American Derringer Corp. v. Bond, 10-95-263-CV

• Decision Date: 19 June 1996
• Docket Number: No. 10-95-263-CV,10-95-263-CV
• Parties: AMERICAN DERRINGER CORPORATION, Appellant, v. Greg BOND, Individually and d/b/a Texas Arms, Appellee.
• Court: Texas Court of Appeals

Page 773

924 S.W.2d 773

AMERICAN DERRINGER CORPORATION, Appellant, v. Greg BOND, Individually and d/b/a Texas Arms, Appellee.

No. 10-95-263-CV.

Court of Appeals of Texas,

Waco.

June 19, 1996.

Greg White, McGregor & White, Pat Beard, Beard & Kultgen, Waco, for appellant.

Gerald L. Bolfing & Andy E. McSwain, Fulbright, Winniford, Bice and Marable, Waco, for appellee.

Before CUMMINGS and VANCE, JJ., and McDONALD, C.J. (Retired).

OPINION

VANCE, Justice.

This appeal involves trade secrets and malicious prosecution. We find "no-evidence" to support a finding that a company did not have probable cause to institute proceedings to enjoin a former employee from selling a competing product. We reverse the judgment for the employee on his malicious prosecution claim and render judgment for the employer.

In August of 1991, American Derringer Corporation (ADC) hired Greg Bond, an engineer who was also a gun collector but who had never before worked for a gun manufacturer. As its name implies, ADC manufactures derringer-type handguns. Bond worked for ADC for almost a year before he was fired. Shortly afterwards, ADC learned that Bond's company, "Texas Arms," intended to market a gun similar to one of its products and sued him for misappropriation of trade secrets. The court issued an ex parte temporary restraining order prohibiting Bond from "manufacturing, marketing, soliciting or offering for sale, advertising, promoting, or otherwise displaying a Derringer styled pistol" with certain enumerated features. Bond immediately filed an answer and a motion to dissolve the restraining order. The court dissolved the restraining order three days after its issuance. Bond then filed a counterclaim for malicious prosecution.

A jury found: (1) Bond did not convert any of ADC's trade secrets; (2) ADC lacked probable cause to bring the suit and obtain the injunctive relief; (3) ADC acted with malice; and (4) Bond sustained $131,500 in actual damages. Judgment for Bond was entered on the verdict.

ADC presents six points of error complaining of (1) the legal and factual sufficiency of the evidence to support the jury's finding that ADC lacked probable cause to pursue its claim against Bond, (2) an erroneous award of damages for the diminished value of Bond's business, (3) the legal and factual sufficiency of the evidence to support the jury's award of damages for mental anguish, (4) two instances of error in the charge, and (5) the award of attorney's fees. In a cross-point, Bond asserts that the court erred in refusing to submit jury questions concerning his claim that ADC was in violation of the Texas Antitrust Act. TEX.BUS. & COM.CODE ANN. §§ 15.01-.52 (Vernon 1987 & Supp.1996).

TRADE SECRETS

Before we address the points of error, we briefly discuss the law governing trade secrets as it relates to this case. We do so because that is the theory upon which ADC sought and received the injunctive relief which, in turn, became the basis for Bond's counterclaim for malicious prosecution. We stress at the outset that we do not question the jury's finding that Bond had not misappropriated ADC's information--a finding that has not been attacked. Our inquiry is limited to whether the jury was justified in finding that ADC had no probable cause to believe that Bond had violated the confidential relationship and wrongfully exploited its trade secrets.

TRADE SECRETS GENERALLY

ADC's suit was brought on the theory that Bond had misappropriated information used by ADC in the design, manufacture, and marketing of its products. This cause of action was described in section 757 of the original Restatement of Torts:

One who discloses or uses another's trade secrets, without a privilege to do so, is liable to the other if (a) he discovers the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him....

RESTATEMENT OF TORTS § 757 (1939). ¹

A "trade secret" may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. Computer Assoc. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex.1996). Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d 763, 776 (on rehearing) (quoting RESTATEMENT OF TORTS § 757), cert. denied, 358 U.S. 898, 79 S.Ct. 223, 3 L.Ed.2d 148 (1958). "A trade secret may be a device or process which is patentable; but it need not be that. It may be a device or process which is clearly anticipated in the prior art or one which is merely a mechanical improvement that a good mechanic can make. Novelty and invention are not requisite for a trade secret as they are for patentability." K & G Oil Tool & Serv. Co. v. G & G Fishing Tool Serv., 158 Tex. 594, 314 S.W.2d 782, 789 (1958) (quoting RESTATEMENT OF TORTS § 757). The mere fact that knowledge of a product might be acquired through lawful means such as inspection, experimentation, and analysis does not preclude protection from those who would secure that knowledge by unfair means. See id. 314 S.W.2d at 788. "The question is not, 'How could he have secured the knowledge?' but 'How did he?' " American Precision Vibrator Co. v. National Air Vibrator Co., 764 S.W.2d 274, 277 (Tex.App.--Houston [1st Dist.] 1988, no writ) (citing Brown v. Fowler, 316 S.W.2d 111, 114 (Tex.Civ.App.--Fort Worth 1958, writ ref'd n.r.e.)).

