M-I LLC v. Stelly (S.D. Tex. Aug. 17, 2010)

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Case 4:09-cv-01552 Document 376 Filed in TXSD on 08/17/10 Page 1 of 70
UN ITED STA TES D ISTRIC T C O U RT

SO UT H ERN D ISTR ICT O F TEX A S
H O USTO N D IV ISION
M -l LLC,
Plaintiff,
V. C IVIL A CT IO N N O .4:09-cv-1552
CH A D LEE ST ELLY ET A L .,
D efendants.
M EM O M ND U M A N D O RD ER
Pending beforethe Courtare Defendants'JointM otion to Dism iss forPlaintiffs
Failureto State aClaim (Doc.No.91);DefendantsBenton T.Knobloch and W ellbore

Energy Solutions,LLC'S M otion for Partial Sum m ary Judpnent as a M atter of Law
(Doc.No.181);Defendants'JointExpedited M otion forProtection from Discovery of

Proprietary Trade Secretlnformation (Doc.No.300). After considering the parties'
filings, a11 responses and replies thereto,and the applicable law,the Courtfinds that
Defendants'motion to dismiss should be granted in pa14 and denied in part,Defendants'
motion forpartialsummaryjudgmentshould bevanted in partand denied in part,and

Defendants'jointexpeditedmotionforprotectionshouldbedenied.
1. BA C K G R O U N D
This suitinvolves the alleged m isappropriation oftrade secretsand violation of
non-compete ap eementsby formeremployeesofPlaintiffM -lLLC (ûiM -l''),including

Chad Stelly,Stephen Squyres,and Benton T.Knobloch,three ofthe Defendantsin this
Case.1
'Unlessotherwisenoted, thebackground factsofthiscaseare notin dispute.
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M -lLLC CtM -1'')isan oilfield contractorthatprovidestçproductsand servicesto

oilfeld drillers and operators who are involved in successful completion of downhole
operations and the cleanoutofwellbores.'' (Second Am.Compl.,Doc.No.355,IJ8.)

DefendantsChad Stelly CûStelly'')and Stephen Squyrestslsquyres''lwere employeesof
M -IatitsHouston offices.Both employeessigned trade secretagreementsand covenants
notto competeduring theirem ploym entatM -I. Pursuantto these and otheragreem ents,
Stelly and Squyres ar eed to m aintain contidential a1l of M -l's trade secrets and
proprietary inform ation both during em plom entand afterward,and also ap eed notto
competeagainstM -Iforaperiodoftwo yearsafterterminationofemployment.@d.!9.)

ln their em ploym ent capacity, Stelly and Squyres specialized in rental and technical
support of wellbore cleanout equipm ent. Stelly and Squyres prom oted tools to M -I
custom erstluoughoutthe GulfofM exico,Texas,Louisiana,and Alabam a. M -lalleges
thatitçlprovided and entrusted''to Stelly and Squyres extensive trade secret and other
proprietary infonnation,includingtooldrawings,desir s,and specifications. (1d.!g

! 10-
DefendantBenton T.Knobloch (dçKnobloch'')wasan employeewith Specialised

Petroleum Services International, lnc. f/k/a Global Completion Services, Inc.
(IISPS/GCS'') which was a subsidiary of SPS Petroleum Services Group Limited

(ç$SPS''). M -lacquired SPS and SPS/GCS on August2,2006,and received assignment
of a1lcontractual rights. (1d.lr18.) Knobloch sir ed ameements promising notto
disclose any confidential inform ation, solicit SPS/G CS'S custom ers, interfere with
SPS/GCS'Scustom errelationships,orcom petewith SPS/GCS. M -IaversthatSPS/GCS
and M -l gave Knobloch access to confidential inform ation, including tool draw ings,
2
designs,and specifications. On August21,2006,Knobloch resir ed hisposition with
M -l,and wasthereaûer term inated. Knobloch was M anagerofSales forthe Americas
when hisem ploym entwith M -1ended. M -laversthat,within one month ofleaving his
job atM -l,Knobloch formed a new company,DefendantW ellbore Energy Solutions,

LLC (çtW ES'') andbegan servingasW ES'Spresident.(f#.!(24.)
ARer Knobloch formed W ES,M -l alleges thathe began tlraiding''em ployees
from M -I,ultimately hiring atotalofthirteen employeesfrom M -I. SquyresjoinedW ES

in 2008,and Stellyjoined in 2009. M -IassertsthatDefendantshaveboth stolen M -l's
trade secrets and otherconfidentialinform ation,and violated theirrespective covenants
notto compete. (Id.!5 15-16.) M-lbelievesthatW ES designed twelve ofitswellbore

toolsby relying on M -l'strade secrets.
Based on these averm ents,M -lbrings fourteen counts against Stelly,Squyres,
Knobloch, and W ES. Those counts include: breaches of various employment
agreem ents, including trade secret am eem ents, covenants not to com pete, and
confidentiality contracts; com mon 1aw m isappropriation of trade secrets'

