Location, Location, Location: It’s Important in Trade Secrets Litigation Too

Location, Location, Location: It’s Important in Trade Secrets Litigation Too

This is part three of my four-part series commemorating the one-year anniversary of the Defend Trade Secrets Act. 

How did the Defend Trade Secrets Act change where trade secrets lawsuits get filed?

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Congress passed the Defend Trade Secrets Act in May 2016. As I wrote here last week, the first year of case law seems to confirm that “the main effect of the DTSA has been to shift some typical customer list cases from state court to federal court.” Or as this recent article in Business Law Today stated, “the DTSA’s primary function to date has been to create a path for plaintiffs to litigate what historically were essentially state law trade secret claims in federal court.”

In most cases, the Defend Trade Secrets Act effectively gives the plaintiff the option to file a trade secrets lawsuit in state or federal court.  Why?  The language of the Defend Trade Secrets Act is largely—but not entirely—the same as the language of the Uniform Trade Secrets Act, which most states have enacted.

So, a plaintiff with a trade secrets claim can usually assert the same claim under both state and federal law. Usually, the plaintiff chooses from two options: (1) assert a state-law trade secrets claim in state court, or (2) assert both state-law and federal trade secrets claims in federal court.[1]

This is a significant advantage for a plaintiff. Whether a case ends up in state or federal court can be a game-changer. Litigators and their clients generally view federal courts as less hostile to big companies and state courts as friendlier to the “little guy,” although this is only a generalization.

Regardless of which you choose, it’s nice to have the choice if you’re the plaintiff.

But do you get to choose the location where you file your trade secrets lawsuit? It depends. If the suit includes a DTSA claim, then any federal court in any place in the country has jurisdiction over the subject matter of the suit. But the court must also have personal jurisdiction over the defendant. If the defendant resides in the state where he is sued, then it’s simple. If not? Then it gets messy. The defendant must have sufficient contacts with the forum state to be subject to personal jurisdiction there.

Personal jurisdiction in Defend Trade Secrets Act cases

Personal jurisdiction law is messy because it’s based on vague notions of “reasonableness.” It essentially comes down to this: Did the defendant have enough contact with the forum state that it would be reasonable for him to expect that the lawsuit at issue would be filed there?

As I wrote here, the personal jurisdiction buzzwords that lawyers learned in law school don’t give you the answer. You have to look at the “sub-rules” that have developed in the case law. The key sub-rule for trade secrets cases is this: generally, a defendant will be subject to personal jurisdiction if he was physically present in the state when he obtained or disclosed the alleged trade secrets. It’s only a general rule, but it will usually give you the right answer.

So, when a defendant’s contact with California was that he once lived there and that he received the confidential information at issue in his Gmail account, that was not enough. The fact that his Gmail account “lived” on Google’s servers in Silicon Valley? A creative argument, but it was not enough to convince the judge in OOO Brunswick Rail Management v. Sultanov, a case I wrote about here.

Gold Medal Products v. Bell Flavors & Fragrances was a closer case.[2] The question in that case was whether an Illinois company that allegedly obtained an Ohio company’s trade secrets could be sued in Ohio.

So far, most of the cases applying the Defend Trade Secrets Act have involved customer lists and other “soft” trade secrets, but Gold Medal was a good old-fashioned “secret sauce” case. The employee, Sunderhaus, was the company’s chief “food technologist” with access to the company’s secret recipes for its Glaze Pop® popcorn coatings.

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Gold Medal v. Bell Flavors shows that jurisdiction can be a sticky issue in trade secrets litigation

Gold Medal engaged an Illinois company, Bell Flavors, to help develop new flavors. Bell Flavors signed a confidentiality agreement with Gold Medal and repeatedly visited Gold Medal’s facility in Ohio. Sunderhaus later left Gold Medal and joined Bell Flavors in Illinois as a “savory flavorist.” Bell Flavors then assigned Sunderhaus to work for a Chinese company that developed a new caramel-flavored popcorn glaze to compete with Gold Medal.

