It was basically just an alphabetical list of names and phone numbers. Sure, the author had to make some choices, like what typeface to use, how many columns, etc. But courts said we have to draw the line somewhere. So regardless of how much work may go into it, a utilitarian document like a phone book typically won’t meet the originality requirement.

A slightly harder case is a cookbook. The problem with claiming a copyright for a recipe is that you really can’t separate the idea of the recipe—the ingredients, quantities, how you prepare it—from the expression of that idea. And copyright law protects expression, not ideas.

So courts have said a recipe book will only receive copyright protection when it includes additional creative elements, like a story about how your grandmother used to bake these cookies when you were a child.

These are relatively easy cases. An original song is sufficiently creative, even if it uses elements from other songs. A list of phone numbers isn’t.

But there are other categories that fall somewhere in the middle. Take jewelry designs, for example.

The originality requirement applied to jewelry design

This has been an issue for a long time. In the Trifari case from 1955, the defendant claimed that the plaintiff’s article of lady’s costume jewelry was “devoid of originality” because many firms had previously made similar “cab” necklaces.

But the court rejected this argument, and in doing so stated a standard for originality of jewelry designs that applies to this day:

It is not the idea of the use of the cab which is the subject of the copyright but rather the author’s artistic expression which reflects a distinguishable variation from what had gone before. The copyrighted matter need not be strikingly unique or novel. All that is needed is that the author contribute more than a merely trivial variation, something recognizably his own

Trifari, Krussman & Fishel, Inc. v. Charel Co., 134 F. Supp. 551, 553 (S.D.N.Y. 1955).

So that takes care of the originality requirement for jewelry designs. We know the standard. All we have to do is apply it.

But of course, stating the standard is the easy part. Applying the standard is the hard part.

If you think it’s easy, take a look at these examples and, just for fun, make a list of the ones you think contain a sufficient spark of creativity to meet the originality requirement of copyright law.

How many did you get? The correct answer is five. Specifically, nos. 1, 2, 3, 5, and 8 are sufficiently creative. The other four are not.

If you’re saying yeah, well that’s just your opinion, man. Well, ok, but I have cites:

Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101 (2d Cir. 2001) (No. 1); Jane Envy, LLC v. Infinite Classic Inc., 2016 WL 797612 (W.D. Tex. Feb. 26, 2016 (Nos. 2, 4, and 6); Tacori Enterprises v. Beverly Jewelry Co. Ltd., 2008 WL 11338681 (C.D. Cal. Aug. 20, 2008) (No. 3);Van Cleef & Arpels Logistics, S.A. v. Landau Jewelry, 547 F. Supp. 2d 356 (S.D.N.Y. 2008) (No. 5); Protecting the Intellectual Property of Jewelry Designs (2018) (No. 7); Merit Diamond Corp. v. Frederick Goldman, Inc., 376 F. Supp. 2d 517 (S.D.N.Y. 2005) (No. 8); Todd v. Montana Silversmiths, Inc., 379 F.Supp.2d 1110 (D. Colo. 2005) (No. 9).

You cannot argue with the courts.

But seriously, of course these examples present close calls. Other judges could have easily ruled differently.

You might almost think that copyright law requires judges to draw lines that can seem arbitrary, but that this is an inherent problem, and perhaps one presented by every area of law.

And if you think these jewelry designs present close calls, wait until you consider copyright for distinctive logos.  

The originality requirement applied to logos

Logos are right at the border between copyright law and trademark law. Consider this well-known logo:

There’s no question this logo functions as a trademark. Just about anyone in the U.S. knows that logo means American Airlines. But is that “AA” logo creative enough to warrant copyright protection?

Probably not. According to the U.S. government, these are some examples of works not subject to copyright: “Words and short phrases such as names, titles, and slogans; familiar symbols or designs; mere variations of typographic ornamentation, lettering or coloring.” 37 C.F.R. § 202.1(a).

Still, some logos could be sufficiently creative to be more than “mere variations” of typographic, ornamentation, lettering, or coloring.

Here are some real-world logos for which companies sought copyright protection. If you’re scoring at home, make a list of which ones you think are original enough to warrant copyright protection:

How many are on your list? In this case, the correct answer is all of the above.

Surprised? Embarrassed you got it wrong?

Just shake it off.

_______________________

Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation (and sometimes copyright litigation) at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

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.

Wolfe’s Pattern Jury Charge for Texas Non-Compete Cases

Wolfe’s Pattern Jury Charge for Texas Non-Compete Cases

Predicting the cost of litigation

Litigators usually wince when clients ask how much a lawsuit is going to cost. It’s kind of like asking “how much will it cost to invade Iraq?” You can’t control what other people do, and you don’t know how long the project will drag on.

For this reason, I’m going to start telling clients “on average, a lawsuit will cost you $10,000 a month until you settle.”

I think this gets the point across better than hemming and hawing about how the total expense is hard to predict. Of course, the $10,000 is just a rule of thumb. You can probably double or triple that for some law firms (you know the kind of firms I’m talking about). But the point is that the cost is largely a function of when the case settles.

And the case will settle, you can tell clients. It will not go to trial.

Ok, that’s a little too strong. But the vast majority of cases will settle before going to trial. We’re talking over 90%. Probably 95%. Maybe even 99%.

You get the point.

Why non-compete cases don’t go to trial

Trials in non-compete lawsuits are even more unusual. There are several reasons for this.