, tortious
interference w ith M -l's custom er contracts, prospective business relations, and
employmentcontracts;breach offiduciary duty;violations ofthe Texas TheftLiability
Act, TEX. CIV. PRAC. & REM. CODE ANN. jj 134.001-134.005 (Vernon 2005);
conspiracy;unfair competition by m isappropriation;violations of the Computer Fraud
andAbuseAct,18U.S.C.j1030,
.and conversion.
D efendants have filed a m otion to dism iss M -l's claim s,arguing thatthey failto
state a claim upon which relief can be granted. They have also filed a m otion for
summary judgment, arguing that M -l's state tort claims are preempted by federal
copyrightlaw,and thatKnobloch's covenantsnotto compete areunenforceablebecause
they are unreasonable restraints of trade. Last, Defendants have filed a m otion for
protection,arguing that M -l has not m ade the requisite showing of necessity to obtain
tradesecretmaterialsin discovery. The Courttakesup each oftheargum entsinturn.
II. M O TIO N TO D ISM ISS
Defendantshavefiled ajointmotion todismissforfailureto stateaclaim .They

argue that M -l's com plaint fails to com ply w ith Rule 8 under the Suprem e Court's
Twombly and Iqbaldecisions. (Defs.'JointM ot.to DismissforP1.'s Failure to State

Claim,Doc.No.91,! 14.) Specifically,Defendants arguethatthe complaintdoesnot
contain sufticientallegationsto stateaclaim form isappropriation oftrade secrets,failsto
state facts in supportofM -l's three tortious interference claim s,and fails to state m ore
than legalconclusionsfortheremaining ten claims. (f#.15 15-19.) M -Irespondsthat

Defendants'motion isuntimely,andin anycase,thattheirpleading meetsRule 12(b)(6)
standards.
A . LegalStandard
A courtm ay dism iss a complaintfor ûtfailure to state a claim upon which relief
can be ranted.'' FED.R.CIV.P. 12(b)(6). il'

l-o sunive a Rule 12(b)(6)motion to
dism iss,a complaint tdoes notneed detailed factualallegationss'butm ustprovide the
plaintiffs grounds for entitlem ent to relief- including factual allegations that when
assum ed to be true çraise a right to relief above the speculative 1evel.''' Cuvillier v.
Taylor,503 F.3d 397,401(5th Cir.2007)(citing#c//Atl.Corp.v.Twombly,550 U.S.

544,555 (2007)). Thatis,11a complaintmustcontain sufficientfactualmatter,accepted
astrue,to çstate a claim to reliefthatisplausibleon itsface.''' Ashcro? v.Iqbal,556
4
#d'
.uM% l$..t 'â
U.S.---,129 S.Ct.1937,1949 (2009)(quoting Twombly,550U.S.at570).A claim has

facialplausibility ilwhen the plaintiffpleads factualcontentthatallow s the courtto draw
the reasonable inference thatthe defendant is liable for the m isconduct alleged.'' 1d.
(citing Twombly,550U.S.at556).Theplausibility standardisnotakinto atiprobability

requirem ent,''but asks for more than a sheer possibility that a defendant has acted
unlawfully. 1d. A pleading need notcontain detailed factualallegations,butm ustset
forth m ore than lçlabels and conclusions,and a form ulaic recitation ofthe elem entsof a
causeofactionwillnotdo.''Twombly,550U.S.at555(citationomitted).
W hen considering a Rule 12(b)(6)motion to dismiss,a courtmusttûacceptthe
complaint's well-pleaded facts astrue and view them in the lightmostfavorable to the
plaintiff'' Johnson v.Johnson,385 F.3d 503,529 (5th Cir.2004),

*see also Sonnierv.
StateFarm MutualAuto.Ins.Co.,509 F.3d673,675(5thCir.2007).A districtcourtcan
consider the contents of the pleadings, including attachm ents thereto, as well as
documentsattached to the motion,ifthey are referenced in the plaintiffs complaintand
arecentraltotheclaims.Collinsv.M organStanleyDean Witter,224 F.3d496,499(5th

Cir.2000). Furthermore,aCourtmay referto mattersofpublicrecordwhen deciding a
motion to dismiss. Chauhan v.Formosa Plastics Corp.,212 F.3d 595,595 (5th Cir.
2000).
Ultim ately,the question forthe courtto decide is whether the com plaintstates a
valid claim when viewed in the light most favorable to the plaintiff. The court m ust
accept w ell-pleaded facts as true, but legal conclusions are not entitled to the sam e
assumptionoftruth.Iqbal,129S.Ct.at1950(citationomitted).Butthecourtshouldnot
Allstrain to tind inferencesfavorableto theplaintiffs'''or'saccepticonclusory allegations,
unw arranted deductions,or legal conclusions.''' R2 Investm ents LD C v. Phillips,401
F.3d 638,642 (5th Cir.2005)(quoting Southland Sec.Corp.v.Inspire Ins.Solutions,

Inc.,365 F.3d 353,362 (5th Cir.2004)). lmportantly,thecourtshould notevaluatethe
meritsofthe allegation,butmustsatisfy itselfonly thatplaintiffhas adequately pled a
legally cor izable claim . United States cx rel.Riley v.St.Luke's EpiscopalH osp.,355
F.3d370,376(5th Cir.2004).
B . A nalysis
The Courtnotes,atthe outset,thatsubsequentto Defendants'm otion to dism iss,
M -1 am ended its complaint. The live pleading is M -l's Second Am ended Com plaint
(Doc.No.355).TheCourtwillapplythemotiontodismisstothelivepleading.
1. W aiver
The CourttirstconsiderswhetherDefendantshave waived theirRule 12(b)(6)

arguments by filing responsive pleadings before moving to dism iss. Defendants
answered M-l's originalcomplaint. (See Doc.Nos.7,9,& 28.) They now move to