I don’t make this stuff up, people.

The jurisdiction issue was whether Bell Flavors, located in Illinois, could be sued for trade secret misappropriation in Ohio, where the employee allegedly obtained the trade secrets. The federal district court said no.

The key was that Bell Flavors did not travel to Ohio to recruit Sunderhaus or misappropriate the trade secrets in Ohio. Rather, Sunderhaus lawfully obtained the alleged trade secrets in Ohio, left to work for Bell Flavors in Illinois, and then allegedly provided the trade secrets to Bell Flavors in Illinois.

So, Gold Medal‘s holding is consistent with my “sub-rule” for personal jurisdiction in trade secrets cases. Under that sub-rule, there is no question Sunderhaus would be subject to jurisdiction in Ohio; he worked for the company there and allegedly obtained the trade secrets there. But Bell Flavors was not subject to jurisdiction in Ohio because it did not obtain or use the trade secrets in Ohio.

*Update: This case ended up in the Northern District of Illinois, where the Defendants moved for summary judgment on the ground that the Glaze Pop recipe and “flavor profile” was not a trade secret. The court denied the motion, finding the evidence inconclusive on trade secret status, “one of the most elusive and difficult concepts in the law.” Gold Medal Prods. Co. v. Bell Flavors & Fragrance Inc., No. 1:17-CV-4084, 2018 WL 1135629, at *3 (N.D. Ill. March 2, 2018).

Promoting uniformity in trade secrets law?

As we’ve seen, the Defend Trade Secrets Act didn’t change the fact that the defendant has to be subject to personal jurisdiction in the state where you sue him for misappropriating your trade secrets. But did it change the law that will apply to your claim?

Not really. That’s because the Defend Trade Secrets Act is largely the same as the Uniform Trade Secrets Act that most states have adopted. I have to hedge a bit, because there are some differences.

Lawyers Alex Harrell and Michael Yim wrote an excellent article in the April 2017 Texas Bar Journal called The Defend Trade Secrets Act: Comparing the New Federal Statute with the UTSA. It provides a thorough and detailed comparison with the Uniform Trade Secrets Act.

But there is one statement in the article I disagree with: “The DTSA strengthens trade secret protections by furthering nationwide uniformity in this area of law.”

Yes, uniformity was one of the purported benefits of the Defend Trade Secrets Act. But think about it. As the authors of the Texas Bar Journal article also point out, the DTSA does not preempt state trade secrets law. That means the DTSA just adds an additional layer of federal trade secrets law on top of the trade secrets laws of 50 states. How does that promote uniformity?

No, the Defend Trade Secrets Act doesn’t necessarily promote uniformity in trade secrets law. But apparently it will help the US maintain its strategic superiority over China in savory popcorn flavor technology.

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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. Rumors that he once ate an entire bag of Glaze Pop® popcorn by himself are exaggerated. 

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] Theoretically, a plaintiff could initiate a federal trade secrets claims in state court, but there would not be much point in that.

[2] Gold Medal Prods. Co. v. Bell Flavors & Fragrances, Inc., No. 1:16-CV-00365, 2017 WL 1365798 (S.D. Ohio Apr. 14, 2017).

From Russia with Love: A New Defend Trade Secrets Act Case

From Russia with Love: A New Defend Trade Secrets Act Case

Do Northern California federal courts have jurisdiction over every Gmail user who emails confidential information?

The answer is no, but give points for creativity to the plaintiff in OOO Brunswick Rail Management v. Sultanov, who at least made the argument.  More about that later.

If you like trade secrets cases, you’ve got to love the recent Brunswick case. It has everything. A Russian company. A renegade employee emailing confidential company documents to his personal Gmail account (allegedly). And something every trade secret litigation nerd has been waiting for: an application for an ex parte seizure order under the new federal Defend Trade Secrets Act.