DUTY OF AN EMPLOYEE

Upon the formation of an employment relationship, certain duties arise apart from any written contract. Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 600 (Tex.App.--Amarillo 1995, no writ). One of those duties forbids an employee from using confidential or proprietary information acquired during the relationship in a manner adverse to the employer. Id.; Numed, Inc. v. McNutt, 724 S.W.2d 432, 434 (Tex.App.--Fort Worth 1987, no writ). This obligation survives termination of employment. Miller Paper, 901 S.W.2d at 600; Auto Wax Co., Inc. v. Byrd, 599 S.W.2d 110, 111 (Tex.Civ.App.--Dallas 1980, no writ). Although this duty does not bar use of general knowledge, skill, and experience, it prevents the former employee's use of confidential information or trade secrets acquired during the course of employment. Miller Paper, 901 S.W.2d at 600-01; American Precision, 764 S.W.2d at 278. "In Texas, courts condemn the employment of improper means to procure trade secrets." American Precision, 764 S.W.2d at 277.

When a claim of improper disclosure or use of trade secrets arises from a confidential relationship, such as between an employer and an employee, the injured party is not required to rely upon an express agreement that the offending party will hold the trade secret in confidence. See Hyde Corp., 314 S.W.2d at 770 (quoting the Restatement of Torts); Gonzales v. Zamora, 791 S.W.2d 258, 265 (Tex.App.--Corpus Christi 1990, no writ). Likewise, the absence of an ulterior or improper motive in entering into the relationship will not preclude relief for an injured party. See Hyde Corp., 314 S.W.2d at 770. "The gravamen of [such a complaint] is breach of confidence." Id. The question is: Has the offending party abused the trust that was reposed in him incident to a confidential relationship with the injured party? See id. (quoting from E.I. DuPont De Nemours Powder Co. v. Masland, 244 U.S. 100, 102, 37 S.Ct. 575, 576, 61 L.Ed. 1016 (1917)).

The employer must show that the information was, in fact, a trade secret. ² American Precision, 764 S.W.2d at 279 (citing Hallmark Personnel of Texas, Inc. v. Franks, 562 S.W.2d 933, 936 (Tex.Civ.App.--Houston [1st Dist.] 1978, no writ)). Items such as customer lists, pricing information, client information, customer preferences, buyer contacts, market strategies, blueprints, and drawings have been shown to be trade secrets. See, e.g., Miller Paper, 901 S.W.2d at 601 (affirming temporary injunction against former employees restricting use of confidential information); American Precision, 764 S.W.2d at 278 (evidence factually sufficient to support finding that items were trade secrets).

The protection of a trade secret is a well-recognized objective of equity. K & G Oil Tool, 314 S.W.2d at 790 (injunctive relief upheld after design of an oil field tool was obtained by a licensee in violation of an express agreement not to disassemble the tool); Hyde Corp., 314 S.W.2d at 770 (trade secrets, distinguished from patents, subject to protection under the equitable jurisdiction of state courts).

SUMMARY

In a 1987 Texas Bar Journal article, we find this summary:

Under Texas law, a person is liable for the disclosure of trade secrets if he discovers the secret by improper means or his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him. Mercer v. C.A. Roberts Co., 570 F.2d 1232, 1238 (5th Cir.1978); Hyde Corp., 314 S.W.2d at 769. Injunctive relief may be granted when an employee breaches his confidential relationship with his employer in order to unfairly use a trade secret, and the employer is not required to rely upon an express agreement to hold such trade secrets in confidence.

Marcia A. Crone, The Departing Employee--Prevention of Competition and Protection of Trade Secrets, 50 Tex.B.J. 372, 374 (1987). And, "[a] former employee is free, however, to use in later employment the general skills, knowledge, and experience which he has acquired, even if the former employment has acted to increase his skills and if such training is complex and extensive." Id. at 375. The article also discusses the "commonly accepted definition" of a trade secret, as "found in the Restatement of Torts § 757 (1939)." Id. at 374. Finally, the article states: "There are several remedies available to protect ... trade secrets. ...