Appeal from the 269th District Court Harris County, Texas
Trial Court Case No. 2015-41670
consists of Justices Higley, Bland, and Brown.
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.
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.
develops an in-house process for converting solid fluorine to
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.
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.
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.
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.
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.
Inhance executives leave and form a competing
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
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
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.
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.
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
sues TMRJ, Banks, and Molthen.
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.
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
adduces expert testimony to support a royalty
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 ...