Back in May 2016, then-President Obama signed the Defend Trade Secrets Act (DTSA). As I reported here, the chief practical effect of the DTSA was to give plaintiffs in trade secrets cases the option of suing in federal or state court. Unless you’re a trade secrets litigator like me, that’s pretty boring.

But the sexy part of the DTSA was the new ex parte seizure remedy. “Ex parte” is a Latin phrase that means “you don’t have to tell the judge how crappy your case is.” But seriously, it means only one side presents its case to the judge. The DTSA allows a judge to order federal marshals to seize a person’s property—typically we’re talking about a computer or smartphone—without notice to that person.

This caused some serious handwringing in the legal community. We have an “adversary” system of justice that guarantees due process—at least for now—so lawyers worried about potential abuse of the ex parte seizure remedy.

I agreed with critics who saw no real need for a federal trade secrets statute, but I wasn’t too concerned about a wave of ex parte seizure orders. The DTSA has strict requirements for such orders, and I predicted most federal judges would not grant such an extreme remedy when an ordinary temporary restraining order would do.

A test case for the DTSA’s ex parte seizure remedy

Brunswick is one of the first cases to test my theory. The complaint presented a fairly ordinary misappropriation of trade secrets case, but with a Russian twist:

  • Brunswick is a Russian company that leases railcars to large corporate clients in Russia. After beginning a process to restructure its debt, Brunswick sued its former CEO in a confidential arbitration.
  • A Russian-American named Sultanov went to work for Brunswick and signed a typical confidentiality agreement. Essentially, Sultanov agreed not to disclose Brunswick’s confidential information, that all of Brunswick’s internal information is confidential, and that he would return all Brunswick confidential information on request.
  • Sultanov started acting suspiciously: taking calls one floor up from his office, asking a lot of questions about the debt restructuring, and even coming to work on the weekends. (Big law firm associates take note.)
  • Sultanov emailed confidential Brunswick documents from his work email to his personal Gmail account. He then deleted the emails from his Brunswick account and emptied his “trash” folder. The emailed information could be highly damaging to Brunswick’s debt restructuring negotiations with its creditors.
  • Phone records showed Sultanov repeatedly calling a Brunswick creditor involved in the restructuring.
  • When confronted, Sultanov admitted sending the emails but refused to return his company-issued mobile phone and laptop.

And my favorite allegation from the complaint:

highlighted-brunswick-security-measures

“Extraordinary steps” including “locking its doors.” Wow. I knew Russia had nuclear weapons, but I didn’t realize it now has access to modern door-locking technology.[1]

So far, these facts present an interesting, but typical, trade secrets case against a former employee.[2] Emailing company files to your personal Gmail account on the sly? Come on, man! That’s so last decade. It’s more obvious than getting down on the floor and sticking a USB drive in your PC tower.

But if you’re Brunswick’s lawyer, where do you sue Sultanov? How can you get his computer and phone back quickly? And how can you do it without giving him a chance to tell his side of the story?

It’s time to get creative.

Recent trade secrets case tests two novel theories

First, a little background for my non-lawyer readers. To sue someone in federal court, you need both “subject matter” jurisdiction and “personal” jurisdiction. Subject matter jurisdiction means the court has jurisdiction to hear the type of claim you’re making. Personal jurisdiction means that the court has jurisdiction over the person you’re suing.

Personal jurisdiction is complicated, but in a trade secrets case, it boils down to this: you need to show that the person you’re suing took or received the alleged trade secrets in the state where you’re suing him (as I explained here).

Brunswick came up with the brilliant idea of suing Sultanov in federal court in California for violating the Defend Trade Secrets Act. Subject matter jurisdiction? Check.[3]

Personal jurisdiction? That was a little harder. Sultanov’s sneaky shenanigans all took place in Russia, right?

