## COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH NO. 02 - 13 - 00338 - CV

IN RE PRAIRIESMARTS LLC AND CASEY ROCKWELL RELATORS

--------- ORIGINAL PROCEEDING

---------- 

### OPINION

---------- I. I NTRODUCTION R elator s PrairieSmarts LLC and C asey Rockwell seek a writ of mandamus directing R espondent to vacate a Sep tember 18, 2013 order granting R eal Party in I nterest TD Ameritrade , Inc. ‘ s r ule 202 petition

. See Tex. R. Civ. P. 202. Because we hold that Respondent abused his discretion by gra nting the r ule 202 petition and because Relators possess no adequate remedy at law, we will conditionally grant the writ.2 II. F ACTUAL AND P ROCEDURAL B ACKGROUND Four former employees of TD Ameritrade subsequently became employed by PrairieSmarts. 1 Those four individuals are D r. Renaud Piccinini , Michael Chochon, Chris Nagy, and Casey Rockwell

. Dr. Piccinini obtained a Ph.D. in finance in 2004 and wrote his dissertation on risk and volatility in financial markets or so - called ―Black Swan Events

. ‖ Prior t o working for TD Ameritrade, Dr. Piccinini helped develop risk models for the holdings of First National Bank of Omaha. Dr. Piccinini began working for TD Ameritrade in February 2010 , and TD Ameritrade terminated Dr. Piccinini on May 2, 2012 , after the P o rtfolio Margin model that he had helped to design received approval from the federal regulators at the Financial Industry Regulatory Authority (FINRA). 2 Chochon began working for TD Ameritrade in 2003 , and he was the person who had hired Dr. Piccinini to perform the above

- de scribed work at TD Ameritrade. TD Ameritrade termina ted Chochon on March 31, 2011. Nagy joined TD Ameritrade in August 1999 and served as Managing Director of Order Routing, Sales , and Strategy. TD Ameritrade ter minated Nagy on May 2 6, 2012. Rockwell, a software developer and computer programmer, began working for TD Ameritrade in March 2004 and voluntarily left in October 2012 to work for PrairieSmarts.

1 PrairieSmarts is a Nebraska start

- up company.

2 TD Ameritrade ‘ s counsel explained that ―the [ Portfolio Margin application ] is something that the government requires of organizations like TD Ameritrade to demonstrate how we ‘re managing risk in our clients ‘ portfolios. And the government allows us to develop p roprietary means to do that.‖3

In January 2013, PrairieSmarts filed a patent application 3 for a program that P rairieSmarts calls P ortfolioDefense TM and began beta testing the program. TD Ameritrade thereafter filed a r ule 202 petition asserting that it appeared likely that PrairieSmarts ‘ s employe e s Dr. Piccinini, Chochon, Nagy, and Rockwell had

— in designing Portf olioDefense TM

— misappropriated confidential and proprietary assets of TD Ameritrade in violation of the nondisclosure provision s in their res pective employment contracts. By it s rule 202 pe tit i on, TD Ameritrade sought to depose PrairieSmarts and Rockwell a nd to have PrairieSmarts and Rockwell produce various documents at their de p os i tions. PrairieSmarts and Rockwell filed answers to the r ule 202 petition, denying all allegations in the petition and objecting to the depositions and production of the documen ts sought by TD Ameritrade on the ground that both sought privileged trade secret information belonging to PrairieSmarts

. PrairieSmart s ‘ s answer also objected to venue in Tarrant County. 4 Respondent set a hearing on TD Ameritrade ‘ s r ule 202 petition ; a week before the hearing , PrairieSmarts filed affidavits from D r. Piccinini , Chochon,

3 Patent applications are maintained by the United States Patent and Trademark Office as confidential for eighteen months after the application is filed or until issuance of the patent, whichever comes first, and the information regarding patent applications may not be released before that time without the permission of the applicant. See 35 U.S.C.A. § 122 (West 2001).

4 Because the arguments of Relator PrairieSmarts and R elator Rockwell are identical in this original proceeding, except as to the venue issue, we sometimes refer to both Relators collectively as PrairieSmarts.4

Nagy, an d Rockwell, asserting that no confidential information belonging to TD Ameritrade was utilized in creating the code for PortfolioDefense TM and claiming that the in formation sought by TD Ameritrade constituted trade secret information belonging to PrairieSmarts. At the hearing on TD Ameritrade ‘ s r ule 202 petition , TD Ameritrade argued that the facts as set forth below constituted ―smoke,‖ ― red flags[,] ‖ or ― the indic ia of a potential appropriation of trade secrets case‖ sufficient to justify the

r equested discovery. TD Ameritrade provided Respondent with three demonstrative exhibits that it had created utilizing information from the four affidavits filed by PrairieSm ar ts. The three exhibits are one

