If a lawyer litigates long enough he or she will inevitably face written or oral objections to requests for production or interrogatories. While objections may be straightforward and easy to navigate, they become more complex and potentially fatal to a litigator’s case when opposing counsel raises an objection based on proprietary information privilege. While it is often, albeit incorrectly, believed that proprietary information is relegated strictly to commercial litigation, the truth is that proprietary information reaches much further into other areas of litigation than many may suspect. But, what exactly is proprietary information? How does a claimed privilege affect discovery? And how much depth is there to Tex. R. Evid. 507?
In short, proprietary information, which is more commonly known and referred to by lawyers as trade secrets, generally relates to information maintained as confidential by individuals or entities. In Texas, trade secrets are defined by the Texas Uniform Trade Secrets Act, or TUTSA, which is codified within Civ. Prac. & Rem. Code, Title 6, Ch. 134A. Though TUTSA was adopted in 2013, some interesting and important changes have been made to the statute by recent Texas Legislatures, especially the 85th Legislature Regular Session in 2017. The events which prompted these new amendments to TUTSA were twofold in nature: (1) Congress passed the Defend Trade Secrets Act in May 2016; and (2) the Supreme Court of Texas introduced a seven-factor balancing test for overcoming certain presumptions under TUTSA. (See In re M-I L.L.C., 505 S.W.3d 569 (Tex. 2016)). In a clear reaction to these two preceding points—one legislative, one judicial—the Texas Legislature amended TUTSA to reflect these newly manifested punctilios of trade secret theory.
First, in regard to the recently amended updates to TUTSA, the definition of “trade secret” has now been expanded to include “all forms and types of information including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing . . .” (Civ. Prac. & Rem. Code, Title 6, Ch. 134A, § 134A.002(6)). This could, theoretically, also be argued and understood to encompass proprietary information that is stored within one’s own mind via memory. (See FTC v. Exxon Corp., 636 F.2d 1336, 1350, 205 U.S. App. D.C. 208 (D.C. Cir. 1980) (finding that “[i]t is very difficult for the human mind to compartmentalize and selectively suppress information once learned, no matter how well-intentioned the intent may be to do so.”)). However, while many are quick to attempt a privilege under 134A.002(6), subsections (A)-(B) are the true qualifiers for such protection. These subsections hold that the aforementioned are only qualified as trade secrets if “(A) the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” It becomes clear that the two main qualifying elements that must be present, regardless of whether or not the alleged proprietary information makes the laundry list above, are (1) reasonable measures to ensure secrecy, and (2) derivation of independent economic value. Another punctilio that practitioners should note is the conjunction separating subsections (A) and (B). The conjunction the Texas Legislature chose to use is the word “and” not “or.” (See TUTSA § 134A.002(6)(A)-(B)). Hence, for example, even if financial information is claimed as proprietary information and reasonable measures were taken to ensure its secrecy, if it does not simultaneously derive an independent economic value then it is not qualified for protection under Tex. R. Evid. 507.
Second, the amendments in 2017 further clarify the definition of “willful and malicious” by expanding the original definition to now include the “intentional misappropriation resulting from the conscious disregard of the rights of the owner of the trade secret.” (Civ. Prac. & Rem. Code, Title 6, Ch. 134A, § 134A.002(7). See also Learning Curve Toys v. PlayWood Toys, 342 F.3d 714, 730 (7th Cir. 2003)).
When it comes to discovery and asserted privileges for proprietary information, the truth is that a proper application of Tex. R. Evid. 507 is not as simple as it appears within the limited text of the rule itself. In fact, understanding its proper application is the best counterattack when opposing counsel adds this privilege, either expressly or ambiguously, to the typical “harassing, burdensome, and outside the scope of discovery” language to which many of us have grown accustomed.
Ultimately, the spirit and purpose of discovery is to uncover the truth and allow a case to justly be decided upon all the facts, and not by hiding the facts. (Axelson v. McIlhany, 798 S.W.2d 550, 555 (Tex. 1990)). A party may obtain discovery regarding any matter that is not privileged and is relevant to the subject matter of the pending action, and it is not a ground for objection that the information sought will be inadmissible at trial if such information appears reasonably calculated to lead to the discovery of admissible evidence. (See Tex. R. Civ. P. 192.3(a)). The party whom discovery has been served upon then has 30 days to respond. (Tex. R. Civ. P. 196.2(a), 197.2(a)). It is permissible and proper to respond to discovery requests by either providing the requested information, making a proper objection, or asserting a privilege. (See Tex. R. Civ. P. 193.1-193.3). The party seeking to provide an objection or assert a privilege for discovery protection has an affirmative duty to do so, and failure to do so risks waiver of any objection or privilege. (In re Union Pac. Res. Co., 22 S.W.3d 338, 340, 43 Tex. Sup. Ct. J. 145 (Tex. 1999)). In addition, courts have largely held that “[r]equests for discovery must be tailored to include only matters relevant to the case.” (In re Univar USA Inc., 311 S.W.3d 183, 186 (Tex. App.—Beaumont 2010) (citing Mallinckrodt, 262 S.W.3d at 473.)). Courts have also opined as to the scope of relevance in that “[a] specific request for discovery reasonably tailored to include only matters relevant to the case is not overbroad merely because the request may call for some information of doubtful relevance.” (In re Nat’l Lloyds Ins. Co., Nos. 13-14-00713-CV, 13-14-00714-CV, 2015 Tex. App. LEXIS 5509, at *17 (Tex. App.—Corpus Christi May 29, 2015) (citing Texaco v. Sanderson, 898 S.W.2d 813, 815 (Tex. 1995)). And, most importantly in this regard, Texas courts have further held that “[t]he phrase ‘relevant to the subject matter’ is to be liberally construed to allow the litigants to obtain the fullest knowledge of the facts and issues prior to trial.” (Id. at 17 (citing Ford Motor Co. v. Castillo, 279 S.W.3d 656, 664 (Tex. 2009); See also, In re HEB Grocery Co., 375 S.W.3d 497, 500 (Tex. App.—Corpus Christi 2012, orig. proceeding)). Finally, courts have further illumined practitioners by continuing to hold to the longstanding principle that “[i]nformation is relevant if it tends to make the existence of a fact that is of consequence to the determination of the action more or less probable than it would be without the information.” (Id. at 16). That said, if a party wishes to object to discovery, “[a] party may object to [discovery] only if a good faith legal and factual basis for the objection exists at the time the objection is made” and “[b]y rule, the party resisting discovery must make a timely objection to the discovery request or else the objection is waived.” (Id. (emphasis added)). That said, a common mistake I routinely observe litigators making throughout Texas is attempting to assert privileges via objections, which is wholly improper, though this does not initially waive a privilege. (See Tex. R. Civ. P. 193.2(f) and 193.3).
