Court Opinion

ID: 3095472
Source: CourtListenerOpinion
Date Created: 2015-10-16 04:30:06.957841+00
Date Added: 2024-06-11T11:51:20.242772
License: Public Domain

COURT OF APPEALS
                           SECOND DISTRICT OF TEXAS
                                FORT WORTH

                                 NO. 02-13-00338-CV

IN RE PRAIRIESMARTS LLC AND                                       RELATORS
CASEY ROCKWELL

                                       ---------

                                ORIGINAL PROCEEDING

                                       ----------

                                     OPINION

                                       ----------

                                   I. INTRODUCTION

      Relators PrairieSmarts LLC and Casey Rockwell seek a writ of mandamus

directing Respondent to vacate a September 18, 2013 order granting Real Party

in Interest TD Ameritrade, Inc.‘s rule 202 petition. See Tex. R. Civ. P. 202.

Because we hold that Respondent abused his discretion by granting the rule 202

petition and because Relators possess no adequate remedy at law, we will

conditionally grant the writ.
                   II. FACTUAL AND PROCEDURAL BACKGROUND

      Four former employees of TD Ameritrade subsequently became employed

by PrairieSmarts.1    Those four individuals are Dr. 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 to 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 Portfolio 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-described work at TD Ameritrade. TD Ameritrade terminated

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 terminated Nagy on May 26, 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 proprietary means to do that.‖

                                         2
      In January 2013, PrairieSmarts filed a patent application3 for a program

that PrairieSmarts calls PortfolioDefenseTM and began beta testing the program.

TD Ameritrade thereafter filed a rule 202 petition asserting that it appeared likely

that PrairieSmarts‘s employees Dr. Piccinini, Chochon, Nagy, and Rockwell

had—in    designing    PortfolioDefenseTM—misappropriated        confidential   and

proprietary assets of TD Ameritrade in violation of the nondisclosure provisions in

their respective employment contracts. By its rule 202 petition, TD Ameritrade

sought to depose PrairieSmarts and Rockwell and to have PrairieSmarts and

Rockwell produce various documents at their depositions. PrairieSmarts and

Rockwell filed answers to the rule 202 petition, denying all allegations in the

petition and objecting to the depositions and production of the documents sought

by TD Ameritrade on the ground that both sought privileged trade secret

information belonging to PrairieSmarts. PrairieSmarts‘s answer also objected to

venue in Tarrant County.4

      Respondent set a hearing on TD Ameritrade‘s rule 202 petition; a week

before the hearing, PrairieSmarts filed affidavits from Dr. 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 Relator Rockwell
are identical in this original proceeding, except as to the venue issue, we
sometimes refer to both Relators collectively as PrairieSmarts.

                                         3
Nagy, and Rockwell, asserting that no confidential information belonging to TD

Ameritrade was utilized in creating the code for PortfolioDefenseTM and claiming

that the information sought by TD Ameritrade constituted trade secret information

belonging to PrairieSmarts.

      At the hearing on TD Ameritrade‘s rule 202 petition, TD Ameritrade argued

that the facts as set forth below constituted ―smoke,‖ ―red flags[,]‖ or ―the indicia

of a potential appropriation of trade secrets case‖ sufficient to justify the

requested discovery.         TD Ameritrade provided Respondent with three

demonstrative exhibits that it had created utilizing information from the four

affidavits filed by PrairieSmarts. 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 employment with PrairieSmarts,

provided a comparison of the time it took to create the Profit Margin model at TD

Ameritrade versus the time it took to create PortfolioDefenseTM at PrairieSmarts,

and stated that the following facts justified TD Ameritrade‘s investigation 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

combined 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 for

                                          4
PortfolioDefenseTM, while it took fourteen months after Dr. 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 contends four

matching components are observable by comparing PrairieSmarts‘s website and

the FINRA application for Portfolio Margin;5 and the fact that the products have

nearly       identical   outcomes,   which    TD   Ameritrade   explained    was

PortfolioDefenseTM‘s having nearly the same predictive capability as TD

Ameritrade‘s Portfolio Margin.       TD Ameritrade argued that these ―red flags‖

concerned TD Ameritrade and established ―that there is a significant advantage

to be gained for [TD Ameritrade] to do some investigation, some discovery to see

how these concepts that line up on both sides are actually performed and

whether they are performed using confidential information [from] TD Ameritrade.‖

         At the hearing, PrairieSmarts argued that the circumstances TD

Ameritrade had characterized as smoke or red flags were 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 expertise. PrairieSmarts contended that it was a mischaracterization 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.