- page typed sheets titled, ―Facts About PrairieSmarts ‘ s Principals , ‖ ―Timeline,‖ and ―Facts Justifying Investigation

. ‖ The documents show the dates the four former TD Ameritrade employees left TD Ameritrade and began emplo yment with P rairieSmarts , provided a comparison of the time it took to create the Profit Margin model at TD Ameritrade versus the time it took to create PortfolioDefense TM at PrairieSmarts , and stated that the following facts justified TD Ameritrade ‘ s inve stigation via the discovery it had requested from PrairieSmarts : the fact that three of the four PrairieSmarts principals were directly responsible for TD Ameritrade ‘ s confidential risk analysis; the fact that PrairieSmarts ‘ s principals have thirty

- one

co mbined years of TD Ameritrade tenure; the fact that five days after Dr. Piccinini left TD Ameritrade, he co

- founded PrairieSmarts; the fact that three months after Rockwell started working at PrairieSmarts, a patent application was filed for5

PortfolioDefen se T M
, while it took f ourteen months after D r. Piccinini ‘ s hire at TD Ameritrade until the Profit Margin application was submitted to FINRA; the fact that similarities exist between the two products

— TD Ameritrade contend s four matching components are observ able by comparing PrairieSmarts ‘ s website and the FINRA application for Portfolio Margin ; 5 and the fact that the products have

n early identical outcomes, which TD Ameritrade explained w as PortfolioDefense T M ‘ s having nearly the same predictive capability as TD Ameritrade ‘ s Portfolio Margin. TD Ameritrade argued that these ―red flags‖

c oncern ed TD Ameritrade and established ―that there is a significa nt advantage to be gained for [TD Ameritrade ] to do some investigation, some discovery to see how these concep ts that line up on both sides are actually performed and whether they are performed using confidential info rmation [from] TD Ameritrade.‖ At the hearing , PrairieSmarts argued that the circumstances TD Ameritrade had c haracterized as smoke or red flags w e re nothing more than legal activities . PrairieSmarts asserted that some of its managing members

— three of whom had been terminated by TD Ameritrade

— had gone on to other employers before joining PrairieSmarts and had continued to work in the same area of ex pertise. PrairieSmarts contended that it was a mis characterization to say that it took Dr. Piccinini and the team at TD Ameritrade fourteen months to create Portfolio Margin because twelve of the months were ―simply TD

5 TD Ameritrade also admitted into evidence screen shots from PrairieSmarts‘s website and the FINRA application for Portfolio Margin.6

Ameritrade[  ̳ s] using their Portfolio Margin to then get to the one

- ye ar audit that FINRA would do.‖ PrairieSmarts denied that PortfolioDefense TM was based on any intellec tual property of TD Ameritrade and a sser t ed that TD Ameritrade ‘ s Portfolio Margin is different from PortfolioDefense TM be cause Portfolio Margin was designed for use by brokers

— not individual investors; was created to satisfy a government

- mandated risk analysis requiring brokers to evaluate volatility and risk of only 3,000 to 4,000 specifically identified stocks; and is a ca lculation that computes for brokers certain margin requirements for highly leveraged portfolios so that brokers can determine when a customer ‘ s position becomes too risky and threatens the broker ‘ s margin loan. PrairieSmarts contend ed that, conversely, Po rtfolioDefense TM was designed for use by individual investors, is not limited in its analysis to 3,000 or 4,000 specifically identified stocks, is not required to be submitted to FINRA, and that its design constitutes tr ade secrets of PrairieSmarts. Prair ieSmarts concluded that Portfolio Margin and PortfolioDefense TM are ―importantly different‖ and that TD Ameritrade should not be allowed to take a look ―under the hood‖ at PortfolioDefense TM only to determine that it is not based on TD Ameritrade ‘ s confi de ntial or proprietary
assets. PrairieSmarts also claimed that beta testing of PortfolioDefense TM is available through PrairieSmarts ‘ s website and that TD Ameritrade has the ability to participate in the beta testing 6 and to determine that way whether Port folioDefense TM performs the same functions as the Profit Margin model.

6 In his affidavit, Dr. Piccinini likens the beta testing to ―a free trial of7

During the hearing, Respondent decided that he would not rely exclusively

on PrairieSmarts ‘ s affidavits in ruling on the asserted trade secret privilege but , per Texas Rule of Civil Pro cedure 193 .4 , would also conduct an in camera inspection of the documents sought by TD Ameritrade ; Respondent ordered the documents ‘ ―production within one week in a Bat es stamped fashion.‖ Following the hearing, PrairieSmarts complied with Respondent ‘ s i nstructions and submitted documents under seal for an in camera inspection. Those documents have been filed with this court under seal. Respondent subsequently issued a September 18, 2013 order finding that ―the likely benefit of allowing TD Ameritrade to take the requested discovery to investigate one or more potential claims outweighs the burden or expense of the procedure s set out herein.‖ The order granted TD Ameritrade ‘ s r ule 202 petition in toto , ordering that the requested depositions be taken with in forty