dism iss M -l's am ended complaint. M -Iargues thatDefendants have waived theirRule
12(b)(6) arguments, because the rule Stexpressly mandates'' that a motion brought
pursuantto the rule tllshallbemadebeforepleading.''' (P1.M -1LLC'SResp.to Defs.'
M ot.toDismissforFailuretoStateaClaim PursuanttoFRCP 12(b)(6)& M ot.forLeave
to FileAm.Compl.,Doc.No.113,at2 (quoting FED.R.CIV.P.12(b)(6).) Because
Defendants already filed responsive pleadings to M -l's originalcomplaint,M -Iargues
that they m ay not now oppose an am ended com plaint. D efendants respond that their
m otion istim ely and notwaived.They arguethat,because Defendantsare allowed to file
a responsive pleading to M -l's am ended complaint,they are also allowed to çlchallenge

thatcomplaint'svalidityunderRule12(b)(6).''(Defs.'ReplytoP1.'sResp.toTheirJoint
Mot.toDismissforFailuretoStateaClaim,Doc.No.180,!(2.)
DefendantsrelyonBromheld v.McBurney in arguingthattheirmotion to dismiss
is tim ely. In that case,the defendants m oved to dism iss plaintiff s original com plaint.
Tht courtsubsequently ordered plaintiff to tile an amended complaint curing certain
deficiencies. The plaintiff did so,and defendants tiled a second motion to dismiss.
Plaintiff responded that the defendants motion should be denied, because only one
12(b)(6) motion could be filed. The courtrejected thatargument,noting thatRule

12(b)(6)ttmerely providesthata motion asserting a defense forfailure to state aclaim
upon which reliefcan be granted,orany ofthe otherspecitic defenses setforth therein,
fmustbem adebeforepleading ifaresponsivepleading isallowed.''' 2008 W L 2746289,
at*1(W .D.W as.July8,2008)(quotingFed.R.Civ.P.12(b)).Becausetheplaintiffhad

filed an am ended complaint,the courtheld thatthedefendantswere once again entitled to
challengeitsvalidityunderRule12(b)(6).
Though Bromfeld supports Defendants' general argument that an amended
complaint grants defendants the opportunity to challenge its validity anew under Rule
12(b)(6),thecircumstancesofthecasesaredifferent.ThedefendantsinBromheldnever
answered theoriginalcomplaint. Instead,they challenged both the originaland am ended
complainton Rule 12(b)(6)grounds.Inthiscase,bycontrast,each Defendantanswered

M -l'soriginalcomplaint,and urged thisCourtto dismisson 12(b)(6)groundsonly aher
the am ended com plainthad been filed.
The Courtdoes nothave to decide thatquestion,however,because Defendants
prevailforanotherreason. Each Defendantraised the defense offailure to state a claim

uponwhich reliefcanbegrantedin theiranswers. (SeeChad Stelly'sAm.Answer,Doc.

No.7,!89(EtstellyaffinnativelyassertsthatM -l'sclaimsarebarred,inwholeorinpart,
because M -Ihasfailed to state a claim upon which reliefmay be granted''l;Stephen
Squyres'Am.Answer,Doc.No.9,!(89 (same);Defs.Benton Knobloch & W ellbore
Energy Solutions, LLC'S Original Answer and Counterclaim, Doc. No. 28, !95
(ttKnobloch and (W ES)plead failureto state ac1aim'').) Rule 12(b)providesthatçtlnjo
defenseorobjectioniswaivedbyjoiningitwithoneormoreotherdefensesorobjections
in aresponsivepleading.'' Rule 12(i)providesthatVûliqfaparty so moves,any defense
listedin Rule 12(b)(1)-(7)- whethermadein apleadingorbymotion ...mustbeheard
and decided before trialunless the courtorders a deferraluntiltrial.'' FED.R.CIV.P.
12(i). Because the Defendants'motion to dismiss isbased on a defense they raised

originally in their answ ers,M -l's w aiver argum entfails. See D esperado M otor Racing tt
M otorcycles,Inc.v.Robinson,2010W L 2757523,at*3(S.D.Tex.July 13,2010).

M isappropriation oftrade secrets
Defendants aver that M -l has failed to plead adequately its m isappropriation of
trade secrets claim . U nder Texas law ,the elem ents of m isappropriation oftrade secrets
are:(1)a tradesecretexisted,(2)the trade secretwas acquired through a breach ofa

confidentialrelationship ordiscoveredbyimpropermeans,and (3)thedefendantusedthe
tradesecretwithoutauthorization from theplaintiff CQ,Inc.v.TXU M ining Co.,565
F.3d 268,273 (5th Cir.2009)(quoting Gaia Techs.Inc.v.Recycled Prods.Corp.,175
F.3d 365,376 (5th Cir.1999)).A trade secretisdetined asak'iformula,pattem ,device
or com pilation ofinform ation used in abusiness,which givesthe owneran opportunity
to obtain an advantage overhis competitors who do notknow or use it.''' Tri

ple Tee
Go% Inc.v.Nike,Inc.,285F.3d253,261(5th Cir.2007)(quoting Taco Cabana Int1v.