                                          5
Ameritrade[‗s] using their Portfolio Margin to then get to the one-year audit that

FINRA would do.‖ PrairieSmarts denied that PortfolioDefenseTM was based on

any intellectual property of TD Ameritrade and asserted that TD Ameritrade‘s

Portfolio Margin is different from PortfolioDefenseTM because 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 calculation 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 contended that, conversely,

PortfolioDefenseTM 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 trade secrets of

PrairieSmarts.       PrairieSmarts    concluded     that   Portfolio   Margin    and

PortfolioDefenseTM are ―importantly different‖ and that TD Ameritrade should not

be allowed to take a look ―under the hood‖ at PortfolioDefenseTM only to

determine that it is not based on TD Ameritrade‘s confidential or proprietary

assets. PrairieSmarts also claimed that beta testing of PortfolioDefenseTM is

available through PrairieSmarts‘s website and that TD Ameritrade has the ability

to participate in the beta testing6 and to determine that way whether

PortfolioDefenseTM performs the same functions as the Profit Margin model.

      6
       In his affidavit, Dr. Piccinini likens the beta testing to ―a free trial of
                                         6
      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 Procedure 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 Bates stamped fashion.‖ Following

the hearing, PrairieSmarts complied with Respondent‘s instructions 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

procedures set out herein.‖ The order granted TD Ameritrade‘s rule 202 petition

in toto, ordering that the requested depositions be taken within 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 rule 202 petition requested—and Respondent‘s order

authorized—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 Word to operate
and that is the confidential, proprietary, and trade secret information of
Microsoft.‖

                                         7
       a.     Any and all patent applications related to any
PrairieSmarts tool, software, or system (including but not limited to
PortfolioDefenseTM) filed 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 PortfolioDefenseTM is patent pending.

       b.   The time horizon, statistical distribution, and confidence
interval used in any PrairieSmarts tool, software, or system
(including but not limited to PortfolioDefenseTM) and whether any
one or more of the time horizon, statistical distribution, and
confidence interval support what PrairieSmarts 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 PortfolioDefenseTM), including how PrairieSmarts converts
option 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
PortfolioDefenseTM).

     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 PortfolioDefenseTM,
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 securities data, in designing, developing, and
testing PortfolioDefenseTM.

      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 employed by TD
Ameritrade to access TD Ameritrade resources (including TD

                                  8
      Ameritrade‘s systems and data,          including    TD   Ameritrade‘s
      Confidential and Proprietary Assets).

             i.    The    design,   development,     and     testing  of
      PortfolioDefenseTM, including the identity of contributors and the
      history of development.

TD Ameritrade‘s rule 202 petition requested Relators to produce—and

Respondent‘s order required Relators to produce—for inspection and copying at

their depositions the following categories of documents:

             a.    Any and all patent applications related to any
      PrairieSmarts tool, software, or system (including but not limited to
      PortfolioDefenseTM) filed by or caused to be filed in any patent office
      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 PortfolioDefenseTM is patent pending.

            b.     Documents sufficient to show the identity of contributors
      and the history of development of any PrairieSmarts tool, software,
      or system (including but not limited to PortfolioDefenseTM), 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 PortfolioDefenseTM.

            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 PortfolioDefenseTM).

              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
      PortfolioDefenseTM).

                                        9
            f.     Documents sufficient to show the approach used in the
      implied volatility-based model of any PrairieSmarts tool, software, or
      system (including but not limited to PortfolioDefenseTM).

             g.    Documents sufficient to show the manner in which
      PortfolioDefense performs calculations in 3/10 of a second, as
      PrairieSmarts claims.

      The order also contained an ―Attorney‘s Eyes Only‖ provision, limiting

access of the above 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 Ameritrade].‖

      PrairieSmarts filed this petition for writ of mandamus, and we granted

temporary emergency relief, staying the depositions and associated document

production granted by Respondent‘s order.         TD Ameritrade timely filed a

response; PrairieSmarts timely filed a reply.

                            III. THE ISSUES PRESENTED

      In three issues, PrairieSmarts contends in its petition for writ of mandamus

that TD Ameritrade failed to meet its burden under Texas Rule of Civil Procedure

202 to show that the benefit of possibly avoiding the expense of a lawsuit

outweighs the burden on PrairieSmarts of disclosing trade secrets, that TD

Ameritrade failed to meet its burden under Texas Rule of Evidence 507 to show

how lack of presuit 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 rule 202 petition is not

                                        10
proper in Tarrant County to obtain the deposition of PrairieSmarts‘s corporate

representative.