- five days and that ―each deponent must produce . . . all of the documents requested by TD Ameritrade, Inc. as described in its Verified Petition for Rule 202 Deposition.‖ TD Ameritrade ‘ s r ule 202 petition requested

— an d Respondent‘s order autho rized

— TD Ameritrade to depose Rockwell and PrairieSmarts and to elicit testimony on at least the following topics:

Microsoft Word[

— the user can try the product] without being able to access the underlying programming and source code that allows Microsoft Wor d to operate and that is the confidential, proprietary, and trade secret information of Microsoft.‖8 a. Any and all patent applications related to any PrairieSmarts tool, software, or system (including but not limited to PortfolioDefense TM ) f iled by or caused to be filed by PrairieSmarts or any one or more of its managing members, including any and all patent applications that form the basis of PrairieSmarts ‘ [s] claims that PortfolioDefense TM is patent pending. b. The time horizon, statistica l distribution, and confidence interval used in any PrairieSmarts tool, software, or system (including but not limited to PortfolioDefense TM ) and whether any one or more of the time horizon, statistical distribution, and confidence interval support what Pr airieSmarts refers to as the ―Range of Motion (History).‖

c. The approach used in the implied volatility

- based model of any PrairieSmarts tool, software, or system (including but not limited to PortfolioDefense TM ), including how PrairieSmarts converts opt ion pricing to what it refers to as the ―Range of Motion (Implied).‖ d. Identification of methods, concepts, or ideas imported from the dissertation of Renaud ―Ron‖ Piccinini into any PrairieSmarts tool, software, or system (including but not limited to P ortfolioDefense TM ).

e. How PortfolioDefense performs calculations in 3/10 of a second, as PrairieSmarts claims. f. Whether PrairieSmarts purchased, generated, or otherwise acquired historical market, financial, and/or securities data for use in designing , developing, and testing PortfolioDefense TM
, and , if so, from what source such data was purchased or otherwise acquired.
g. Whether PrairieSmarts used TD Ameritrade ‘ s Confidential and Proprietary Assets, including historical market, financial, and/or sec urities data, in designing, developing, and testing PortfolioDefense TM

. h. The disposition, from October 2012 up to and including the present, of any privately purchased external storage device and other similar hardware that Mr. Rockwell used while emplo yed by TD Ameritrade to access TD Ameritrade resources (including TD9

Ameritrade ‘ s systems and data, including TD Ameritrade ‘ s Confidential and Proprietary Assets).
i. The design, development, and testing of PortfolioDefense TM , including the identity of co ntributors and the history of devel opment. TD Ameritrade ‘ s r ule 202 petition requested Re lators to produce

— and Respondent ‘ s orde r required Relators to produce

— for inspection and copying at their depositions the following categories of documents:

a. Any a nd all patent applications related to any PrairieSmarts tool, software, or system (including but not limited to PortfolioDefense TM ) filed by or caused to be filed in any patent office by PrairieSmarts or any one or more of its managing members, including a ny and all patent applications that form the basis of PrairieSmarts ‘ [s] claims that PortfolioDefense TM is patent pending. b. Documents sufficient to show the identity of contributors and the history of development of any PrairieSmarts tool, software, or s ystem (including but not limited to PortfolioDefense TM ), including information from a code repository, project tracking software, version control systems, and vendor contracts.

c. Documents sufficient to show any and all source(s) from which PrairieSmarts purchased, generated, or otherwise obtained historical market, financial, and/or securities data for use in designing, developing, and testing PortfolioDefense TM

. d. Documents sufficient to show the identification of methods, concepts, or ideas imported from the dissertation of Renaud ―Ron‖ Piccinini into any PrairieSmarts tool, software, or system (including but not limited to PortfolioDefense TM ).

e. Documents sufficient to show the time horizon, statistical distribution, and confidence interval used in any PrairieSmarts tool, software, or system (including but not limited to PortfolioDefense TM ).10 f. Documents sufficient to show the approach used in the implied volatility

- based model of any PrairieSmarts tool, software, or system (including but not limit ed to PortfolioDefense TM ).
g. Documents sufficient to show the manner in which PortfolioDefense performs calculations in 3/10 of a se cond, as PrairieSmarts claims. The order also contained an ―Attorney ‘ s Eyes Only‖ provision, limiting access of the abov e information but permitting disclosure to TD Ameritrade of ―the general nature of the Attorney ‘ s Eyes Only Information, without disclosing the specifics of any such information, and to the extent such general disclosure is necessary for advising [TD Ameri t rade].‖ Pra i rieSmarts filed this petition for writ of mandamus , and we granted temporary emergency relief, staying the depositions and associated document production granted by R e s p ondent ‘ s order. TD Ameritrade timely filed a response; PrairieSmarts timely filed a reply. III. T HE I SSUES P RESENTED In three issues, PrairieSmarts contends in its petition for writ of mandamus that TD Ameritrade failed to meet its burden under T exas Rule of Civil Procedure
202 to show that the benefit of possibly avoidi ng the expense of a lawsui t outweighs the burden on Prairi eSmart s of disclosing trade secrets, that TD Ameritrade failed to meet its burden under Texas Rule of Evidence 507 to show how lack of pre suit access to PrairieSmarts ‘ s trade secrets would so impair the presentation of TD Ameritrade‘s case on the merits that there is a real threat of an unjust result, and that venue for TD Ameritrade ‘ s r ule 202 petition is not11