First, in many non-compete lawsuits there is a temporary injunction hearing in the first month or so. The judge’s decision at that hearing will often lead to the case settling, especially if the judge orders that the employee can’t work for the competitor that just hired her.

Second, most cases take at least a year to get to trial. Two years is more likely. Most non-competes expire in one or two years. You do the math.

Third, and this is where it gets a little more esoteric, in most non-compete lawsuits the key issue is enforceability of the non-compete, and that issue is typically seen as a “question of law” (whatever that means). A trial is not required to decide a question of law.

Notice these reasons had a lot of “many,” “often,” “typical,” etc. That’s because of course I’m generalizing. There are plenty of exceptions.

But as a general rule of thumb, non-compete lawsuits just don’t go to trial.

What happens when non-compete cases go to trial?

Of course, non-compete cases sometimes go to trial.

I had one of these a few years back. Some of you might remember my post where I talked about asking the owner of the company what he thought a reasonable time period for the non-compete would be, and he said “when hell freezes over.” That might give you a little insight into why the case went to trial.

When that happens, what are the questions that will go to the jury?

In most non-compete cases, there will be some dispute about whether the non-compete is enforceable as written. This was the subject of my very first blog post, What a Litigator Looks For in the Typical Texas Non-Compete.

Sometimes there will also be a dispute about whether the employee violated the non-compete as written. This is especially true when the non-compete prohibits solicitation of customers or employees. “Solicit” is a word built for factual disputes, which is why my Plain-Language Non-Compete doesn’t rely solely on the word.

But in many cases, it will be undisputed that the employee violated the non-compete—at least a little—as written. In those cases, the two key questions are:

(1) is the non-compete enforceable as written?

(2) if yes, what is the amount of damages caused by the breach?

(If the non-compete is unenforceable as written, there will be no damages. See Tex Bus. & Com. Code § 15.51(c).)

The second question will typically go to the jury (assuming there is admissible evidence establishing an amount of damages), and the standard breach of contract damages question from the Texas Pattern Jury Charge is probably adequate in most cases.

The first question is trickier. Does enforceability go to the jury?

In many non-compete cases, one side—or sometimes both—will move for summary judgment on whether the non-compete is enforceable as written. If the court grants summary judgment that the non-compete is or is not enforceable, then the issue won’t go to the jury (unless the judge changes her mind).

But what if nobody moves for summary judgment on enforceability, or if the judge denies summary judgment on the issue?

In that case, I say you need to submit enforceability to the jury, but I will concede this is more art than science. If you need ideas you can use Wolfe’s Pattern Jury Charge for Texas Non-Compete Cases:

I will also concede that you may get a funny look from the judge when you ask for a jury question on enforceability of the non-compete. “Counsel, isn’t that a question of law?”

And there it is, the “question of law” question. Be aware, there are dozens of Texas cases that say enforceability of a non-compete is a question of law. But those cases are largely wrong, for reasons I explain in Blown Call: The Thing Texas Courts Get Wrong About Non-Competes.

So the short answer to the judge is “no.” But you’ll have to explain.

Scenarios for submitting enforceability to the jury

There are several different ways the issue can arise.

Let’s say you represent the employer who is trying to enforce the non-compete against a former at-will employee.

DANGER! DANGER!

You must be careful in this situation. You might intuitively think that the burden is on the employee to prove unenforceability as a defense to the claim for breach of the non-compete. WRONG!

Take a look at Section 15.50(b) of the Texas Business and Commerce Code. If the non-compete is tied to a “personal services” agreement, e.g. the typical at-will employment agreement, then the burden is on the employer to establish that the non-compete meets the criteria specified in Section 15.50, i.e. that that the non-compete is ancillary to an otherwise enforceable agreement and is reasonable.

I think my smarter appellate lawyer friends will confirm that if a party bears the burden of proof on an issue, and if there is conflicting evidence on that issue, then the party with the burden of proof must submit a question to the jury on the issue. If it doesn’t, it waives the issue.

Sure, you could take a chance, not ask for a question on the issue, and then argue post-verdict that the enforceability of the non-compete is a question of law. And the trial court judge might agree with you. But if there was any evidence during trial that the non-compete was unreasonable, the judge would be wrong. And you’ve just given the employee a good issue to appeal.

Now let’s suppose you represent the employee in this situation. You don’t have the burden of proof on enforceability, so you can just sit back and watch the employer waive the issue, right?

I wouldn’t recommend that. The problem is that many Texas judges will incorrectly think that enforceability of the non-compete is a question of law, even though the statute is quite clear that the employer has the burden of proof on the issue.

If you represent the employee and you ask for a question on reasonableness of the non-compete, you may get it. And you may have a better chance with the jury on reasonableness than you do with the judge.

On the other hand, if the judge denies your requested question on enforceability, you’ve just bought yourself an insurance policy—in the form of reversible error—if the verdict and judgment go against you—assuming there is conflicting evidence on the issue.

That last proviso is important. If you represent the employee, you must be sure to offer evidence concerning the reasonableness of the non-compete.

For example, if it’s a three-year non-compete, ask your client “would the company’s confidential information still have any value after two years?” In most cases the answer will be no. If the geographic area of the non-compete is the State of Texas, ask your client “did your actual sales territory cover the whole State of Texas?” Again, the answer is probably no.

These are just examples, but you get the idea.

The last thing you want to do is blow it at trial after your client has spent $10,000 a month (or more) to get there.

_______________________

Zach Wolfe (zwolfe@fleckman.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas “Super Lawyer”® for Business Litigation.

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.