FwoPesos,Inc.,932 F.2d 1113,1123(5thCir.1991:.
M -l's Second Am ended Com plaintalleges thatStelly,Squyres,and K nobloch had
accessto iûnonconform ance reports,tooldrawings,tooldesir s,tech units,toolutility
reports,scrap reports,jobproposalsandprocedures,salesforecasts,jobtracker,customer
preferences, tool research and developments and project information,'' and other
contidentialinformation.(Doc.No.355,! 11;seealsoid.!(19.) M -lfurtherallegesthat
Defendantsinduced Stelly to misappropriateM -l'stechnology and trade secretsforusein
W ES'Sbusinessoperations,and that:
ln the daysbefore he notitied M -Ithathe wasquitting,Stelly connected

extem al m em ory devices to his M -I laptop and transferred files to these
devices from the laptop. A forensic analysis of Stelly's Extem alHard
Drive and USB Drive revealed thatM -l's fileswere on these devices and
that som e of these files had been transferred from Stelly's laptop. In
addition,on M arch 8,2009,Stelly began downloading M -l's tiles on to
his M -llaptop im mediately after ending a cellphone conversation with
Knobloch. Sim ilarly,on M arch 6,2009,Stelly called Knobloch minutes
before he plugged in an extem alm em ory device to his laptop. Because
this com puter activity occurred aher Stelly accepted em ploym ent with
W ES and in closeproxim ity to phone callswith Knobloch,M -lhasreason
to believe that Stelly w as accessing M -l's Confidential Infonnation and
filesforhisand forW ES'Suse.
(Doc.No.355,5 15.)2 Finally, M -lmaintains thatKnobloch resir ed from M -land

immediately formed W ES. (1d.! 24.) M -1provides a listof fourteen specific tools
whosedesir sandtechnologieswereallegedlyusedbyW ES.(f#.!(21.)
2The Courtis aware thatthere is considerable controversy over this allegation, because M -Iinitially
submitted,and subsequently withdrew,evidencesupporting itsclaimsthatStelly haddownloaded material
from his M -Ilaptop onto an externalhard drive. (See Aff.in Supp.ofM -ILLC'SEm ergency M ot.for
Prelim.Inj..Doc.No.14.!!I12-13;M-1LLC'SNoticeofW ithdrawalofPortionsofKeith Pope'sAff.,
Doc.No.81.) AsDefendantsacknowledge,however,itistheCourt'staskatthisstageto consideronlythe
pleadingsin its12(b)(6)determination.Thus.itmustignoreb0thfavorableand detrimentalevidencethat
existoutside thepleadings,and focuson the factualallegationsin M -l'scomplaintonly. M-Icontinuesto
assertthatStelly downloaded sensitiveM -lmaterialbeforeleavinghisjob,and forthepumosesofthis
m otion,theCourtisboundto accepttheseallegationsastrue.
N evertheless,D efendants argue thatM -Ihas failed to allege facts to supportits
claim because there are no factsshowing whattrade secretwasm isappropriated,thatM -
l'strade secretswere actually used ordisclosed by Defendants,and whatinjury was

suffered by M -l. The Courtdisap ees. O n the contrary,M -Ihas alleged thatits designs
and technologies related to fourteen tools constim te trade secrets,that D efendants took
the inform ation in violation oftheirconfidentiality agreem ents,and haveused itto build
itsown tools. M ile,ofcourse,itistrue thatatleastsom e ofM -l'sallegations reston
circum stantialfactualsupport the Courtbelieves that,tlzrough discovery,M -lm ay be
able to collect evidence of the allegedly unlawful behavior to m ore fully supportits
claim s. O fcourse,in the finalcalculus,itm ay notbe able to prove its allegations and the
casecould verywellbe dismissed on afuturemotion forsummaryjudgmentorattrial.

% atism aterialatthisstage,however,isthatM -Ihasalleged factsthatûûûraisea rightto
relief above the speculative 1evel,'''thereby sufficiently stating its claim .Cuvillier v.
Taylor,503 F.3d 397,401(5th Cir.2007)(citing#c//Atl.Corp.v.Twombly,550 U.S.

544, 555(2007)).TheCourtfindsthatM -Ihasdoneso.
3
3. Tortious interference w ith custom er

contracts
Count Four alleges tortious interference w ith M -l's custom er contracts. A
plaintiffm ustestablish the following elem entsto succeed on a tortiousinterferencewith
contractclaim ;(1)the existence ofa contractsubjectto interference,(2)willfuland

intentionalinterference,(3)thatproximately causesdamage,and (4)actualdamage or
3D efendantsalso arguethatM -Ipleadsthe inapplicableltinevitable disclosure''doctrine in supportofits
trade secretm isappropriations claim s. Defendants claim that the doctrine has notbeen recognized or
adoptedby any Texascourt,and thatthisCourtexpressly held thedoctrineinapplicable asamatterof1aw
intheearlierinjunctionproceedings.(SeeMem.& Order,Doc.No.75,at12-13.) BecausetheCourthas
found thatM -Isucceedsin setting forth sufticientallegationsthatStelly actually downloaded tradesecrets
before he leftM -I,ithasno need to consider now whetherpleading the Sûinevitable disclosure''doctrine
meetsRule12(b)(6)requirements.
10
loss. Specialtiestp
/M cx.Inc.v.Mastedbods USA,2010W L 2488031,at*9 (S.D.Tex.
June 14,2010)(citingA11Am.Te1.,lnc.v.USLD Commc'
ns,Inc.,291S.W .3d 518,531
(Tex.App.- FortW orth 2009,pet.deniedl). Defendantsargue thatthere are tçno facts
identifying the contracts allegedly interfered with, how the alleged interference
proximately caused injurytoM -1,...theidentityofthe...third-person interfered with,

oractualdamageorlossincurred.''(Doc.No.91,! 18.)
The Courtagrees w ith Defendants. A her com bing tlzrough M -l's com plaint,the
Courtcan discern only two passagesthateven tangentially putforth facts relating to M -
I's tortiousinterference with custom ercontracts claim . First,M -1alleges;
Stelly and Squyres are . . . soliciting M -l's customers based on the