proper in Tarrant County to obtain the deposition of PrairieSmarts ‘ s corporate representati ve. I V

. S TANDARD OF R EVIEW Mandamus relief is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal. In re Frank Motor Co ., 361 S.W.3d 628, 630

– 31 (Tex.) (orig. proceeding) , cert. denied , 133 S. Ct. 167 (2012) ; In re Prudential Ins. Co. of Am ., 148 S.W.3d 124, 135

– 36 (Tex. 2004) (orig. proceeding ). A party
to a r ule 202 petition against whom suit is anticipated m a y seek review of an allegedly improper r ule 202 order via mandamus. In re Wolfe , 341 S.W.3d 932, 933 (Tex

. 2011) (orig. proceeding); In re Jorden , 249 S.W.3d 416, 420 (Tex. 2008) (orig. proceeding); In re Emergency Consultants, Inc. , 292 S.W.3d 78, 80 (Tex. App.

— Houston [14th Dist.] 2007, orig. proceeding [mand. denied] ); In re Hewlett

- Packard

, 212 S.W.3d 356 , 360 (Tex. App.

— Austin 2006, orig. proceeding)

. A party to a r ule 202 proceeding has no adequate remedy by appeal if the tria l court abused its discretion by ordering discovery that would compromise procedural or substantive rights. In re Chernov , 399 S .W.3d 234, 235 (Tex. App.

— San Antonio 2012, orig. proceeding) . As in other original proceedings, we review a trial court ‘ s order granting a verified petition to take depositions before suit under an abuse of discretion standard. Patton Boggs LLP v. Mosel ey

, 394 S.W.3d 565, 568

– 69 (Tex. App.

— Dallas 2011, orig. proceeding )

.

V

. A PPLICABLE L AW12 A . Trade Secrets A trade secret ―is one of the most elusive and difficult concepts in the law to define.‖ Lear Siegler, Inc. v. Ark

- Ell Springs, Inc ., 569 F.2d 28 6, 288 (5th Cir. 1978). Generally, a trade secret is any formula, pattern, device , or compilation of information used in a business, which gives the owner an opportunity to obtain an advantage over his competitors who do not know or use it. Taco Cabana I nt ’ l, Inc. v. Two Pesos, Inc. , 932 F.2d 1113, 1123 (5th Cir. 1991), aff ’ d , 505 U.S. 763 (1992) ; In re Bass , 113 S.W.3d 735, 739 (Tex. 2003) (orig. proceeding) (quoting Computer Assocs. Int ’ l v. Altai, Inc. , 918 S.W. 2 d 453, 455 (Tex. 1994)). Combinations o f disclosed technologies may constitute a trade secret. See, e.g. , Ventura Mfg. Co. v. Locke , 454 S.W.2d 431, 4 32

– 34 (Tex. Civ. App.

— San Antonio 1970, no writ). Texas courts consider the following factors in determining whether the material at issue quali fies for the trade secret privilege: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of the measures taken by him to guard the s ecrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. In re Union Pac. R.R. Co ., 294 S.W.3d 589, 592 (Tex. 2009) (orig. proceeding); Bass ,13

113 S.W.3d at 739. All six factors need not exist to establish a trade secret because trade secrets do not fit neatly into each factor every ti me a nd because other factors may also be relevant depending on the circumstances of a particular case

. Bass , 113 S.W.3d at 740. A litigant may claim a privilege to refuse to disclose a trade secret so long as the allowance of the privilege will not tend t o conceal fraud or otherwise work injustice. Tex. R. Evid. 507. Thus, in determining whether a trade secret must be disclosed , a trial court utilizes a two

- step, burden

- shifting procedure. In re Cont ’ l Gen. Tire , Inc. , 979 S.W.2d 609, 613 (Tex. 1998) (o rig. proceeding)

. First, the party resisting discovery by asserting a trade secret privilege must establish that the information sought is, in fact, a trade secret. Id. Once the party resisting discovery meets this burden , the burden then shifts to the party seeking to obtain discovery concerning the trade secret to establish that the information sought is necessary for a fair ad judication of its claims. Id. The burden on the party seeking discovery o f trade secrets requires a demonstration with speci ficity of exactly how the lack of the trade secret information will impair the presentation of the case on the merits to the point that an unjust result is a real, rather than a merely possible, threat. In re Bridgestone/Firestone, Inc. , 106 S.W.3d 730, 7 33 (Tex. 2003) (orig. proceeding). The test cannot be satisfied merely by general assertions of unfairness. Id . Nor is necessity established by a claim that the information would be useful rather than necessary. See In re XTO Res. I, LP , 248 S.W.3d 898 , 905 (Tex. App.