Understanding these basic fundamentals of discovery practice, a 507 claim of privilege for proprietary nature must be upheld only upon the claimant proving that the information is warranted such protection under TUTSA. The plain language found within Tex. R. Evid. 507(b) further augments the validity of this logical truism. The pertinent language states that “[t]he privilege may be claimed by the person who owns the trade secret . . .” (Id. (emphasis added)). Yet, even if the alleged information is shown under TUTSA to warrant protection by Tex. R. Evid. 507, such rule still states in part that a court may compel discovery if “nondisclosure will tend to conceal fraud or otherwise work injustice.” (Id. See also, Garcia v. Peeples, 734 S.W.2d 343 (Tex. 1987) (“Out of an abundance of caution, the trial court, after determining which documents are true trade secrets, can require those wishing to share the discovered material to certify that they will not release it to competitors or others who would exploit it for their own economic gain. Such an order would guard [claimant party’s] proprietary information, while promoting efficiency in the trial process.”)). In addition, while Tex. R. Evid. 507 effectively presumes the validity of a trade secret having already been established, TUTSA § 134A.007(c) further states that “[t]o the extent that this chapter conflicts with the Texas Rules of Civil Procedure, this chapter controls.” Yet, if we look back to the Tex. R. Civ. P. through this lens we arrive at a discoverable result virtually equal to the applications of the rules as to any general discovery requested to which opposing counsel likely did not object. However, understanding the clear intent as prescribed by the Texas Legislature that TUTSA controls in such cases, opposing counsel, arguably, must generally move for an injunction under § 134A.003 and successfully meet the burden of proving that the information sought is protectable proprietary information. Assuming arguendo that opposing counsel does successfully carry such burden, and further moves for a proper injunction under TUTSA, the fact remains that “it is not a ground for objection that the information sought will be inadmissible at trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.” (Tex. R. Civ. P. 192.3(a)).
Even if an opposing party successfully convinces a court that the information sought is in fact a trade secret, and an injunction is properly granted, this in no way automatically grants nor supports a total bar on discovery of the requested information. This theory is further legitimized by § 134A.006(a) of TUTSA because it specifically provides for the preservation of secrecy of such information without barring discovery during litigation. In fact, given the plain context of § 134A.006(a), it appears that the Texas Legislature clearly understood, thanks in no small part to Garcia, the importance of forthcoming and candid cooperation during the discovery phase of litigation. This acknowledgment was made manifest when the Legislature granted courts wide discretion regarding various methods of allowing sealed discovery of proprietary information. (See Civ. Prac. & Rem Code, Title 6, Ch. 134A, § 134A.006). Steps that courts can take to preserve trade secrecy without barring discovery of such information include “[p]rotective orders . . . limiting access to confidential information to only the attorneys and their experts, holding in camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.” (Civ. Prac. & Rem. Code, Tit. 6, Ch. 134A, § 134A.006(a)).
If we look to the processes of sealing court records as prescribed under Tex. R. Civ. P. 76a, there are two options available to a party to limit disclosure of proprietary information in addition to TUTSA: (I) 76a(1)-(4) outlines a complete and final seal of court records; and (II) 76a(5) outlines the standards and process for obtaining a Temporary Sealing Order. Thus, neither TUTSA, the Tex. R. Evid., nor the Tex. R. Civ. P. suggest that it is proper to completely bar discovery of alleged proprietary information during a litigation setting. In fact, by the plain language and context of the foregoing authorities it would appear quite the opposite was intended by the courts and Texas Legislature.
In sum, when viewed in its totality under binding statutory authorities, common law principles of stare decisis, and professional rules of legal procedure and evidence, a typical Rule 507 objection or claimed privilege—and subsequent refusal to produce the requested discovery under the argument that such information is non-discoverable—becomes moot, improper, legally myopic, and rendered effectively without merit or authority. However, even in the rare case where trade secret status is actually warranted it is still likely that the astute practitioner can persuade a court to compel discovery via a Tex. R. Civ. P. 76a sealing order.
Blaze Taylor is an attorney in the Lubbock office of the Moster Law Firm, where he practices in the firm’s Civil Litigation Section. After serving 29 months in combat with the U.S. Army, 13 months of which he spent as one of 16 bodyguards to H.R. McMaster, Taylor moved home to pursue a legal and academic career. While working for Congressman Jeb Hensarling and studying at the Washington Center, he finished a B.B.A. with an emphasis in economics from Lubbock Christian University in 2012. Taylor later earned his J.D. from Pepperdine University School of Law in 2016.