Court of Appeals of Texas, Dallas. GLOBAL WATER GROUP, INC., Appellant, v. Robert ATCHLEY and Aspen Water, Inc., Appellee. No. 05-06-00709-CV. Jan. 9, 2008.
Rehearing Overruled Feb. 14, 2008.
Background: Water purification corporation filed lawsuit against its former president and his competing water purification company, asserting claims for misappropriation of trade secrets and breach of shareholder agreement. Following a jury verdict in favor of plaintiff, defendants filed motion for judgment notwithstanding the verdict (JNOV). The 116th Judicial District Court, Dallas County, Robert Frost, J., granted motion. Plaintiff appealed.
Holdings: The Court of Appeals, O'Neill , J., held that:
(1) plaintiff's formula of compound used in "mixed media pod" during absorption step of water purification process was not a trade secret;
(2) sequence of process used by plaintiff in its water purification system was not a trade secret; and
(3) corporation's former president did not breach shareholder agreement.
In the 1990s, Global created the first successful self-contained, self-powered, mobile water purification system. Global treated this system as a trade secret and required all its employees to sign confidentiality agreements. Atchley was Global’s president until 1994, when he resigned, and Atchley had access to all of Global’s claimed trade secrets. Beginning in 1999, Atchley began manufacturing portable self-sustained water purification systems through his own company. Global filed suit against Atchley for misappropriation of trade secrets and conspiracy. After trial, the jury found in favor of Global, concluding that its trade secrets had been misappropriated and awarding one million dollars in damages based on lost profits. The trial court, however, granted Atchley’s motion for judgment notwithstanding the verdict on the grounds that Global failed to prove that it had any trade secrets and that Atchley had used any such trade secrets.
The Court of Appeals affirmed the order granting judgment notwithstanding the verdict. Under Texas law, “a trade secret is any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it.” The court rejected the contention that because Global treated its information as secret, it was therefore a trade secret. Instead, the court examined a number of factors in making its determination. In this case, Global contended that its trade secrets were the formula of the compound it used to treat the water and the sequence of the processes it used. The court noted that other manufacturers of water purification systems used the same ingredients that Global did. While Global claimed the ratio of ingredients was secret, the court disagreed, stating that “Global however claims no secret in any discrete formula” but instead claimed only an approximate ratio as its trade secret. According to the court, “the imprecise nature of the information weighs heavily against it being a trade secret.” Because there was no discrete formula it issue, the court was uncertain as to “what information Atchley . . . should be prohibited from using. For example, should they be prohibited from using a 10:80 ratio, 30:70, 40:60? It thus becomes apparent, it would be difficult to protect such a ‘formula’ without prohibiting fair competition.”
The court also determined Global had failed to demonstrate that the formula gave it a competitive advantage and did not show that it took money or effort to create the formula. In addition, the similarities between the formula used by Atchley and Global’s formula was insufficient to raise an inference that a trade secret had been misappropriated.