—14

Fort Worth 2008, orig. proceeding). I f an alternative means of proof is available that would not significantly impair the presentation of the cas e ‘ s merits, then the information is not necessary. See Union Pac. R.R

. Co. , 294 S.W.3d at 59 2

– 93. Finally, this specificity showing must be made with regard to each category of trade secret information that is sought

. In re Goodyear Tire & Rubber Co. , 392 S.W.3d 687, 696 (Tex. App.

— Dallas 2010, orig. proceeding). Only if the requesting party m eets th is burden of est ablishing that the trade secret information is necessary for a fair adjudication of its claims should the trial court compel disclosure of the trade secret information, subject to an appropriate protective order. Cont ’ l Gen. Tire, I nc. , 979 S.W.2d at 613.
B

. Rule 202 of the Texas Rules of Civil Procedure Texas Rule of Civil Procedure 202 permits a person to petition a trial court for authorization to take a deposition before suit is filed in two circumstances: (1)
to perpetuate or obtain the person ‘ s own testimony or that of any other person for use in an anticipated suit; or (2) to investigate a potential claim or suit. Tex. R. Civ. P. 202.1(a), (b ). T he trial court may order that the requested deposition be taken only if it expr essly find s either (1) that allowing the petitioner to take the requested deposition may prevent a failure or delay of justice in an anticipated suit or (2) that the likely benefit of allowing the petitioner to take the requested deposition to investigate a potential claim outweighs the burden or expense of the procedure. In re Does , 337 S.W.3d 862, 865 (Tex. 2011) (orig. proceeding) ; Jorden , 249 S.W.3d at 423

.15

Rule 202 depositions are not now and never have been intended for routine use. Jorden , 249 S.W.3d at 423. There are practical as well as du e process problems with demanding discovery from someone before te lling them what the issues are. Id

. To prevent an end

- run around discovery limitations that woul d govern the anticipated suit, a r ule 202 petitioner cannot obtain by r ule 202 what it would be denied in the anticipated action. Wolfe , 341 S.W.3d at 933. Ac cordingly, courts must strictly li mit and carefully supervise pre suit discovery to prevent abuse of the rule. I d

. C. To Obtain Pres uit Discovery of Information that Qualifies as Trade Se cret Information , t he Burdens Imposed U nder Rule of Ev idence 507 and

Rule of Civil Procedure 202 Must Both B e Satisfied
R ule 202.5 provides, ―The scope of discovery in depositions authorized by this rule is the same as if the anticipated suit or potentia l claim had been filed.‖ Tex. R. Civ. P. 202.5. Thus, the burden

- shifting procedure utilized when a party to a lawsuit resists discovery by asserting the trade secret privilege set forth in

r ule 507 of the rules of evidence is equally applicable when a p arty resists discovery sought by a r ule 202 petition by claiming trade secret privilege. 7
Accord Wolfe , 341 S.W.3d at 933 (recognizing presuit discovery under ru le 202 is the same as if the anticipated suit or potential claim had been filed).

7 This is the position taken by TD Ameritrade; it argues that ―the Rule 507 analysis applicable here should be exactly the same as it would be had TD Ameri trade actually filed its trade secret misappropriation claim first and then sought the same discovery.‖16

A r ule 202 petitioner must also establish either that allowing the requested deposition may prevent a failure or delay of justice in an anticipated suit or that the likely benefit of allowing the requested deposition to investigate a potential claim outweighs the bu rden or expense of the procedure. Tex. R. Civ. P. 202.4(a)(1), (2); Does, 337 S.W.3d at 865 . This is a totally separate burden than the burden shifted to a party seeking discovery of information proved by the party resisting disco very to constitute trade secret information

. Compare Does , 337 S.W.3d at 865 , with Bridgestone/Firestone, Inc. , 106 S.W.3d at 733. So, a r ule 202 petitioner seeking presuit discovery of information that has been proven to be trade secret information must first satisfy the burd en under rule 507 of the rules of evidence of demonstrating the necessity for its discovery of the trade secret informat ion by showing with specificity exactly how denial of the discovery will impair the presentation of its case on the merits to the extent that an unjust result is likely. See Bridgestone/Firestone, Inc. , 106 S.W.3d at 733; Cont ’

l Gen. Tire , Inc. , 979 S.W.2d at 613

. If a r ule 202 petitioner satisfies this burden of showing the necessity for discovery of the trade secret information, the r u le 202 petitioner must next show that it is entitled to obtain su ch trade secret information pre suit because allowing the requested deposition and associated document production may prevent a failure or delay of justice in an anticipated suit or that the l ikely benefit of allowing the requested deposition and associated document production to investigate a potential claim outweighs the burden or expense of the procedure. Tex. R. Civ. P. 202.4(a)(1), (2); Does , 33717

S.W.3d at 865 . In summary, a r ule 202 pet itioner seeking presuit discovery of information that has been proven to be trade secret information must satisfy both of the two distinct and s eparate burdens imposed under r ule 507 of the rules of evidence and under r ule 202 of the rules of civil procedu re. See Hewlett

Packard , 212 S.W.3d at 363

– 64 (addressing both burdens); In re Rockafellow , No. 07

- 11

- 00066

- CV, 2011 WL 2848638 , at *3 (Tex. App.

–– Amarillo 2011, orig. proceeding) (mem. op.) (same)

. D . Analysis
1. PrairieSmarts Established that the I nformation Sought by TD Ameritrade Concerning PortfolioDefense TM Constitutes Privileged Trade Secret Information Dr. Piccinini explained in his affidavit that PortfolioDefense TM is ―based on my life [ ‘ s ] work in this area and put into functional computer c ode using Mr. Rockwell ‘ s c omputer programing expertise.‖ He stated that the details of how PortfolioDefense TM works and how it was developed are not known outside of PrairieSmarts and that it cannot be duplicated by others without access to PortfolioDefen se TM ‘ s underlying programming code and its models

. Dr. Piccinini and Rockwell are the only PrairieSmarts employees with access to the PortfolioDefense TM computer code and to the details of the methods and models used in PortfolioDefense TM ; Nagy and Chocho n do not have access. The secrecy of PortfolioDefense TM is guarded by restricted access to its programming code and models through multiple layers of authorization by limiting access to Dr. Piccinini and Rockwell, by storing the PortfolioDefense TM informa tion on secured18

servers protected by a commercial grade firewall, and by refusing to disclose or share the PortfolioDefense TM software or its underlying model s with any third
p arties

. PortfolioDefense TM is the only asset of PrairieSmarts and is extremely valuable to PrairieSmarts . According to PrairieSmarts, PortfolioDefense TM i s the only product of its kind that provides individual investors with informati on on all types of investments so that the value of PortfolioDefense TM is significant not only
to Pr ai rieSmarts but also to its competitors. At the time Dr. Piccinini signed his affidavit, PrairieSmarts had expended $300,000 to $850,000 and had spent months to develop PortfolioDefense TM

. Dr. Piccinini further stated in his affidavit that ―PortfolioDefe nse cannot be duplicated by others without access to PortfolioDefense ‘ s underlying programming and its models. Others may try to develop a similar product, . . . but while any such product may perform similar to PortfolioDefense, it could not result in th e same output assessment of risk even with identical inpu t param eters.‖ The documents produced by PrairieSmarts for in camera review by Respondent likewise support the trade secrets privilege asserted by PrairieSmarts

. 8

8 TD Ameritrade contends that PrairieSmarts does not rely on the documents themselves to meet the burden of establishing trade secret status. But Re lators‘ unopposed motion to file documents under seal that was filed in this court explained that PrairieSmarts submitted for in camera review by Respondent the documents that it contends are protected and requests that those documents be filed under seal in our court as part of the mandamus proceeding so that we may examine all of the evidence considered by Respondent. Thus, the documents were before Respondent and are before us in addressing the issue of trade secret status.19

Applying the trade secret factors e nunciated by the Texas Supreme Court, each of the factors weighs in favor of Relators; the record establishes and we hold that Relators met their burden of showing that all but one category of the information sought by TD Ameritrade

— both by asking depositi on questions on the topics listed above 9 with the exception of deposition topic ( h ) and by production of documents in the categories listed above

— constitutes trade secret information. 10 See, e.g ., Union Pac. R.R. Co ., 294 S.W.3d at 59 1

– 92 ( applying factors and holding ―Union Pacific ‘ s affidavits establish trade secret protection under the Restatement factors‖); Bass , 113 S.W.3d at 739

– 42 (app lying factors and holding that r elator ‘ s evidence, including affidavits, established that ―seismic data and its inter pretations are trade secrets‖ although the fifth factor did not weigh in favor of trade secrets protection); Rockafellow , 2011 WL 2848638, at *3 ( applying factors and holding that relator ‘ s affidavit established that r elator ‘ s supplier list and informatio n related to the identities of suppliers we re trade
secrets ).

9 See In re Lowe ’

s Co s ., 134 S .W.3d 876, 879

– 80 (Tex. App.

— Houston [ 14th Dist.] 2004, orig

. proceeding) (addressing assertion of trade secret privilege to information sought in a deposition).

