Lawsuit for stolen trade secrets requires specific proof of damages

Calculator PictureA home health care provider in El Paso, Texas, recently sued four of its former employees for allegedly taking confidential company information and using the information to start a competing home health care business.  Cuidado Casero Home Health of El Paso, Inc. v. Ayuda Home Health Care Services, LLC, 2013 WL 2250704, at *1 (Tex. App. –El Paso, May 22, 2013)(subject to revision or withdrawal).  However, the health care provider lost its claims for misappropriation of trade secrets after a court of appeals found that the company failed to prove how much profit the company had lost as a result of its employees’ alleged disloyalty.  Id at *3-6.

Cuidado Casero, as the corporation bringing the lawsuit, estimated that it had lost thirty patients as a result of solicitations from former employees trying to lure the patients away to a competing business.  Id at *5.  However, the court found that Cuidado Casero failed to show how much profit it could have expected from each of those thirty patients if the patients had remained loyal customers.  Id at *6.  In addition, Cuidado showed no evidence that the lost thirty patients would likely have remained with Cuidado, absent the influence of the now-competing former employees.  Id.  Cuidado failed to present a review of its invoices for the lost patients, or any explanation of how the lost profits were calculated.  Id.

The opinion of the court of appeals does not say what evidence, if any, showed that the defendant employees took or used any trade secrets in the first place.  The court did not discuss whether Cuidado could prove the existence and misappropriation of its trade secrets, because there were no damages proven in any event.  Id at *3.  Some of Cuidado’s other claims were returned to the district court for further proceedings.

The Cuidado case holds at least three lessons for business owners who are contemplating a trade secret lawsuit over a former employee’s decision to “borrow” the company’s client lists, supplier lists, client contact information, written procedures, or other insider information for a competing business.

First, the potential plaintiff should stop to consider whether she is really losing that much business to the new competitor.  No matter how infuriating a former employee’s decision to join a competitor might be, the courts do not make sympathetic assumptions when it comes to the amount of money lost.  Under Texas trade secret law, unless the company can show some evidence of definite and specific losses that would not have occurred without the competitor’s misappropriation of trade secrets, the lawsuit won’t work.

Second, a company that has not had serious losses from stolen trade secrets may not find a lawsuit to be worth the trouble.  The time to measure the losses objectively is before, not after, spending a lot of time and money on a lawsuit.

Third, a company that has sustained major losses from stolen trade secrets, and has decided to sue, must identify which customers, contracts, or sales were lost, and at what dollar value.  The person who sues must also show that the losses would not have been sustained without the abuse of insider information.  To read the full text of the Cuidado opinion, follow the link below.

%d bloggers like this: