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TMRJ Holdings, Inc. v. Inhance Technologies, LLC

Court of Appeals of Texas, First District

January 9, 2018

TMRJ HOLDINGS, INC., Appellant
v.
INHANCE TECHNOLOGIES, LLC, Appellee

         On Appeal from the 269th District Court Harris County, Texas Trial Court Case No. 2015-41670

          Panel consists of Justices Higley, Bland, and Brown.

          OPINION

          Jane Bland Justice

         In this theft-of-trade-secrets case, the jury found that two former executives misappropriated trade secrets from their employer, and then used those secrets to start a competing business. The jury awarded the former employer $4 million in reasonable-royalty damages and $10, 500 in lost profits. The trial court's judgment awards those damages and adds permanent injunctive relief.

         The competing company, TMRJ Holdings Inc., appeals. TMRJ does not challenge the damages awarded by the jury or the availability of reasonable-royalty damages in this case. Rather, TMRJ contends that the trial court erred in awarding both damages and permanent injunctive relief, arguing that the two remedies are duplicative and to award both violates the one-satisfaction rule. TMRJ further contends that the trial court's injunction is impermissibly vague, as it does not define the conduct that it prohibits. We hold that the trial court acted within its discretion in determining that injunctive relief was necessary to adequately redress the injury caused by TMRJ's misappropriation. The injunction, however, does not reasonably delineate the conduct enjoined, as required by the Texas Rules of Civil Procedure. We therefore reverse that part of the judgment and remand the case for further proceedings.

         BACKGROUND

         Inhance develops an in-house process for converting solid fluorine to gas.

         Since 1982, Inhance Technologies, LLC, has been in the surface-fluorination business, a process that exposes plastic containers to fluorine gas. Surface-fluorination forms a barrier inside plastic containers to make them impervious to caustic substances. For example, the process produces plastic containers that are suitable for storing gasoline.

         Fluorine gas is extremely volatile. Producing and using it safely in a manufacturing context presents significant challenges. For years, surface-fluorination businesses like Inhance purchased fluorine gas from outside suppliers as a raw material.

         Inhance realized that it could achieve significant cost savings if it produced its own fluorine gas. But to develop its own method would be a difficult, time-consuming, and potentially dangerous undertaking. Fluorine is the most corrosive element on the periodic table and is extremely reactive. It requires careful handling to prevent explosions and can be deadly even in very low concentrations.

         Through its founders, Bill Brown and Monty Ballard, Inhance invested 30 years of research and development in a process for producing fluorine gas in-house. Inhance developed a three-step system to safely create, convey, and apply fluorine gas to the products that it sold. Inhance is the only company in the United States that uses this system. Inhance has revised and refined the system several times since originally devising it.

         Inhance's in-house method for developing fluorine gas significantly reduced the cost of its surface-fluorination process. As a result, Inhance became a leader in the business and undercut its competitors' pricing. Competitors became unable to compete and left the market, and eventually Inhance became the only provider of surface-fluorination services.

         Two Inhance executives leave and form a competing company.

         Paul Banks is a degreed mechanical engineer who worked as an engineer in the chemical industry before joining Inhance. During his 25-year tenure with Inhance, Banks worked in several executive positions, including Senior Vice President of Engineering and Vice President of Sales and Marketing. Among other duties, he participated in the design, engineering, and installation of most of Inhance's fluorination facilities and assisted in refining the three-step system.

         David Molthen worked for about 20 years at Inhance in various executive capacities, including Vice President of Operations and Senior Vice President of Operations and Administration. Also, as Inhance's international representative, Molthen was involved in managing Inhance's locations and affiliates throughout the world. During his tenure, Molthen assisted in repairing and installing Inhance's fluorination equipment throughout the world and, like Banks, participated in making revisions and refinements to the three-step system.

         At the end of 2011, Banks and Molthen, while still employed by Inhance, began to discuss forming their own surface-fluorination company, TMRJ, to compete with Inhance. They planned to use electrochemical processes and equipment nearly identical to those used by Inhance. They made plans to hire Clayton English, an Inhance engineer, to work with them.

         From 2012 to mid-2013, Banks and Molthen formulated a business plan for TMRJ and sought investors. The business plan contemplated that TMRJ would build facilities in Illinois, close to an existing Inhance plant that served some of Inhance's largest customers. Inhance fired Molthen in June 2013. Banks left Inhance later that month.

         Banks and Molthen quickly completed the design of their first fluorine-gas production cell, which incorporated elements similar to those used by Inhance. TMRJ achieved in-house production of fluorine gas within a short time. By May 2015, it had built a facility in Illinois, began operations, and began to target Inhance's customers and undercut Inhance's prices to gain business. Because of Banks and Molthen's long association with Inhance and their knowledge of Inhance's proprietary processes, Inhance suspected that TMRJ was using Inhance's processes without its permission.

         Inhance sues TMRJ, Banks, and Molthen.

         In July 2015, after TMRJ had been operating for three months, Inhance sued TMRJ, Banks, and Molthen, alleging trade-secret misappropriation, breach of contract, and other claims, and seeking temporary and permanent injunctive relief. Inhance obtained an agreed temporary restraining order preventing TMRJ, Banks, and Molthen from using Inhance's processes, specifications, designs, and customer pricing. In October 2015, the trial court entered a temporary injunction against TMRJ, Banks, and Molthen, prohibiting them from using or disclosing Inhance's proprietary processes and equipment.

         The case went to trial in June 2016. Adrian Samaniego, Inhance's director of engineering and quality, testified for the company. He described the three steps of Inhance's proprietary fluorination process. The first uses a closed electrolytic cell that creates fluorine from hydrogen fluoride and captures fluorine gas. The second step of the process conveys and stores the fluorine gas at a regulated pressure. The third is application, involving a reactor and systems that apply a barrier treatment on plastic articles for the customer. Samaniego testified that "[t]he compilation of all of these factors that allows us to build our plants as cheaply and as efficiently as we do . . . that constitutes our trade secret." He analogized the compilation to a cake recipe:

[C]akes have . . . flour, they have butter, and they have sugar. What our trade secret is, is our recipe: the proportions, the dimensions, the amount of time you cook it for . . . . [Like the recipe for] Coca-Cola, for instance."

         Inhance adduces expert testimony to support a royalty payment.

         Inhance presented evidence of the amount of reasonable royalty it sought as damages through James Woods. Woods holds a Ph.D. in finance and has experience and expertise in the valuation of trade secrets and other intellectual property. He calculated that a reasonable royalty for Inhance's trade secrets ranged from $6.7 million to $10.2 million. To arrive at this amount, he constructed a hypothetical negotiation that would have occurred at the time that TMRJ misappropriated or began using the trade-secret information. He considered (1) the actual or competitive posture of the parties; (2) the amount of money paid to purchase the trade secret or to license the trade secret in the past; (3) the total value of the trade secret to the plaintiff, including its development costs and its importance to the business; (4) the extent to which the defendants used the trade secret; and (5) any particular elements or factors relevant to the specific case.

For the first factor, Woods opined that:
If TMRJ were to enter the marketplace, it's unlikely that they could enlarge the market; all that they could do would be to take customers from Inhance. And so the entry of TMRJ into the marketplace would ...

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