10 Respondent‘s order, although containing the ―Attorney‘s Eyes Only‖ provision, did not make an express finding that PrairieSmarts had established that information sought by TD Ameritrade constituted trade secrets; TD Ameritrade asserts in its response to PrairieSmarts petition for writ of mandamus that the information is not subject to a trade se cret privilege. As set forth above, the record conclusively establishes that PrairieSmarts proved its trade secret privilege, except with regard to deposition topic (h).20

2. TD Ameritrade ’ s Burden Under Rule of Evidence 507 N ot Satisfied O nce P r airieSmarts met its burden to establish that the information sought by TD Ameritrade constituted privileged trade se cret information u nder r ule 507 of the Texas Rules of Evidence, the burden then shifted to TD Ameritrade to show that the trade secret information s ought is necessar y for a fair adjudication of TD Ameritrade‘s claims. See Cont ’ l Gen. Tire , Inc. , 979 S.W.2 d at 613

. In its second issue, PrairieSmarts argues that TD Ameritrade did not satisfy this burden because TD Ameritrade did not produce any evidence or expert testimony to support its contention that the trade secret information sought by TD Ameritrade f rom PrairieSmarts is necessary to support any claim against PrairieSmarts. 11 According to PrairieSmarts, TD Ameritrade has not identified any injustice that will ensue if it is not granted pre

- suit access to t he

11 PrairieSmarts also argues that TD Ameritrade cannot meet its burden of establishing tha t the trade secret information sought by TD Ameritrade is necessary for the fair adjudication of the merits of an existing claim because there is no existing claim. See, e.g. , Bass , 113 S.W.3d at 743 (explaining in a non - rule 202 case that ―in order fo r trade secret production to be material to a litigated claim or defense, a claim or defense must first exist‖ and holding as a matter of law the claim did not exist); Hewlett

- Packard , 212 S.W.3d at 363 (citing Bass in a rule 202 proceeding for the propos ition that ―[i]n order for a trial court to determine whether the trade secret production is necessary for a fair adjudication of a claim or defense, a claim or defense must first exist‖ and holding that, because no claims existed, the required showing of a specific, real threat of an unjust result as opposed to a theoretical, possible threat of an unjust result was not possible). In light of rule 202.5‘s provision that ―[t]he scope of discovery in depositions authorized by this rule is the same as if the anticipated suit or potential claim had been filed,‖ we decline to hold that a rule 202 petitioner can never obtain presuit discovery of trade secret information simply because a suit has not been filed.21

PortfolioDefense programming but has demonst rated only that it would be convenient, possibly less expensive, and a source of ―comfort‖ to it regarding the alleged misuse of its property. TD Ameritrade contends that it met its burden of establishing necessity under the r ule 507 burden

- shifting an alysis . It references the facts that it presented at the hearing in the trial court on its r ule 202 petition

— the se are the

same facts contained in the three demonstrative exhibits titled, ―Facts About PrairieSmarts ‘ s Principals,‖ ―Timeline,‖ and ―Facts Ju stifying Investigation.‖ These facts, TD Ameritrade contends , indicate ― the highly suspect circumstances at play here. ‖ TD Ameritrade asserts that it established necessity because ―the [trade secret] information at issue is the very subject of TD Ameritr ade ‘ s claim of misuse or misappropriation.‖ The facts relie d upon by TD Ameritrade to justify investigation into a claim against PrairieSmarts are facts re levant to the r ule 202 burden , not to the burden shifted to TD Ameritrade under r ule 507. That is , the facts contained in the three demonstrative exhibits titled, ―Facts About PrairieSmarts ‘ s Principals,‖ ―Timeline,‖ and ―Facts Justifying Investigation‖ are relevant to establishing whether TD Ameritrade met its r ule 202 burden to show that the benefit of allowing TD Ameritrade to take the requested depositions to investigate a potentia l claim for misuse or misappropriation of proprietary information outweighs the burden and expense of the procedure. But these facts d o not rise to the level of a particu larized showing that PrairieSmarts ‘ s trade secret information is necessary22

to enable TD Ameritrade to prove of one or more material elements of its claims against PrairieSmarts and that it is reasonable to conclude that the information sought is essential to a fair resolution of a misuse or misappropriation lawsuit against PrairieSmarts

— facts req uired by the r ule 507 burden

. 12 See Bridgestone/Fireston e, Inc., 106 S.W.3d at 732; Cont ’ l Gen. Tire, Inc. , 9 79 S.W.2d at 613. The facts justifying an investigatio n alleged by TD Ameritrade and asserted at the hearing on its r ule 202 petition concerning the ―highly suspect circumstances at play here‖ certainly establish that PrairieSmarts ‘ s trade secret information m ight be useful to TD Ameritrade in prosecuting a l awsuit. But merely proving that trade secr et information might be useful

