5 minute read | June.24.2020
The right to a jury trial is one of the most important features of modern trade secrets law. But as a recently issued Order from the Texas Fourth Court of Appeals (“Court of Appeals”) illustrates, the jury trial right is only as good as the jury instructions that execute that right.
In Title Source, Inc. v. House Canary, Inc., a jury awarded HouseCanary $740 million in damages for trade secret misappropriation and fraud based on a robust evidentiary record. But the damages verdict evaporated on appeal due to a flaw in the jury instruction regarding the “improper means” element of the Texas Uniform Trade Secrets Act. This case provides a cautionary tale that underscores the importance of carefully tailoring jury instructions to fit the particular facts of the case in a trade secrets dispute.
Litigation Between HouseCanary and Title Source, Inc.[1]
In 2015, HouseCanary, a real estate analytics company, and Title Source, a title insurance company, entered into a contract through which HouseCanary agreed to develop an iPad application (“the app”) to assist Title Source with appraising and valuing properties. The parties’ contract prohibited Title Source from attempting to discover or reverse engineer HouseCanary’s confidential information used to develop the app. To create the app, HouseCanary used its proprietary appraisal tools, custom data dictionary, and valuation models intended to improve various aspects of the appraisal process. Throughout the development project, Title Source repeatedly requested access to data, analytics, and formulas underlying HouseCanary’s proprietary technologies, raising HouseCanary’s suspicions. HouseCanary repeatedly rejected these requests, but Title Source persisted. At one point, Title Source proposed an amendment to the parties’ contract that would have required HouseCanary to send all of the technical information underlying the app to Title Source and would have permitted Title Source to use such information for its own purposes. HouseCanary refused to sign the proposed amendment, and the parties’ relationship rapidly deteriorated thereafter.
In April 2016, Title Source sued HouseCanary in Texas state court (Bexar County) for breach of contract and fraud, alleging that HouseCanary failed to meet its obligations under the parties’ contract. HouseCanary filed counterclaims against Title Source, including misappropriation of its trade secrets in violation of the Texas Uniform Trade Secrets Act (“TUTSA”), fraud, and breach of contract.
In March 2018, a jury rejected Title Source’s claims and found in favor of HouseCanary on its counterclaims. The jury awarded HouseCanary $706 million in damages, including $235.4 million in compensatory damages and $471.4 million in punitive damages. After the court added $28.9 million in prejudgment interest and $4.5 million in attorney’s fees, the total damages awarded to HouseCanary were nearly $740 million.
Title Source appealed, arguing, among other things, that the evidence in the trial record was inconsistent with the instruction provided to the jury and did not support the jury’s finding that it misappropriated HouseCanary’s trade secrets or committed fraud.
The Court of Appeals Decision
Relying on a seemingly innocuous provision of the jury charge, the Court of Appeals overturned the jury verdict and remanded the case for a new trial on HouseCanary’s trade secret misappropriation claim under TUTSA.[2]
In support of its decision, the Court of Appeals opined that the jury instructions improperly contained multiple liability theories that were not supported by the evidence. Citing to a 2009 Texas Supreme Court decision, the Court of Appeals explained that a jury instruction is proper if it “(1) assists the jury; (2) accurately states the law; and (3) finds support in the pleadings and evidence.”
Here, the jury was instructed that it could find Title Source misappropriated HouseCanary’s trade secrets based on either a “use” theory or an “acquisition by improper means” theory. The jury was further instructed that “improper means” includes bribery, espionage, and “breach or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret.” HouseCanary did not pursue bribery or espionage theories during trial, as HouseCanary conceded during appellate oral argument. HouseCanary did, however, argue that there was ample evidence to support a “breach or inducement” theory of improper means, pointing to the fact that Title Source breached a duty to limit its use of HouseCanary’s trade secrets, as specified in the parties’ contract, because it improperly used HouseCanary’s data for its own purposes.
The Court of Appeals noted, however, that there was no evidence that Title Source actually acquired HouseCanary’s trade secrets through any alleged breach. Rather, the evidence demonstrated that Title Source’s breach, if any, occurred after Title Source “acquired” the trade secrets “properly” under the parties’ contract. Relying on Texas precedent holding that a post-acquisition breach of a confidentiality or non-disclosure agreement “is irrelevant to the method by which [TSI] obtained access to the trade secrets in the first instance,”[3] the Court of Appeals concluded that any post-acquisition breach of the parties’ contract could not support an “acquisition by improper means” theory of liability. As a result, the Court of Appeals declared that the inclusion of the “breach or inducement of breach” language in the definition of “improper means” submitted to the jury constituted harmful error.
The Court of Appeals elaborated that when a jury instruction mixes valid and invalid theories, a new trial is required because it cannot be determined whether the jury’s verdict is based on a valid or invalid theory. Based on this doctrine, the Court of Appeals ruled that it must reverse the trial court’s judgment and remand the case for a new trial on HouseCanary’s TUTSA and fraud claims.
The Court of Appeal’s Order provides a reminder that jury instructions should not deviate from the evidence submitted or theories pursued by the parties during the course of a trial. As demonstrated by this case, a trade secrets jury instruction that mixes valid and invalid theories may provide a sufficient basis to overturn the jury’s verdict, no matter the strength of the underlying evidence.
[1] Title Source, Inc. is now known as Amrock.
[2] The Court of Appeals also remanded the case for a new trial on HouseCanary’s fraud claims.
[3] Educ. Mgmt. Servs., LLC v. Tracey, 102 F. Supp. 3d 906, 914 (W.D. Tex. 2015).