Not exactly. If you had Encyclopedia Brown on the case, he’d spot a detail you might have missed: Sultanov emailed Brunswick’s confidential information to his Gmail account. And where is his gmail account located? You guessed it: Google headquarters in Silicon Valley.

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Brunswick argued in its brief that Sultanov was subject to personal jurisdiction in the Northern District of California because he emailed the trade secrets at issue to his Gmail account hosted by Google. Not only that, Sultanov went to high school and college in California and “certainly would be aware that Google is based in California and that his intentional use of Gmail would have effects in California.”

Like I said, points for creativity.

Judge denies ex parte seizure order and rejects creative jurisdiction argument

Brunswick filed suit on January 4, 2017 asking for an ex parte seizure order against Sultanov under the Defend Trade Secrets Act. Two days later, U.S. District Judge Edward J. Avila issued this opinion denying a seizure order but granting a temporary restraining order (TRO).

Judge Davila cited the DTSA provision that a court can grant an ex parte seizure order only if it finds that another form of equitable relief would be inadequate. “Here, the Court finds that seizure under the DTSA is unnecessary because the Court will order that Sultanov must deliver these devices to the Court at the time of the hearing scheduled below, and in the meantime, the devices may not be accessed or modified.”

This seems like the sensible ruling, and the one you would expect most federal judges to make in this situation. It’s the reason I expected that granting an ex parte seizure order would be very rare.

So what happened when Sultanov’s lawyer got a chance to respond? If you’re a litigator, or if you’ve watched a lot of episodes of Law and Order, you know what’s coming.

First, would you believe there was another side to the story? Sultanov’s response painted a very different picture than Brunswick’s complaint. Far from a dishonest employee stealing the company’s trade secrets for personal gain, Sultanov portrayed himself as a conscientious whistleblower exposing corporate fraud, even against his own interest.

I would share more details, but most of Sultanov’s publicly available response looked like this:

sultanov-redacted

Second, Sultanov attacked Brunswick’s creative “Gmail” theory of personal jurisdiction. After hearing arguments from both sides on the personal jurisdiction issue, the judge issued this order siding with Sultanov and rejecting the Gmail theory:

brunswick-excerpt

As a lawyer who has read literally hundreds of personal jurisdiction cases, I can tell you the judge was on solid legal ground.[4] Plus, the Gmail argument would make the Northern District of California to trade secrets litigation what the Eastern District of Texas has been to patent litigation.

That would be bad. I’ve traveled to both Silicon Valley and the Eastern District of Texas for litigation matters. I had some great Korean food in Palo Alto, but California is just too expensive. Tyler and Marshall, on the other hand, are much cheaper and have better BBQ joints.

But I digress.

A lesson about the adversary system

The Brunswick case provides a great lesson about the adversary system, due process, and the reason people got so worked up about the ex parte seizure remedy in the Defend Trade Secrets Act.

First, even when the lawyer asking for an ex parte order is totally honest, he’s unlikely to volunteer any important reasons not to grant the relief. The judge is only going to get one side of the story.

A related problem is that when the judge only hears from one side, no one involved has a strong personal incentive to test the underlying assumptions of the lawsuit. For example, does the court even have personal jurisdiction over the defendant?

So, when the judge in Brunswick issued a 2000-word order granting a TRO against Sultanov, the word “jurisdiction” appeared exactly zero times.

I wasn’t there, but I’m guessing when Judge Davila issued the ex parte order two days after the suit was filed, there wasn’t a robust discussion about whether Sultanov was subject to personal jurisdiction. I’m wondering if the judge was a little ticked off when he later realized that the jurisdictional basis for the TRO he signed was the Gmail theory.

*Update: After allowing limited jurisdictional discovery, Judge Davila granted Sultanov’s motion to dismiss the case for lack of personal jurisdiction. The judge again rejected Brunswick’s Gmail jurisdiction theory. You can read that opinion here.  

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IMG_4571Zach 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.

