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Corporate Counsel Connect collection

October 2014 edition

Anti-SLAPP laws now anti-trade secret laws, too?

Jeremy Byellin, JD

Jeremy Byellin"Anti-SLAPP" laws are becoming increasingly prevalent, with the majority of states currently having one in effect. "SLAPP" is an acronym that stands for "strategic lawsuit against public participation," and such a lawsuit is exactly as the acronym describes: a lawsuit that is intended to inhibit or block the expression of information which has public value.

Thus, "anti-SLAPP" laws are those designed to combat such lawsuits, and they do so by creating a special motion to dismiss within the alleged SLAPP suit. Anti-SLAPP laws typically also allow for a stay of discovery while the special motion is pending. In addition, many anti-SLAPP laws allow (or, in some cases, require) courts to award attorney's fees and costs.

SLAPP laws and trade secret violation claim

These SLAPP laws were intended to protect against the abuse of the legal system by individuals and organizations wishing to prevent embarrassing or critical information from reaching the public. But what happens when such a law is used to defeat a trade secret violation claim?

The end of August saw such a defeat at the hands of Texas's own anti-SLAPP statute, 2011's Texas Citizens Participation Act. The case, Schlumberger, Ltd. v. Rutherford, involved actions by Charlotte Rutherford, Schlumberger's former deputy general counsel for intellectual property.

In June of 2013, Rutherford left Schlumber for a new position with Acacia Research Group as its senior vice president. In its own words, Acacia is "the industry leader in patent licensing;" others less-than-generously refer to the company as one of the worst patent trolls in the industry.

In December of last year, Acacia acquired the "Dynamic 3D" patent, a three-dimensional modeling technology. And this past February, Acacia sued Schlumberger, an oil-services firm in Houston, for patent infringement in regards to the Dynamic 3D patent.

In March, Schlumberger sued Rutherford in Texas state court for a slew of claims, including misappropriation of trade secrets, conversion, breach of fiduciary duty, and breach of contract, alleging that Rutherford used confidential trade secret information to recommend that Acacia acquire the Dynamic 3D patent and approve a patent infringement lawsuit against her previous employer for that patent.

Rutherford responded with a motion to dismiss under the state anti-SLAPP law, claiming that Schlumberger filed the lawsuit against her in retaliation for joining the company that was now suing her old employer for patent infringement.

In August, Harris County District Judge R.K. Sandill dismissed all but one cause of action (breach of contract) against Rutherford, and further ordered Schlumberger to pay $350,000 in attorneys' fees and $250,000 in sanctions.

So if these anti-SLAPP laws are supposed to protect against public participation in government, how was it used so effectively to defeat trade secrets theft claims? At oral arguments, Judge Sandill noted that filing a lawsuit is well within the scope of this "participation in government" protected by the statute.

Perhaps more damning to Schlumberger was the evidentiary burden that was applied by Judge Sandill, who found that Schlumberger needed to produce "clear and specific" evidence to support every element of every alleged claim. Considering that this motion was considered before discovery had begun, this was a standard that Schlumberger had very little hope of meeting. Although the timing of Acacia's acquisition of the Dynamic 3D patent and the infringement lawsuit against Schlumberger seem highly suspect to outside observers, Judge Sandill correctly noted that all Schlumberger had was circumstantial evidence.

The implications

What does this mean for future trade secret theft litigation? Considering that no two state anti-SLAPP laws look the same, it's difficult to say for certain. However, the overwhelming success achieved by Rutherford will be quite appealing to any others similarly situated, who will be certainly seeking to use their own state's anti-SLAPP law to their full advantage. In short, if this kind of success is repeatable in other jurisdictions, a new and powerful defense against trade secret actions has been created.

Schlumberger has appealed the decision – an appeal that will undoubtedly be followed closely since it could potentially have major impact on trade secrets litigation.

About the author

Jeremy Byellin is a practicing attorney in the state of Minnesota and a writer for the Westlaw Insider blog. His articles for the blog cover a wide range of legal topics, with a specific focus on major legal developments and cyberlaw.