— even useful in preparing an expert report with the least amount of uncertainty

— does not prove that disclosure of the trade secret information is necessary or essential to a fair

reso lution of TD Ameritrade ‘ s claims. See Cont ’ l Gen. Tire, Inc. , 979 S.W.2d at
611 ; XTO Res. I, LP , 248 S.W.3d at 9 05 . Although t he facts just ifying an investigation by TD Ameritrade demonstrate the possible threat of an unjust result in a misuse or misappr opriation of trade secrets claim, they do not , standing alone, satisfy the required higher standard of demonstrating a real threat of an unjust result. See Bridgestone/Firestone , 106 S.W.3d at 73 4 (explaining that ―[t]he mere possibility of unfairness is n ot enough to warrant disclosure‖ of trade secret information) . The facts justifying an investigation by

12 TD Ameritrade does not link the requested trade se cret discovery to proof of any element of any cause of action.23

TD Ameritrade likewise do not establish that the only means available to TD Ameritrade to discover whether Dr. Piccinini, Chochon, Nagy, and Rockwell misused or misappropriated TD Ameritrade ‘ s confidential, proprietary information is by the production of the trade secret documents and informa tion listed in TD Ameritrade ‘ s r ule 202 petition and ordered produced by Respondent

. See Union Pac. R.R. Co. , 29 4 S.W.3d at 593

. 13 In summary, the facts presented by TD Ameritrade as justifying an investigation are relevant to a determination of r ule 202.4(a)(2) ‘ s requirement that ―the likel y benefit of allowing the [r ule 202] petitioner to take the requested deposi tion to investigate a potential claim outweighs the burden or expense of the procedure,‖ 14 but they do not satisfy TD Ameritrade ‘ s burden under r ule 507 to establish ―with specificity exactly how the lack of the [trade secret] information will impair the pr esentation of the case on the merits to the point that an unjust result is a real, rather than a merely possible, threat. ‖ Bridgestone/Firestone, Inc. , 106 S.W.3d at 733.

13 While evidence that trade secret information is not available through any other means is not a required showing, it is evidence supporting a finding of necessity for disclosure. See Union Pac

. R.R. Co. , 294 S.W.3d at 593.

14 TD Ameritrade also argues that Respondent ―would have been within its discretion to include consideration of the protective order ‘ s terms and conditions in its weighing of the ultimate likely benefit and the burden.‖ That a trial court has ordered the parties to enter into a protective order with respect to trade secret information , however, does not dispense with the requesting party ‘ s burden to establish the necessity for the discovery of the trade secret information. See Hewlett

- Packard

, 212 S.W.3d at 364 (citing Cont ’ l Gen. Tire, Inc. , 979 S.W.2d at 610).24

Because PrairieSmarts established that all of the information sought by TD Ameritrad e in its v erified r ule 202 petition , with the exception of deposition topic (h) , constitutes trade secret information , and because TD Ameritrade failed to satisfy the b urden under rule 507 of the rules of evidence of establishing necessity, we hold that Re spondent abused his discretion by ordering the presuit depositions and the document production. See Bass , 113 S.W.3d at 738 (―If a trial court orders production once trade secret status is proven, but the party seeking production has not shown a necessity for the requested materials, the trial court ‘ s action is an abuse of discretion.‖). We sustain Relators ‘ second issue. 15
V I

. C ONCLUSION Having determined that Respondent abused his discretion by issuing an order permitting presuit disc overy of informati on and documents that were prove n to be subject to a trade secrets privilege in the absence of pro of of necessity by TD Ameritrade, we conditionally grant the writ. Respondent is directed to vacate his September 18, 201 3 order authorizing the pre suit depo sitions of Rockwell and PrairieSmarts and compelling the production of documents concerning PortfolioDefense TM

. 16 Because we are confident that Respondent will comply

15 Because PrairieSmarts‘s second issue is dispositive, we need not address its other issues.

16 Although deposition topic (h) in TD Ameritrade‘s rule 202 petition does n ot seek trade secret information, because rule 202‘s benefit

- burden analysis will be different given the viability of only one topic on which only Rockwell may be25

with this directive, the writ will issue only if Respondent fails to do so. Our disposit ion of this original proceeding serves to lift the stay previously imposed by this Court. See Tex. R. App. P. 52.10(b).

/s/ Sue Walker SUE WALKER JUSTICE PANEL: GARDNER, WALKER, and MEIER, JJ. MEIER, J. filed a concurring opinion.
DELIVERED: January 23, 2014

deposed, this provision must likewise be vacated. Nothing in this opinion, however, preclude s further action in the trial court by the parties, if they so choose, to attempt to obtain a presuit deposition concerning deposition topic (h) from Rockwell only, not PrairieSmarts. And nothing in this opinion precludes Respondent from hearing such a re quest or ruling on it after conducting the rule 202.4(a)(2) benefit

- burden test.