[1] In fairness to Brunswick, the Complaint also alleged some pretty extensive additional efforts to protect confidential information.

[2] For simplicity, I’m leaving out facts about Brunswick’s claim against another employee, its former CEO Paul Ostling. Adding those facts would turn this into “Ten Minute Law.”

[3] Federal courts have original but not exclusive jurisdiction over DTSA claims. 18 U.S.C. § 1836(c).

[4] The judge also found that the evidence did not support Brunswick’s additional allegation that Sultanov maintained a personal residence in California. The judge cited Sultanov’s testimony that the address at issue was a family friend’s property that he sometimes used as a mailing address.

The Key to Jurisdiction in Texas Trade Secrets Litigation

The Key to Jurisdiction in Texas Trade Secrets Litigation

Recent case illustrates when you can sue a non-Texas company in Texas for taking trade secrets from Texas

If you own a Texas company and a competitor outside of Texas takes your company’s trade secrets, can you sue the competitor in Texas? This was the issue in the recent case RSM Production Corp. v. Global Petroleum Group decided by the Houston Court of Appeals.[1]

The answer: You can sue a nonresident company in Texas if it established “minimum contacts” with Texas through “purposeful availment” of the benefits and protections of Texas law, your claim for misappropriation of trade secrets “arises out of or relates to” its contacts with Texas, and exercising jurisdiction would not conflict with “traditional notions of fair play and substantial justice.”

Simple, right?

If a law school graduate gave this answer on a bar exam, he would be absolutely right. But if a practicing litigator said this, it would tell you nothing. That’s because the legal rules for “personal” jurisdiction, like many legal rules, are too vague to give you a determinate answer. Lawyers need to know the right buzzwords to recite, but the buzzwords are not enough. Effective lawyers have to understand two other things: the rationale for the rules, and the sub-rules.

The sub-rules are the rules that emerge from decades of case law applying the general rules to specific factual situations. For example, if you’re a criminal defense lawyer arguing that the police illegally searched your client’s vehicle, it’s not enough to know that the police had to have “probable cause.” You need to know how courts have applied probable cause to your factual situation, such as “is there probable cause to search a tour bus if the police smell marijuana?”

The bad news is that there are literally hundreds of Texas cases on personal jurisdiction. The good news is that I spent five years of my life working on the defense of a group of foreign banks in a series of Texas lawsuits, and I have probably read most of those cases. From that experience, I’m going to share two things that will turn you into an instant authority on personal jurisdiction law, especially in trade secrets cases:

  1. A framework for how to think about personal jurisdiction that will help you make sense of the case law and guide your arguments.
  1. The specific sub-rule that applies to trade secrets cases.

The key to making sense of personal jurisdiction law

The thing you need to understand about personal jurisdiction law is that it is bipolar. I don’t mean that it’s crazy, but that there are two intersecting considerations. One is called “purposeful availment.” The other is called “relatedness.”

Purposeful availment is the idea that someone who deliberately seeks the “benefits and protections” of doing business in a particular state should reasonably expect he can be sued in that state. For example, if I sign a contract with a Louisiana company that has a clause saying that the contract will be governed by Louisiana law, that’s a good indication of my “purposeful availment” of the “privilege” of doing business in Louisiana. [Insert your own Louisiana joke here.]

Relatedness is entirely different. It is a question of whether the plaintiff’s claim against me “arises out of or relates to” my contacts with the state. Let’s say the Louisiana company is suing me in Louisiana for negligently crashing my car into one of their trucks in Nacogdoches. In that case the contract would reflect purposeful availment but not “relatedness,” because the negligence claim arises from the accident in Texas, not from the contract. (Nacogdoches is in Texas, y’all.)

Graphically, the interaction between purposeful availment and relatedness looks like this:

jurisdiction-graph

As the chart shows, high purposeful availment combined with high relatedness equals jurisdiction.