relationships they form ed and furtherdeveloped while atM -I. Stelly has
solicited and/or is soliciting and renting com peting tools to:BP p.l.c.,
Chevron Com oration, D evon Energy Com oration, Exxon M obil
Corporation,W alterOiland GasCorporation,M arathon Oi1Com oration,
and EniS.P.A . Squyres is soliciting and renting W ES toolsprim arily to
BP p.l.c.justashedidwhileatM-I.
(Doc.No.355,lg13.) Second,M -Iasserts:
The D efendants'm isappropriation,breaches of contract,and interference
hascaused M -lsubstantialharm . M -Ihas leanwd thatitlostatleastone
wellto W ES when BP awardedtheThunderHorseProject778//2 W ellto
W ES instead ofM -lbecause ofSquyres'ssalesefforts. M -lhasprovided
W ellbore cleanouttools and services to BP forotherThunderHorse wells,
and expected to provide the same for778 #2. Defendants have unfairly
competed and continue to unfairly compete with M-Ion other projects
using M -l's form eremployeesand M -l'sConfidentialInform ation. W ES
w asawarded theThunderllorse778 #2 becauseofSquyres'sbreach ofhis
contractswith M -l,W ES'Sinterferencewith thosecontracts,the inevitable
use and disclosure of and continued use of M -l's Confidential
Inform ation,and the use ofM -l's tooldesigns.
(f#.!29.) The Courtfindsthatthesepleadingsfailfortwo reasons. First,whileM -l

avers that it ûthad valid contracts w ith certain custom ers,'' it fails entirely to allege or
designate a specific contractthatisthe subjectofinterference. From the factsrecited

above,the reader m ight gather that M -l had business relationships w ith at least seven
differentbusinesses that have since been solicited by,or entered into ap eements for
services with,W ES. Sim ilarly,a reader may sunnise thatM -lhas provided wellbore
cleanout tools to BP and m aintained som e sortof expectation to do the sam e on the
Thunderilorseproject. Noneofthese contentions,however,allegesthe existenceofa

contract betw een M -l and any of these businesses that obligated them to use M -l's
wellbore cleanoutservices. W ithoutidentifying an existing contractthatis subjectto

interference,M -lhasfailed to plead adequately thefirstelem entofatortiousinterference
w ith contractclaim .
Second,the Courtfinds that M -lhas failed to adequately plead the proxim ate
cause elem entofthiscause ofaction. To show proximatecause,:<a plaintiffmustallege
thatûthe defendanttook an activepartin persuading aparty to a contractto breach it.'''
HambricSportsMgmt.,LLC v.Team AK,Inc.,2010W L 2605243,at*9(N.D.Tex.June

29,2010)(citingAmigo Broad.,LP v.SpanishBroad.Sys.,Inc.,521F.3d 472,489 (5th
Cir.2008)). 'ttM erely entering into a contractwith aparty with theknowledge ofthat
party's contractualobligations to som eone else is notthe sam e as inducing a breach.'''
1d. tûsltis necessary thatthere be som e actofinterference orof persuading a party to
breach, for example by offering better term s or other incentives, for tort liability to
arise.''' f#.(quotingDavisv.Hydpro,Inc.,839 S.W .2d 137,139 (Tex.App. Eastland

1992,writdeniedl). Here,itisalleged in M -l's complaintthatStelly and Squyres,in
their capacity as salesm en at W ES,are soliciting M -l custom ers for w ellbore cleanout
projects. Nowhere does M -I set forth facts that allege any kind of interference or
persuasion of a party to breach any existing contracts with M -1. There are no facts
suggesting thatany Defendanthas offered better tenns or other incentives in order to
induce com panies to breach their contracts. M -l has therefore failed to plead adequately
thatDefendantsare theproxim atecauseofany lossofexisting contractualrelationswith
com panies.
Thus,the CourtfindsthatM -Ihasnotsetforth sufficientfactualmatterthatstates
aplausible daim forrelief Iqbal,129 S.Ct.at1949. The Court,however,willallow M -
Ito amend itscom plaint. GreatPlains TrustCo.v.M organ Stanley Dean X //cr tf Co.,
313 F.3d 305,329 (5th Cir.2002)(ûlgDlistrictcourtsohen afford plaintiffsatleastone

opportunity to cure pleading deficienciesbefore dism issing a case,unless itisclearthat
the defects are incurable of the plaintiffs advise the courtthat they are unwilling or
unable to amend in a manner thatwillavoid dismissal.'') The Courtbelieves that

additionalallegations could cure the existing deficiencies.
4. Tortious interference w ith prospective business relations
CountFive alleges tortious interference with prospective business relations. In
orderto establish thisclaim,aplaintiffmustprove:(1)areasonableprobabilitythatthe

plaintiffwould haveenteredintoabusinessrelationship;(2)an independentlytortiousor
unlawfulactby the defendantthatprevented the relationship from occurring;(3)the
defendantdid such actwith a consciousdesire to preventtherelationship from occuning
orthe defendantknew the interference wascertain or substantially certain to occurasa
resultoftheconduct'
,and (4)theplaintiffsuffered actualharm ordamagesasaresultof
the defendant'sinterference. Specialties of M ex.Inc.v.M asteyoods USA,2010 W L
2488031,at*10 (S.D.Tex.June 14,2010). Defendants argue thatM -l's claim fails
because M -l failsto setforth facts showing ûsthe reasonable probability thatM -lwould
13
have entered into a business relationship w ith third persons, independently tortious or
unlawful conduct,the identity of the prospective business relationship . . . ,or actual
dnmageorlossincurred.''(Doc.No.91,! 18.) Defendantsfurtherallegethatthefactsin

