A common situation in Texas trade secret litigation is that the plaintiff-owner of the alleged trade secrets objects to the defendant’s representative sitting in the courtroom because the rep will hear about trade secrets and use them against the owner. Does due process allow the judge to exclude the defendant’s rep from the courtroom?
In the recent M-I LLC case, the Texas Supreme Court held that the judge must hear evidence and conduct a balancing test to weigh the degree of competitive harm to the owner against the defendant’s need for assistance from the representative to defend itself. So, before holding an actual temporary injunction hearing, the judge first has to conduct a preliminary hearing—an “M-I” hearing—to decide who gets to attend the temporary injunction hearing.
The M-I hearing requirement raises important questions. First, how do you say it? Is it an “M One” hearing or an “M Eye” hearing? Second, and more important, how will an M-I hearing work in a typical trade secrets lawsuit?
Suppose Owner has filed suit against TSTC—Trade Secret Thief Corp.—alleging that it hired a former employee of Owner who transferred Owner’s double-super-secret “customerlist.xls” file to a USB drive on his last day of work. Owner schedules a hearing on a temporary injunction to block Employee from disclosing Owner’s customer list.
Thief Corp.’s lawyers show up for the hearing with Eliza Hamilton, Thief Corp.’s representative and “VP for Marketing,” who plans to listen to Owner’s witnesses and then rebut their testimony. Owner objects to Hamilton sitting in the courtroom on the ground that she will hear testimony about Owner’s trade secrets and will inevitably use such information against Owner.
What is the judge to do under M-I? Here is what we know:
- The judge must “determine the degree of competitive harm” Owner will suffer from dissemination of its alleged trade secrets to Hamilton.
- To make this determination, the court must consider the “relative value” of Owner’s alleged trade secrets and whether Hamilton acts as a “competitive decision-maker” for Thief Corp.
- The judge also needs to consider Hamilton’s role at Thief Corp., particularly whether, by virtue of that role, she has “specialized expertise that would not have been available to [Thief Corp.’s] outside experts.”
- Before deciding whether to exclude Hamilton from the courtroom, the judge needs to hear evidence on each of the issues above.
So, the judge first has to hear evidence—without the corporate rep present—on the relative value of the alleged trade secrets. This of course overlaps with one of the elements of whether the stolen file is a trade secret in the first place: “independent economic value.”
This means that to decide whether Hamilton gets to attend the temporary injunction hearing, where one of the issues will be whether the customer list has any significant value, the judge must first determine in the M-I hearing if the customer list has any significant value.
And who is the most likely witness for Thief Corp. regarding the value, or lack thereof, of the stolen customer list? You guessed it: Eliza Hamilton, who came to testify that the names and phone numbers of the customers are readily available through cutting-edge technology called The Internet.
So does the judge need to conduct a “pre”-M-I hearing to determine who gets to attend the M-I hearing? Maybe the judge should refer the parties to a preliminary mediation to see if they can reach a settlement on who is allowed to attend. More likely the judge will allow Hamilton to testify in the M-I hearing but require her to leave the courtroom during the other parts of the M-I hearing. Let’s call this “invoking the M-I rule.”
Hamilton will also need to testify about her role at Thief Corp.—is she a “competitive decision-maker”?—and whether she has “specialized expertise” not available to Thief Corp.’s outside experts. Of course, in the vast majority of temporary injunction hearings, the defendant won’t have any outside experts yet.
Talk about a balancing act. To maximize her chances of staying in the courtroom, perhaps Hamilton should say “I have important specialized expertise that I need to be able to share with our lawyers so they can properly defend against this temporary injunction, but I have no responsibility for making any important decisions at Thief Corp.”
The problem with this part of the M-I balancing test is obvious. The more expertise the corporate rep has, the more likely it is that she is a “competitive decision-maker.” If you are the lawyer representing the defendant in a trade secrets case, you will need to think strategically about who to bring to the temporary injunction hearing, knowing there is likely to be an M-I hearing first. If it will be important for you to have a technical expert at your side to explain things, consider whether your client has a lower-level employee with the necessary expertise, or whether you can quickly hire a suitable consulting expert.
By now it should be clear that M-I adds another layer of complexity to trade secrets litigation. And it should be obvious who the winners are when litigation gets more complicated. (Hint: billable hours.)
Does requiring the M-I hearing strike me as cumbersome, duplicative, and slightly out of touch with the practical reality of temporary injunction hearings? Yes, yes it does. Do I have a better solution to propose? No, no I don’t.
*Legislative Update: The M-I procedure has now been codified by statute. You can read about that and other changes to the Texas Uniform Trade Secrets Act here.
Zach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn, PLLC has offices in Austin, Houston, and The Woodlands.
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.
 In re M-I L.L.C., No. 14-1045, 2016 WL 2981342, at *4 (Tex. 2016).