                            IV. STANDARD OF REVIEW

      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 rule 202 petition against whom suit is anticipated may seek review of an

allegedly improper rule 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 rule 202 proceeding has no adequate remedy by

appeal if the trial 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. Moseley, 394 S.W.3d 565, 568–69 (Tex. App.—Dallas 2011, orig. proceeding).

                               V. APPLICABLE LAW

                                        11
                                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 286, 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 Int’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.2d 453, 455 (Tex. 1994)).

Combinations of disclosed technologies may constitute a trade secret. See, e.g.,

Ventura Mfg. Co. v. Locke, 454 S.W.2d 431, 432–34 (Tex. Civ. App.—San

Antonio 1970, no writ).

      Texas courts consider the following factors in determining whether the

material at issue qualifies 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 secrecy 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,

                                        12
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 time and 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 to 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) (orig. 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 adjudication of its claims. Id.

      The burden on the party seeking discovery of trade secrets requires a

demonstration with specificity 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, 733 (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.—

                                          13
Fort Worth 2008, orig. proceeding). If an alternative means of proof is available

that would not significantly impair the presentation of the case‘s merits, then the

information is not necessary. See Union Pac. R.R. Co., 294 S.W.3d at 592–93.

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 meets this burden of establishing 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, Inc., 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). The trial court may order that the requested deposition be

taken only if it expressly finds 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.

                                         14
      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 due

process problems with demanding discovery from someone before telling them

what the issues are. Id. To prevent an end-run around discovery limitations that

would govern the anticipated suit, a rule 202 petitioner cannot obtain by rule 202

what it would be denied in the anticipated action. Wolfe, 341 S.W.3d at 933.

Accordingly, courts must strictly limit and carefully supervise presuit discovery to

prevent abuse of the rule. Id.

      C. To Obtain Presuit Discovery of Information that Qualifies as Trade
 Secret Information, the Burdens Imposed Under Rule of Evidence 507 and
             Rule of Civil Procedure 202 Must Both Be Satisfied

      Rule 202.5 provides, ―The scope of discovery in depositions authorized by

this rule is the same as if the anticipated suit or potential 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

rule 507 of the rules of evidence is equally applicable when a party resists

discovery sought by a rule 202 petition by claiming trade secret privilege. 7

Accord Wolfe, 341 S.W.3d at 933 (recognizing presuit discovery under rule 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
Ameritrade actually filed its trade secret misappropriation claim first and then
sought the same discovery.‖

                                         15
      A rule 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 burden 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 discovery 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 rule 202 petitioner seeking presuit discovery of information that has

been proven to be trade secret information must first satisfy the burden under

rule 507 of the rules of evidence of demonstrating the necessity for its discovery

of the trade secret information 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 rule 202 petitioner satisfies

this burden of showing the necessity for discovery of the trade secret information,

the rule 202 petitioner must next show that it is entitled to obtain such trade

secret information presuit because allowing the requested deposition and

associated document production may prevent a failure or delay of justice in an

anticipated suit or that the likely 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, 337
16
S.W.3d at 865. In summary, a rule 202 petitioner seeking presuit discovery of

information that has been proven to be trade secret information must satisfy both

of the two distinct and separate burdens imposed under rule 507 of the rules of

evidence and under rule 202 of the rules of civil procedure.         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 Information Sought by TD Ameritrade
    Concerning PortfolioDefenseTM Constitutes Privileged Trade Secret
                               Information

      Dr. Piccinini explained in his affidavit that PortfolioDefenseTM is ―based on

my life[‘s] work in this area and put into functional computer code using Mr.

Rockwell‘s computer programing expertise.‖ He stated that the details of how

PortfolioDefenseTM works and how it was developed are not known outside of

PrairieSmarts and that it cannot be duplicated by others without access to

PortfolioDefenseTM‘s underlying programming code and its models. Dr. Piccinini

and Rockwell are the only PrairieSmarts employees with access to the

PortfolioDefenseTM computer code and to the details of the methods and models

used in PortfolioDefenseTM; Nagy and Chochon do not have access.               The

secrecy of PortfolioDefenseTM 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 PortfolioDefenseTM information on secured

                                        17
servers protected by a commercial grade firewall, and by refusing to disclose or

share the PortfolioDefenseTM software or its underlying models with any third

parties. PortfolioDefenseTM is the only asset of PrairieSmarts and is extremely

valuable to PrairieSmarts. According to PrairieSmarts, PortfolioDefenseTM is the

only product of its kind that provides individual investors with information on all

types of investments so that the value of PortfolioDefenseTM is significant not only

to PrairieSmarts 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 PortfolioDefenseTM. Dr. Piccinini further stated in his affidavit

that ―PortfolioDefense 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 the same output assessment of risk even

with identical input parameters.‖ 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 Relators‘ 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.