support of M -l's tortious interference claim are threadbare recitals of the elem ents of
each cause of action,supported by conclusory statem ents,and thereby nm afoul of
Twombly andIqbal'spleading standard.
M -I counters that itçthas produced docum ents''during discovery Gçshow ing thatit
had a relationship with BP and thatitsubmitted aquote''on the BP ThunderHorse W ell
project.(Doc.No.113,!at10.)TheCourtmaynotlooktodocumentsnotreferencedor
includedin thepleadingswhen considering aRule12(b)(6)motiontodismiss. Collinsv.
M organStanleyDean Witter,224F.3d496,499 (5th Cir.2000).Accordingly,itisofno
m omentthatM -Iwasable to provide factualsupportforits claim outside thepleadings.
The pum ose of a motion to dism iss for failure to state a claim is to ensure that
D efendants have notice ofthe precise claim s againstthem . Providing piecem ealfactual
supportthroughoutthelifeofthecase isnotan acceptablesubstituteforRule 12(b)(6)'s

requirementthataplaintiffspleading contain factualm atterthatstatesa Stlclaim to relief
thatisplausible on itsface.''' Iqbal,129 S.Ct.at1949 (2009)(quoting Twombly,550

U.S.at570).TheCourtwillthereforerefertothepleadingsinconsideringwhetherM -I
hasfailed to statea claim uponwhich reliefm aybe granted.
Aherexam ining the pleading,the Courtconcludes thatthis tortious interference
claim falls shortof the Rule 12(b)(6)pleading standard. M -l fails to set forth any
allegationsestablishing a reasonable probability thatitw ould have entered into a business
relationship. The closest it comes is its averment that it lshas provided (wlellbore
14
cleanouttools and services to BP forotherThunderH orse w ells,and expected to provide
the samefor778 //2,''butinstead losttheprojectto W ES. (Doc.No.355,!(29.) This

statem ent,however,doesnotplead areasonable probability thatM -land BP would have
entered into acontractualrelationship fortheThunderHorseproject. Furthermore,M -l

failstopleadanyotherbusinessrelationshipsthatarethesubjectofthisclaim.
TheCourtalso findsthatM -Ihasfailed to adequately plead thethird claim ,which
requiresaplaintiffto establish thatthe defendantcom mitted an independently tortiousact
with a conscious desire to prevent the relationship from occurring, or knew the
interference wascertain orsubstantially certain to occuras a resultofthe conduct. M -l
hasnotpled thatDefendantscomm itted misappropdation and/orbreach offiduciary duty
w ith a consciousdesire to cause,orw ith the certain know ledge that,itw as preventing M -
l's specific business relationship from fonning. For these reasons, M -l's tortious
interferencewith prospectivebusinessrelationsclaim isdism issed. M -1m ay replead.
5. Tortiousinterference w ith M -l's em ploym ent contracts
Count Six alleges tortious interference w ith M -l's em ploym ent contracts. The
elementsofatortiousinterferencewith contractclaim are:(1)theexistenceofacontract

subject to interference,(2) willful and intentional interference,(3) that proximately
causesdamage,and (4)actualdamageorloss. Specialties ofMex.Inc.v.M astefoods
USA,2010 W L 2488031,at*9 (S.D.Tex.June 14,2010)(citing AllAm.Tel.,Inc.v.
USLD Commc'
ns, lnc, 291 S.W .3d 518, 531 (Tex.App.- Fort W orth 2009,pet.
deniedl). The Courtis uncertain aboutDefendants'specitic objectionsto thisCount.
MostofDefendants'objections appearto targetM -l'sothertwo tortious interference
claims,discussed above. ln any event,the Courtconsiderswhetherthis claim hasbeen
15
adequately pled pursuant to D efendants' argum ent that a11 tortious interference claim s
oughtto bedism issed.
M -Iidentifiesseveralcontractsasthesubjectofthisinterferenceclaim,including
the M -lTrade SecretA m eem entand CovenantN otto Com pete,M -IEm ployee lnvention
and Confidential Inform ation Av eem ent, GCS and SPS Confidentiality Av eem ents,
and/orat-willemplom entagreements. (Doc.No.355,!59.) 'I'heCourttindsthatthe

firstelem entissatisfied.
N ext,as to a show ing of willful and intentionalinterference,M -I pleads,IûW ES
and itsagents,including Knobloch and Squyres,knew orhad reason to know ofthose of
gtheqcontracts,specifically the employmentagreementl,)and Trade SecretAceement

and CovenantNotto Com pete,because Squyres and other W ES agents had essentially
thesameaveementswith M-landW ES.''(Doc.No.355,!(60.) M -lallegesfurtherthat

anumberofitsemployeesleftM -ItojoinW ES.(f#.!r
!24-28.) Finally,M -Ialleges:
On M arch 3, 2009, Knobloch induced Stelly to breach his em ployee
agreem entwith M -I. Before he quit,Stelly told W ES and Knobloch that
Stelly had a noncompete ap eem ent with M -l. W ES and Knobloch
willfully disregarded that M -l contractjust as it had disregarded the
previously raided em ployees'contracts w ith M -land as ithas continued to
disregard them .
(1d.!(27.) M-Iprovidesenough factualallegationsto supportthe second elementofits

tortiousinterference claim .
Third,in order to prove proxim ate dam age,M -lhas pled that ççKnobloch and
W ES induced each of aforem entioned em ployees and possibly others to quit M -l for
increased com pensation and/or otherbenefits or a totalincreased em ploym entpackage.''
(Doc.No.355,lr28.) Finally,M -1pleadsactualdamagein theform oflostemployees