For example, let’s say a Russian company sends representatives to a meeting in Texas where they receive alleged trade secrets from a Texas oil and gas company. I know it’s hard to imagine Russia doing something like this—it would be like hacking into confidential emails to try to influence another country’s election—but stay with me.

The Texas company later sues the Russian company in Texas, claiming misappropriation of trade secrets. In that case, the meeting would reflect “purposeful availment” of the right to do business in Texas. There would also be “relatedness” because the claim for misappropriation of trade secrets arose directly from what happened at the meeting.

These were the basic facts in Moncrief Oil, where the Texas Supreme Court held that the Texas company could sue the Russian company in Texas for trade secret misappropriation.[2]

The case for jurisdiction is weaker when the alleged misappropriation of trade secrets happens outside of Texas. Suppose your client is an offshore company that sent a representative to meet with a Texas oil and gas company. The Texas company later sues your client, claiming trade secret misappropriation, and arguing the Texas meeting establishes “purposeful availment.” You respond that your client acquired and disclosed the alleged trade secrets outside Texas, and there was no discussion of the alleged trade secrets at the Texas meeting. Therefore there is no “relatedness” and no jurisdiction in Texas. This was basically the holding in the recent RSM Production case, and also in Bower v. American Lumber Co., a case I argued to the Waco Court of Appeals.[3]

Personal jurisdiction law does recognize that contacts with a state can occur through email and cyberspace. This is especially true with trade secrets, which can be sent across the globe with the click of a mouse. But the case law shows that where a communication physically occurs still matters in personal jurisdiction law. The idea is that when a nonresident physically attends a meeting in Texas, he should reasonably anticipate being sued in Texas for things that happen at that meeting. When he receives information from Texas on his computer in another part of the world, not so much.[4]

So, while the familiar buzzwords of personal jurisdiction law don’t give us the answer, from reading the cases we can state this sub-rule: a nonresident defendant who allegedly misappropriates trade secrets from a Texas company will usually be subject to jurisdiction in Texas if he was physically in Texas when he received or disclosed the alleged trade secrets.

Harder Cases

Of course, facts don’t always fit into neat categories. What if an employee of a Texas company emails trade secrets from his Texas office to a company in California, and the Texas company sues the California company in Texas? There is less purposeful availment when the defendant is not physically present in Texas. Courts have repeatedly said that emails, phone calls, and other correspondence from outside the state do not weigh heavily on the purposeful availment scale. But if you represent the Texas company, you would argue that there is a high degree of relatedness, because your client’s claim is directly related to the email that transmitted the trade secrets.

This kind of case is harder. It is similar to the common fact pattern where a Texas resident sues a nonresident for fraud and the nonresident made the allegedly fraudulent statement in a phone call or other communication to the Texas resident. The outcome in that kind of case may depend on whether you are in state or federal court. There are federal cases in the Fifth Circuit holding that a fraudulent misrepresentation to a Texas resident is a sufficient basis for jurisdiction. But the Texas Supreme Court held in the landmark Michiana case that an alleged misrepresentation from outside Texas is insufficient to establish purposeful availment.[5]

It gets even more complicated when the plaintiff makes multiple claims arising from different events. For example, a company could be subject to jurisdiction for a trade secrets claim where its representative received trade secrets at a meeting in Texas, but not subject to jurisdiction in the same lawsuit for a tortious interference claim that arose from actions taken in California. This was the situation in Moncrief Oil. Now you’re earning your Ph.D. in personal jurisdiction law.

The Texas Supreme Court recently muddied the waters a little in Cornerstone Healthcare. In that case, a Texas company’s officers allegedly breached their fiduciary duties by helping a Rhode Island company usurp an opportunity to acquire a chain of Texas hospitals. The court said the Rhode Island company could be sued in Texas. Rather than focusing on what happened at the Texas meetings, the court emphasized that the Rhode Island company “specifically sought both a Texas seller and Texas assets,” and that the facts surrounding the “crux” of the contacts with Texas would be the focus of the claims at trial.[6]

But the general rule for tort cases, including trade secrets cases, is still this: if the defendant committed the alleged tortious activity in Texas, there is probably jurisdiction; if the defendant committed the alleged tortious activity outside Texas, there probably isn’t jurisdiction. This cheat sheet can help you keep the details straight.

