The recent oil/gas boom in Texas, North Dakota, and other parts of North America has unsurprisingly spurred an increase in oil/gas litigation. While most of that litigation typically involves contractual or real property disputes, more frequently disputes are arising out of the use (and alleged misuse) of oil and gas intellectual property—namely, trade secrets. And trade secret law is quickly developing as it relates to oil and gas exploration, as seen in Lamont v. Vaquillas Energy Lopeno Ltd, LLP (Tex. App.—San Antonio, Dec. 11, 2013).
In Lamont, the trade secret at issue was a seismic map referred to as the “Treasure Map.” The Treasure Map identified a sizeable reservoir that overlapped two tracts of property on the Lopeno Prospect—the Worley and El Milagro properties. Ricochet Energy, Inc., jointly owned by Thomas Lamont and Jerry Hamblin, began leasing and developing the Worley property.
Lamont decided to leave Ricochet and signed a separation agreement giving him an interest in the Lopeno Prospect. Thereafter, Lamont recruited other investors to join him in competing against Ricochet for the El Milagro lease (the other property on the Lopeno Prospect). In order to convince these investors of the value of the reserves found in the Lopeno Prospect, Lamont used the contents of the Treasure Map. Eventually, Lamont won the lease for the El Milagro property, drilled the property, and depleted the Lopeno Prospect—preventing Richochet and its partners from withdrawing as much as they might have. The two companies working with Ricochet to develop the Lopeno Prospect then sued Lamont and his business partners for misappropriation of trade secrets, among other things.
At trial, the jury found Lamont and his partners liable for misappropriation of trade secrets. On appeal, the trade secret portion of the case centered around two elements of trade secret misappropriation: (1) whether the Treasure Map was a trade secret, and (2) whether Lamont discovered the trade secret by “improper means.”
As to the first issue, the primary question was whether the Treasure Map lost its trade secret status when Ricochet showed the map to some potential investors without requiring them to enter into confidentiality agreements. On this score, the appellate court stated that “trade secret status is not destroyed simply by showing the protected item to prospective buyers, customers, or licensees.” And given that the court considered the disclosure to investors to be “limited,” the court concluded that the disclosure did not destroy the trade secret status of the Treasure Map.
As to the second issue—discovery by “improper means”—the appellate court held that Lamont and his partners could have permissibly used the Treasure Map for some reasons, but not others. For example, the court stated that “appellants review of the Treasure Map was proper solely for the purpose of deciding whether to invest in the Worley wells; it was not proper for drilling wells on the El Milagro property in competition with Ricochet’s wells.” (emphasis in original) And the court ultimately held that “because neither Lamont nor [another investor] had authority from Ricochet or Hamblin to use the Treasure Map to locate gas in the El Milagro property, it was not unreasonable for the jury to determine Appellants misused the map to locate the El Milagro wells and in doing so, their actions fell below the generally accepted standards of commercial morality and reasonable conduct.”
Looking for important oil/gas-specific trade secret lessons from Lamont v. Vaquillas Energy? First, as an employee leaving an oil/gas company with trade secrets, it may be permissible to use those secrets for some reasons but not others. Here, Lamont, as a former officer and director of Ricochet, was well within his rights to use the Treasure Map to determine whether and how he wanted to continue investing as a working-interest owner in the Worley Wells—as this was consistent with his former obligations as officer and director and not competitive against Ricochet. But using those same trade secrets to turn around and compete against Ricochet is not permissible.
Second, confidentiality agreements are not always required to preserve the trade secret status of documents shown to potential investors. Take this statement with caution, however, as confidentiality agreements are still recommended—otherwise one is left arguing to the court that the disclosure is “limited,” and that is a slippery slope fraught with danger.
Article co-authored with former Fish attorney, Stephen E. Fox
The opinions expressed are those of the author(s) and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes and is not intended to be and should not be taken as legal advice.