and the costofretraining new em ployees.
A ccordingly,the Courtfinds thatM -lhas alleged and provided factualsupportfor
each elem entofitstortiousinterferencewith employm entcontractsclaim ,thereby stating
aplausibleclaim forrelief Iqbal,556 129 S.Ct.at1949.The CourtdeniesDefendants'
m otion to dism isson thisclaim .
6. The rem aining argum ents
Defendants do not provide specific argum ents for dism issal of each of the
rem aining claim s,butinstead aver generally thatçithe rem aining 10 claim s are no m ore
than conclusions,which are notentitled to the assumption oftnzth and are unsupported
by factualallegations.'' (Doc.No.91,! 19.) Defendantsthen lista seriesofarguments

aimed atvariouscausesofaction.TheCourtconsiderseach argum entin turn;
a. T exas TheftLiability Act
D efendants argue that there are no allegations in support of an unlaw ful
appropriationoftradesecretsunderTexasPenalCodej31.05,which isrequiredinorder
to supportM -l's Texas TheftLiability A ct claim . Section 31.05 provides that a person
comm its an offense if,withoutthe owner's consent,he knowingly steals a trade secret,
makes a copy ofan article representing a trade secret,or com municates ortransm its a
trade secret. TEX.PENAL CODE ANN.j31.05 (Vernon 2003). As stated above,M -I

allegesthat,in the days before Stelly notified M -l he was quitting,he transferred files
onto an externalmemory device.(Doc.No.355,! 15.) TheCourtfindsthatthisfactual

allegation is sufficient to supporta claim of theh of trade secrets underthe Texas Penal
Code,w hich in turn supportsM -l's Texas TheftLiability A ctclaim . The Courtoverrules
Defendants'objectionsonthispoint.
b. Unfair com petition
CountTen allegesunfaircom petition bym isappropriation againsta11Defendants.
Defendants insistthatthere are no facts in supportofunfair competition. Specitically,
Defendants aver thatGlthe com plaintis silent on factsto show the creation of M -l'strade
secretinfonnation through extensive time,labor,skilland m oney,thatDefendantsused
M -l'stradesecretsincompetitionwithM -1orcommercialdamagewith M -l.''(Doc.No.

91,! 19.)
In order to show unfair com petition by misappropriation, a plaintiff m ust
establish:(1)the creation by plaintiffofaproducttluoug,h extensive time,labor,skill,

andmoney;(2)theuseofthatproductbydefendantincompetitionwithplaintiftlthereby
givingthedefendanta specialcom petitive advantagebecausehew asburdened with little
or none of the expense incurred by plaintiffin the creation of the product;and (3)
commercialdam age to plaintiff Cable Elecs.,Inc.v.N Am.Cable Equip.,Inc.,2010
W L 1541504,at*3 (N.D.Tex.2010)(citingAlcatelUSA,Inc.v.DGITechs.,166 F.3d

772,788(5th Cir.1999)).
M -lemphasizesitseffortsin creating wellborecleanoutproductsin severalplaces
in the com plaint. For example,M -1 avers,iûM -Ispentconsiderable am ounts to create
information (including tool drawings, designs, sales forecasts, tool research and
development,marketstrategies,etc.j Thisinformation isM -l'sinstimtionalknowledge
and history ofits wellbore cleanouttoolbusiness. Itis the productof many years of
experienceadozensofskilled employees'labor,and millionsofdollarsspentin research,
testingand application.''(Doc.No.355,!(12.) W ith infonnation thatM -Iacquired inits

asset purchase ap eement with SPS/GCS, M -l states, 'ûSPS/GCS spent considerable
amounts of tim e and m oney to create this inform ation and develop it. M -l spent a
substantialamountofm oney to obtain therightsto thisinformation. Thisinform ation is
SPS/GCS'S and M -l's institutional know ledge and history of its w ellbore cleanout tool
business. It is the product of m any years of experience,dozens of skilled em ployees'
labor,andmillionsofdollarsspent.''(1d.! 19.) W ithrespecttoM -l'stooldesigns,M -l

pleads,tûM -lspentconsiderable amountsoftim eand money to research and develop this
information and keep it secret. M -l em ploys engineers and designers to research and
develop these tool designs. These desir ers and engineers take years to research and
develop a tool,and ittakessubstantialadditionaltim eand m oney to testand m arketthese
tools.'' (1d.!22.) The Courtfinds thatthese averments are sufticientto plead the
elem ent of expended tim e,labor,skill,and money. Though M -l's allegations are not
pm icularly detailed atthispoint,the Fifth Circuithas instructed thatthey need notbe.
W hatmatters,instead,isthatM -lsets forth facts thatiçlraise a rightto reliefabove the
speculative1eve1.''' Cuvillier,503 F.3d 397,401 (5th Cir.2007)(citing Twombly,550

U.S.at555).TheCourtconcludesthat,astothiselement,M -lhasdoneso.
Sim ilarly,the CourtfindsthatM -lhaspled thatW ES isusing M -l'stradesecrets
in competition with M -1,and thatM -Ihassuffered comm ercialdamage. M -Ihas listed
twelveW ES toolsthatitclaimsarebeing used in competition with itsown tools. (Doc.