*UPDATE: In Northern Frac Proppants v. 2011 NF Holdings, 2017 WL 3275896 (Tex. App.–Dallas July 27, 2017), the court rejected the argument that the defendants were subject to jurisdiction because they combined to steal Texas-based companies’ trade secrets. Northern Frac is consistent with my general rule the court emphasized that there was no allegation that the defendant obtained the alleged trade secrets in Texas, as the defendant in Moncrief Oil did. And the court said it was not a case like Cornerstone Healthcare where the assets at issue were in Texas. See also Vinmar Overseas Singapore PTE Ltd. v. PTT Int’l Trading PTE, 2017 WL 4797842 (Tex. App.–Houston [14th Dist.] Oct. 24, 2017).

Overtime: The Dragnet and The Escape Hatch

If you have a little extra time, there are two complications worth mentioning, although just barely: a “dragnet” called “general jurisdiction” and an “escape hatch” called “fair play and substantial justice.” The case law has evolved to the point where these concepts are almost extinct, but they do still exist.

The general jurisdiction dragnet applies when a defendant has such “continuous and systematic” contacts with the state that it is subject to jurisdiction even if the plaintiff’s claims are totally unrelated to those contacts. But in American Type Culture Collection, the Texas Supreme Court set the bar very high for general jurisdiction, essentially requiring an ongoing physical presence in the state. More recently, the U.S. Supreme Court moved the general jurisdiction bar even higher in Daimler Chrysler v. Bauman, holding that in most cases a corporation is only subject to general jurisdiction in the state where it is incorporated or has its principal place of business. As a result, cases of general jurisdiction are increasingly rare.

While general jurisdiction can snag a defendant who otherwise would not be subject to jurisdiction, “fair play and substantial justice” provides an escape hatch for a defendant who otherwise would be subject to jurisdiction. In effect, it says “regardless of purposeful availment and relatedness, there is no jurisdiction if exercising jurisdiction would be really unfair for some other reason.”

But don’t get too excited. Application of this escape hatch has also become increasingly rare. It is almost entirely limited to international defendants or individual defendants who would be highly burdened by the expense of litigating in a state where they do not reside. In a trade secrets case, this escape hatch probably won’t do much for a company that allegedly received or disclosed trade secrets in the state where it is sued.

Then the real fun will start: arguing about whether the information is a “trade secret” in the first place.

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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.

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] RSM Prod. Corp. v. Global Petroleum Group, Ltd., 2016 WL 6110913 (Tex. App.—Houston [1st Dist.] Oct. 20, 2016, no pet. h.).

[2] Moncrief Oil Int’l, Inc. v. OAO Gazprom, 414 S.W.3d 142 (Tex. 2013).

[3] Bower v. Am. Lumber Co., 2015 WL 1755311 (Tex. App.—Waco Apr. 16, 2015, no pet.).

[4] Searcy v. Parex Resources, Inc., 496 S.W.3d 58 (Tex. 2016), illustrates the distinction. The Canadian defendant was subject to jurisdiction in Texas for a fraud claim because it allegedly made the misrepresentation in Texas, but it was not subject to jurisdiction in Texas on a tortious interference claim that arose from the Canadian company’s communications from outside Texas. The dissent argued in vain that it should not matter that the Canadian company communicated with executives in Texas by emails and phone calls rather than in person.

[5] Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777 (Tex. 2005).

[6] Cornerstone Healthcare Group Holding, Inc. v. Nautic Mgmt. VI, LP, 493 S.W.3d 65 (Tex. 2016).