Lawfinders Associates v. Legal Research Center

• Decision Date: 04 November 1998
• Docket Number: No. Civ.A. 3:98-CV-1766-D.,Civ.A. 3:98-CV-1766-D.
• Citation: 65 F.Supp.2d 414
• Parties: LAWFINDERS ASSOCIATES, INC., et al., Plaintiffs, v. LEGAL RESEARCH CENTER, INC., Defendant.
• Court: U.S. District Court — Northern District of Texas

65 F.Supp.2d 414

LAWFINDERS ASSOCIATES, INC., et al., Plaintiffs, v. LEGAL RESEARCH CENTER, INC., Defendant.

No. Civ.A. 3:98-CV-1766-D.

United States District Court, N.D. Texas, Dallas Division.

November 4, 1998.

Publication ordered, August 24, 1999.

COPYRIGHT MATERIAL OMITTED

Lisa H. Meyerhoff and Stephen J. Wyse of Jenkens & Gilchrist, P.C., Dallas, TX, for plaintiffs.

Matthew K. Davis and Jay E. Stuemke of Zelle & Larson, L.L.P., Dallas, TX, and Jeff I. Ross of Zelle & Larson, LLP, Minneapolis, MN, for defendant.

MEMORANDUM OPINION AND ORDER

FITZWATER, District Judge.

In this action for misappropriation of trade secrets, breach of contract, false designation of origin, and dilution of a service mark, plaintiffs Lawfinders Associates, Inc., a Texas corporation, Lawfinders Associates, Inc., a New York corporation, and Lawfinders Associates, Inc., a Delaware corporation (collectively, "LF") apply for a preliminary injunction against defendant Legal Research Center, Inc. ("LRC"). For the reasons that follow,¹ the court denies the application and dissolves the temporary restraining order entered by a Texas state court prior to removal.

I

LF and LRC compete in the market to provide legal research and brief writing services to attorneys, law firms, and corporate legal departments. From June 1997 to February 1998 they engaged in extended merger discussions, during which LF revealed to LRC what it deemed to be confidential and proprietary information.² The parties reached an agreement in principle, but did not consummate a formal merger. LF asserts that LRC began using and publicly disclosing LF's confidential and proprietary information almost immediately after the merger failed, and that LRC is infringing LF's GUARANTEED APPELLATE BRIEF PROGRAM service mark.

LF asserts that it primarily offers a unique and distinctive combination of services under its GUARANTEED APPELLATE BRIEF PROGRAM service mark, consisting of preparing appellate briefs for a flat fee, arranging financing of appellate legal fees, and offering a results-based guarantee. LRC principally offers legal research and writing support services to attorneys, including research, legal memoranda, and trial and appellate brief services. After the proposed merger failed, LRC decided to "aggressively develop, emphasize and promote its 20-year old appellate brief service." D.Resp. at 13. LRC "determined to meet features offered by several competitors by providing a results-based guarantee and an offer to help arrange financing in providing this service." Id. LRC named its appellate brief service LRC'S GUARANTEED APPELLATE BRIEF SERVICE. LF maintains that LRC used the confidential information revealed in the merger discussions to build its appellate brief service. LF identifies inter alia language in its retainer letter that appears in substantially similar form in LRC's retainer letter.

LF sues LRC on claims for misappropriation of trade secrets; breach of contract; false designation of origin under § 43(a) of the Lanham Act, 15 U.S.C § 1125(a); and dilution of its service mark under the Texas Anti-Dilution Act, Tex.Bus. & Com. Code Ann. § 16.29 (West Supp.1998). LF asks this court to enjoin LRC from (1) marketing or selling legal research and writing services utilizing a results-based guarantee tied to the success or failure of a particular case; (2) utilizing or disclosing LF's fixed-fee pricing formula or any of the information contained in that formula to quote fixed fees in connection with the offering of legal research and writing services; (3) offering to finance or arranging to finance the cost of an appeal utilizing LF's proprietary asset-based financing strategy; (4) accepting any legal research or brief writing engagements obtained through the use of the foregoing acts, including engagements of any type generated from or through mailing or other offer of a results-based guarantee; and (5) using LF's service mark GUARANTEED APPELLATE BRIEF PROGRAM or any confusingly similar mark in connection with legal research or writing services.

II

To obtain a preliminary injunction, LF must establish (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable injury if the injunction is not issued; (3) that the threatened injury outweighs any damage the order might cause to the defendant; and (4) that the injunction will not disserve the public interest. Ruscitto v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 777 F.Supp. 1349, 1353 (N.D.Tex.) (Fitzwater, J.) (citing Canal Auth. of State of Fla. v. Callaway, 489 F.2d 567, 572 (5th Cir. 1974)), aff'd, 948 F.2d 1286 (5th Cir.1991) (per curiam) (table). A preliminary injunction "is an extraordinary and drastic remedy, not to be granted routinely, but only when the movant, by a clear showing, carries the burden of persuasion." White v. Carlucci, 862 F.2d 1209, 1211 (5th Cir. 1989) (quoting Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 997 (5th Cir.1985)).

