Supreme Court of Wyoming Issues Important Trade Secrets Decision Related to Fracking

One of the hot new frontiers in trade secrets law involves an industry, not a legal question. There is no question the fracking industry is controversial. On the one hand, state legislatures view hydraulic fracturing as a potential boon to local economies. On the other, the very nature of this process causes much hand-wringing and cause for concern among environmental advocacy groups.

Hydraulic fracturing occurs when operators inject pressurized fluids into rock layers to release petroleum or natural gas. Fracking companies often believe the chemical compounds used in the fluid injection process are trade secrets. This causes a natural tension when public interest groups seek to discover what kind of chemicals are being inserted into local aquifers.

The case law applying trade secrets concepts to fracking is new and largely undeveloped. In the most significant decision to date, the Supreme Court of Wyoming addressed what trade secret definition should apply to a request for disclosure of an operator's chemical compounds. In Powder River Basin Resource Council v. Wyoming Oil and Gas Conser. Comm'n, the Court held that the most stringent trade secrets definition should apply. (The opinion is contained below.)

It considered three alternatives:

(1) The Uniform Trade Secrets Act definition, with its now ubiquitous two-part formulation;

(2) The Restatement (Third) of Unfair Competition definition, found in Section 39, which generally is viewed as less rigorous than the UTSA standard; and

(3) The federal Freedom of Information Act definition.

The Court ultimately chose the FOIA definition. It defines trade secret as "[a] secret, commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort."

The italicized clause limits trade secrets to the productive process and would exclude a wide range of commercially valuable information that often times is at issue in competitive disputes. The Court's justification makes some sense. The broader UTSA and Restatement definitions are geared towards providing a remedy for unfair competition in private disputes. And a more definition would render meaningless the protection FOIA affords "commercially valuable" information.

The FOIA definition, which should lead to more disclosure, is meant to balance ownership of a true trade secret with the public's right to access documents affecting matters of public interest. In those states with fracking laws and regulations, operators normally have the chance to show administrative agencies that their chemical compounds or formulas are trade secrets. The decision in Powder River Basin will provide appropriate guidance to other courts that are called upon to evaluate a challenge to any administrative decision that favors fracking operators.

Powder River Basin v. Wyoming Oil and Gas - Opinion by Ken Vanko

Supreme Court of Wyoming: Continued Employment Is Sufficient Consideration for Invention Assignment Agreement

Invention assignment agreements are often important for employees who work in a highly technical field, creating patentable or trade secret material used to give a company a competitive advantage. As long as that technology is within an employer's line of business, that employer should have every expectation that the employee's invention will become the employer's property. That is, after all, what the employer is paying a good wage for.

Assignment clauses are part and parcel of most confidentiality agreements. If they are a species of a non-compete, they're not a particularly onerous one. Still, they do give rise to some litigation, most frequently when an invention falls within a so-called "trailer" clause - a clause extending the assignment for a short period of time past the end of employment.

In Preston v. Marathon Oil, the Supreme Court of Wyoming answered a certified question from the United States Court of Appeals for the Federal Circuit on invention assignment clauses. The Court held that an employee's continued employment is sufficient consideration for such a clause, even though Wyoming is in that group of states holding that continued employment is not sufficient consideration for a covenant not to compete. The court had little trouble differentiating the types of contracts, reasoning that the continued employment rule in the non-compete context clashed with an employee's right to earn a living.

Keep in mind that in the absence of an express assignment, an employer still has a shop right to an employee's inventions - in effect, a paid-up, royalty-free license to use it - but the employee is still the owner. Illinois also has a statute which technically requires an assignment clause to carve-out certain classes of inventions, essentially those having nothing to do with the employer's line of work or R&D. I am not aware of any case addressing the consequences, though, of a non-compliant assignment clause in Illinois.

A copy of the Preston opinion can be found here.

Failure to Produce Non-Compete Agreement at Trial Not Fatal to Employer's Case (CBM Geosolutions, Inc. v. Gas Sensing Technology)

The Supreme Court of Wyoming affirmed the issuance of a preliminary injunction in a non-compete case filed against two former employees. The case involved the business of measuring coal bed methane gas. Two employees, Bret Noecker and Brian LaReau, had been employees of Gas Sensing Technology's predecessor, WellDog. A few months after they departed, WellDog sold substantially of its assets to Gas Sensing Technology.

On one of the schedules to the asset purchase agreement, Noecker's August 2004 non-compete agreement was listed as a purchased asset. At trial, however, the plaintiff did not produce the agreement. On appeal, Noecker contended the plaintiff's failure to produce a written non-compete violated the statute of frauds, which prohibits contracts that cannot be performed in less than a year unless the same are in writing. The Court rejected Noecker's argument, reasoning that there was enough evidence produced to demonstrate Noecker in fact signed such an agreement.

I have dealt with a number of situations when an employer cannot produce a non-compete, either because the record-keeping is poor, an employee is suspected of taking the agreement, or (as in this case) an acquisition has complicated the process of locating old agreements. My experience is that too much is made of this particular issue, and if there is a reasonable amount of evidence that an employee actually signed an agreement, the fact it's missing usually is irrelevant. The existence and content of the agreement can be proven with secondary evidence. With the advent of the digital workplace, there is no reason anymore why employers should not scan in and save non-competes or other key contracts on its information technology system.

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Court: Supreme Court of Wyoming
Opinion Date: 9/14/09
Cite: CBM Geosolutions, Inc. v. Gas Sensing Technology Corp., 215 P.3d 1054 (Wyo. 2009)
Favors: Employer
Law: Wyoming