In Heil Trailer International Company v. Gavin Kula et al., the U.S. Court of Appeals for the Fifth Circuit preliminarily enjoined the defendant from using the plaintiff’s trade secrets. Heil Trailer alledged that former employees – while still working for Heil – illegally sent confidential information to a competitor. The trial court denied Heil’s request for a preliminary injunction because it found that the information could have been acquired by competitors (one of the factors in the applicable state law test) and that Heil’s damages would be quantifiable, making an injunction unnecessary.
The Fifth Circuit rejected the second ground because it rested on federal law that was inapplicable to the state law question at issue.
As to the availability-to-competitors factor, the appellate court observed that under state law a plaintiff is not required to satisfy all six factors for determining whether confidential information was a trade secret. Rather than rest its decision on the lack of a single factor, the Fifth Circuit held, the lower court should have weighed the factors in context.
“Texas courts,” the Fifth Circuit panel emphasized, “have explained consistently that ‘the party claiming a trade secret should not be required to satisfy all six factors because trade secrets do not fit neatly into each factor every time.’” Here, the injunction should have been granted, the court found, because five of the six factors were met, and there was “no indication that the district court balanced this single unfavorable factor against the other five.” Nor did the lower court, “explain why this factor should be given greater weight than the other five factors or tip the balance in this particular case against trade secret status.” The panel also expressed a lack of confidence in the lower court’s fact finding, commenting on its failure to hold an evidentiary hearing despite conflicting affidavits on the factor that the court found controlling.