The court holds that LF has failed to establish a substantial likelihood of success on the merits of any of its claims. Therefore, the court need not address any other factors in the four-part formulation.

III

LF contends that it divulged to LRC the following information that is protected as a trade secret under the confidentiality agreement and/or Texas law: (1) the formulation of LF's results-based guarantee, (2) LF's fee financing program, (3) LF's risk management formulations, and (4) LF's direct marketing strategy.

A

To establish a trade secret misappropriation claim under Texas law, LF must demonstrate (1) the existence of a trade secret, (2) the trade secret was acquired through a breach of a confidential relationship or discovered by improper means, (3) use of the trade secret without authorization from the plaintiff, and (4) damages. Taco Cabana Int'l, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1123 (5th Cir. 1991), aff'd, 505 U.S. 763, 112 S.Ct. 2753, 120 L.Ed.2d 615 (1992); H.E. Butt Grocery Co. v. Moody's Quality Meats, Inc., 951 S.W.2d 33, 34 (Tex.App.1997, writ requested). Because LF cannot establish the existence of a trade secret, the court need not address the other elements.

A trade secret is defined as any formula, pattern, device, or compilation of information used in a business, that gives the owner an opportunity to obtain an advantage over competitors who do not know or use it. Phillips v. Frey, 20 F.3d 623, 628 (5th Cir.1994); Taco Cabana, 932 F.2d at 1123. "It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers." Chandler v. Mastercraft Dental Corp. of Tex. Inc., 739 S.W.2d 460, 468 (Tex.App.1987, writ denied). It is a process or device for continuous use in the operation of a business. Id. Generally, a trade secret relates to the production of goods. Id.

To be protected, a trade secret must give the owner a competitive advantage. Phillips, 20 F.3d at 628. It "must possess at least that modicum of originality which will separate it from everyday knowledge." Id. (quoting Cataphote Corp. v. Hudson, 444 F.2d 1313, 1315 (5th Cir. 1971)).

Texas law requires that a trade secret be a "secret." Zoecon Indus. v. American Stockman Tag Co., 713 F.2d 1174, 1179 (5th Cir.1983). The purported trade secret can neither be generally known by others in the same business nor readily ascertainable by an independent investigation. Id. A process or device may be a trade secret, however, even when others can gain knowledge of the process from studying the manufacturer's marketed product. Phillips, 20 F.3d at 629.

[T]he mere fact that such lawful acquisition is available does not mean that [the one accused of trade secret misappropriation] may, through a breach of confidence, gain the information in usable form and escape the efforts of inspection and analysis. The fact that a trade secret is of such nature that it can be discovered by experimentation or other fair and lawful means does not deprive its owner of the right to protection from those who would secure possession of it by unfair means.

K & G Oil Tool & Serv. Co. v. G & G Fishing Tool Serv., 158 Tex. 594, 314 S.W.2d 782, 788 (1958) (internal quotations omitted); see Phillips, 20 F.3d at 629 (citing Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974) (stating that trade secret law does not offer protection against discovery by fair and honest means such as independent invention, accidental disclosure, or reverse engineering; however, protection will be awarded to trade secret holder against disclosure or unauthorized use by those to whom secret has been confided, either under express or implied restriction of non-disclosure or by one who has gained knowledge by improper means)). Trade secret protection is based on a policy of protecting business from breaches of faith and reprehensible means of learning another's secret. FMC Corp. v. Varco Int'l, Inc., 677 F.2d 500, 503 (5th Cir.1982).

Because a trade secret must be a secret, the owner of a trade secret must do something to protect itself. Taco Cabana, 932 F.2d at 1123. A key part of the definition of a trade secret is secrecy. Gonzales v. Zamora, 791 S.W.2d 258, 264 (Tex.App.1990, no writ); see McGowan v. State, 938 S.W.2d 732, 737 (Tex.App.1996) (noting that secrecy is required, and that owner must have taken measures to prevent trade secret from becoming available to persons other than those selected by owner to have access for limited purposes) aff'd sub nom. Weightman v. State, 975 S.W.2d 621 (Tex.Crim.App.1998). The owner of a trade secret will lose its trade secret by disclosure unless the secret is revealed in some manner by which the owner creates a duty and places that duty on the other party not to disclose further or use the trade secret in violation of that duty. Taco Cabana, 932 F.2d at 1123 (citing Furr's, Inc. v. United...