                                        18
      Applying the trade secret factors enunciated 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 deposition questions on

the topics listed above9 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 591–92 (applying

factors and holding ―Union Pacific‘s affidavits establish trade secret protection

under the Restatement factors‖); Bass, 113 S.W.3d at 739–42 (applying factors

and holding that relator‘s evidence, including affidavits, established that ―seismic

data and its interpretations 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 relator‘s

supplier list and information related to the identities of suppliers were trade

secrets).

      9
        See In re Lowe’s Cos., 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 secret privilege. As set forth above,
the record conclusively establishes that PrairieSmarts proved its trade secret
privilege, except with regard to deposition topic (h).

                                        19
   2. TD Ameritrade’s Burden Under Rule of Evidence 507 Not Satisfied

      Once PrairieSmarts met its burden to establish that the information sought

by TD Ameritrade constituted privileged trade secret information under rule 507

of the Texas Rules of Evidence, the burden then shifted to TD Ameritrade to

show that the trade secret information sought is necessary for a fair adjudication

of TD Ameritrade‘s claims. See Cont’l Gen. Tire, Inc., 979 S.W.2d 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 from 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 the

      11
         PrairieSmarts also argues that TD Ameritrade cannot meet its burden of
establishing that 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 for 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 proposition 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.

                                          20
PortfolioDefense programming but has demonstrated 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 rule 507 burden-shifting analysis.       It references the facts that it

presented at the hearing in the trial court on its rule 202 petition—these are the

same facts contained in the three demonstrative exhibits titled, ―Facts About

PrairieSmarts‘s Principals,‖ ―Timeline,‖ and ―Facts Justifying 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 Ameritrade‘s claim of

misuse or misappropriation.‖

      The facts relied upon by TD Ameritrade to justify investigation into a claim

against PrairieSmarts are facts relevant to the rule 202 burden, not to the burden

shifted to TD Ameritrade under rule 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 rule 202 burden to show that the benefit of allowing TD

Ameritrade to take the requested depositions to investigate a potential claim for

misuse or misappropriation of proprietary information outweighs the burden and

expense of the procedure.         But these facts do not rise to the level of a

particularized showing that PrairieSmarts‘s trade secret information is necessary

                                         21
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 required by the rule 507 burden.12                See

Bridgestone/Firestone, Inc., 106 S.W.3d at 732; Cont’l Gen. Tire, Inc., 979
S.W.2d at 613. The facts justifying an investigation alleged by TD Ameritrade

and asserted at the hearing on its rule 202 petition concerning the ―highly

suspect circumstances at play here‖ certainly establish that PrairieSmarts‘s trade

secret information might be useful to TD Ameritrade in prosecuting a lawsuit. But

merely proving that trade secret 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

resolution 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 905.          Although the facts justifying an

investigation by TD Ameritrade demonstrate the possible threat of an unjust

result in a misuse or misappropriation 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 734

(explaining that ―[t]he mere possibility of unfairness is not enough to warrant

disclosure‖ of trade secret information). The facts justifying an investigation by

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

                                        22
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 information listed in TD

Ameritrade‘s rule 202 petition and ordered produced by Respondent. See Union

Pac. R.R. Co., 294 S.W.3d at 593.13 In summary, the facts presented by TD

Ameritrade as justifying an investigation are relevant to a determination of rule

202.4(a)(2)‘s requirement that ―the likely benefit of allowing the [rule 202]

petitioner to take the requested deposition to investigate a potential claim

outweighs the burden or expense of the procedure,‖14 but they do not satisfy TD

Ameritrade‘s burden under rule 507 to establish ―with specificity 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.‖ 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).

                                         23
      Because PrairieSmarts established that all of the information sought by TD

Ameritrade in its verified rule 202 petition, with the exception of deposition topic

(h), constitutes trade secret information, and because TD Ameritrade failed to

satisfy the burden under rule 507 of the rules of evidence of establishing

necessity, we hold that Respondent 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

                                    VI. CONCLUSION

      Having determined that Respondent abused his discretion by issuing an

order permitting presuit discovery of information and documents that were proven

to be subject to a trade secrets privilege in the absence of proof of necessity by

TD Ameritrade, we conditionally grant the writ. Respondent is directed to vacate

his September 18, 2013 order authorizing the presuit depositions of Rockwell

and PrairieSmarts and compelling the production of documents concerning

PortfolioDefenseTM.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
not 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 be
                                        24
with this directive, the writ will issue only if Respondent fails to do so.      Our

disposition 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, precludes 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 request or ruling on it after conducting the rule
202.4(a)(2) benefit-burden test.

                                         25