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Not All Documents Labeled Confidential Actually Are: Texas Jury Finds $23M Trade Secret Case Was Brought in Bad Faith | Seyfarth Shaw

On May 31, 2023, a Harris County Texas District Court jury found a telecom company acted in bad faith by filing a $23 million trade secret misappropriation lawsuit against a rival where the underlying technology was found to not actually be a trade secret.

Background & Analysis

In February 2019, Telecom firm Teligistics, Inc. (“Teligistics”) sued its rival Advanced Personal Computing, Inc. d/b/a Liquid Networx (“Liquid Networx”) and company executives Travis Wood and Robert Short, alleging they misappropriated trade secrets concerning its online platform for handling contracts named Telibid. Specifically, Teligistics alleged a former Liquid Network employee obtained a copy of Teligistic’s internal Request for Proposal (“RFP”) in order to “tweak” Liquid Network’s internal RFP, rather than spending time and resources developing their own RFP.

Teligistic’s RFP contained a confidentiality notice and information that permitted bidders to submit responses for Teligistic’s telecom products and services. Teligistics alleged the Liquid Network “sanitized” its RFP by changing the names of parties to secure contracts for financial gain.

Liquid Networx challenged the existence of Teligistic’s alleged trade secrets, claiming the latter did not clearly define its trade secrets. Liquid Networx argued, for example, that while the source code of Teligistic’s Telbid platform could qualify as a trade secret, the output it generated—such as an RFP—was not entitled to trade secret protection simply because a confidentiality label was affixed to it. As Texas courts have noted, and Liquid Networks cited in its motion for directed verdict, affixing a confidentiality label to a document does not necessarily make the information within a trade secret. See Providence Title Co. v. Truly Title, Inc., 547 F. Supp 3d 585, 609 (ED Tex. 2021) (“[B]usiness information is not necessarily a trade secret simply because it is confidential.”).

Ultimately, a jury agreed, finding that Teligistics’ RFP it distributed through its Telibid platform was not actually a trade secret. The jury went a step further and also found that Telidistics acted in bad faith by filing its lawsuit, and Liquid Networx is now seeking its attorneys’ fees.

Takeaways

While certainly a factor in determining confidentiality, merely labeling a document as confidential may not always be sufficient to make that document confidential. Other evidence is often necessary to demonstrate reasonable efforts were made to keep the information confidential.

In addition, even documents generated by a system that is entitled to trade secret protection may not themselves be confidential if other factors are not present.

It is important to always consider the nature of the document, how it was created, what value comes from keeping it confidential, what efforts are made to keep it from third parties, and what safeguards are used when it is disseminated to third parties, in analyzing trade secrets.

The case citation is Teligistics Inc. v. Advanced Personal Computing Inc. et al., No. 2019-15000, in the 190th District Court of Harris County, Texas.