No.355,521.) Further,ithas alleged thatithas lostatleast one project,the BP
ThunderHorsewell,resulting in commercialdamage. (f#.!j29.) TheCourtfindsthat,
through itsallegations,M -lhassetforth a plausible basisforrecovery undera theory of
unfaircompetition bymisappropriation. TheCourtoverrulesDefendants'objectionson

thispoint.
c. C om puter fraud and abuse

Count Eleven alleges violations under the Com puter Fraud and Abuse Act
(::CFAA''), 18 U.S.C. j 1030. The CFAA prohibits, among other conduct, the
unauthorized accessto a tlûprotected com puter'forthepum osesofobtaining infonnation,
causing damage,orpem etrating fraud.'' Quantlab Techs.Ltd.(BVI) v.Godlevsky,---

F.Supp.2d ---,2010 W L 2593669,at*5 (S.D.Tex.June 23,2010). A Slprotected
com puter''is a tûcom puter ...w hich isused in oraffecting interstate orforeir com m erce
orcommunication.'' 18U.S.C.j 1030(e)(2)(B).

In itscom plaint,M -lhastwo passagesthatrelatetothisdaim . First,M -Iallegesthat:
Stelly colmected external m em ory devices to his M -l laptop and

transferred files to these devices from the laptop. . . . In addition, on
M arch 8,2009,Stelly began downloading M -ltlles on to his M -Ilaptop
imm ediately after ending a cell phone conversation with Knobloch.
Sim ilarly, on M arch 6, 2009, Stelly called K nobloch m inutes before he
plugged in an externalm em ory deviceto hislaptop.
(Doc.No.355,! 15.) Second,M -1asserts:

Defendantsknowingly and with intentto defraud,accessed and used the
computerts) assir ed to by M -I,withoutauthorization orin a manger
exceeding any authorization they m ay claim that they had. By m eans of
such conduct,D efendants furthered the intended fraud. M -1believes that,
because of Stelly's activities in M arch 2009, Defendants used M -l's
com puter to m isappropriate, use, and share M -l's trade secrets and
proprietary Confidentiallnform ation withoutauthorization.
(1d.!f!80-81-)
The CFAA is a crim inal statute, but civil actions are authorized for som e
violations ofits substantive provisions. Fiber s'

ys'.Int'l,Inc.v.Roehrs,470 F.3d 1150,
1156(5th Cir.2006).Section 1030(g)provides:

Any person who suffers dam age orlossby reason ofa violation ofthis
section m ay m aintain a civil action against the violator to obtain
compensatory damages and injunctiverelieforotherequitablerelietl A
civil action for a violation of this section m ay be brought only if the
20
conductinvolves1ofthefactorssetforthin subclauses(1),(11),(111),(IV),
or(V)ofsubsection(c)(4)(A)(i).
Theonlysubclausepotentially applicablehereissubclause(1),whichcoversttlossto 1or
more persons during any l-year period ...aggregating atleast$5,000 in value.''4 18
U.S.C.j1030(c)(4)(A)(i)(1).TheCFAA definesttloss''asfollows:
(T)heterm çsloss''meansanyreasonablecostto any victim,including the
costof responding to an offense,conducting a dnm age assessm ent,and
restoring thedata,pror am,system ,orinform ation toitscondition priorto
the offense,and any revenue lost,cost incurred,or other consequential
damagesincurred because ofintem zption ofservice.
18 U.S.C.j 1030(e)(11). GûDamage''isdefined asilany impairmentto theintegrity or

availabilityofdata,apropam,asystem,orinformation.''Id.j1030(e)(8).
The Courtfinds thatM -lfails to plead loss as itis defined in the CCPA . They
have notalleged thatany lossm eetsthe statutory monetary sum of$5,000. In addition,
case law has consistently intem reted the loss provision to encom pass only the costs
incurred as a resultofinvestigating orrem edying dam age to a com puter,orcosts incurred
because the com puter's service was intem zpted. See,e.g.,Nexans I

'Krc.
ç S.A.v.Sark-
USA,Inc.,319 F.Supp.2d 468,475 (S.D.N.Y.2004),affd,166 F.App'x 559,562-62

(2d Cir.2006). M -Isimply allegesdamageststo itsbusinessin the form oflostprofits,
lossofcustomersand lossoffuturebusinessopportunities.''(Doc.No.355,! 82.) M-I
asserts no dam ages whatsoever relating to their investigation of com puter dam age,or
costsincurred because any com puterservice w as intenupted.
ln sum ,M -l's CCPA claim failsbecause M -Idoes notallege any facts show ing at
least$5,000 ofloss,or any lossas a resultof investigation orintem zption ofcomputer
service. M -l'scurrentCCPA pleadingsthusnm afoulofRule 12(b)(6)requirements,

4Theotherfactorsinvolvem edicalcare, physi
calinjury,publichealthandsafety,anddamageaffectinga
governmentcomputer,noneofwhichareallegedhere.See18U.S.C.j 1030(c)(4)(A)(i)(II)-(V).
21
because they do not put forth facts that allow the Court to m ake an inference that
Defendants are liable for any misconductunder the CCPA . Iqbal, 129 S.Ct.at 1949
(quoting Twombly,550 U.S.at570). The CourtaffordsM -Ione opportunity to replead

thisclaim .
111. M O TIO N FO R SU M M A RY JU D G M EN T
Defendants Knobloch and W ES move for partial summary judgment on two

grounds. First,they argue that M -l's tort claim s based on wrongful copying of tool
designs are preempted by federalcopyright law. Second,they argue thatKnobloch's
covenants notto compete are unenforceable as a matter of law. (Defs.Benton T.

Knobloch & W ellboreEnergy Solutions,LLC'S M ot.forPartialSumm .J.asa M atterof
Law,Doc.No.181,at1.)
A . LegalStandard
A motion for summary judm entunderFederal Rule of CivilProcedure 56

requiresthe Courtto determine whetherthe moving party isentitled to judgmentasa
matter of law based on the evidence thus far presented. See FED.R.CIV.P.56(c).
Summary judpnentisproperttifthe pleadings,depositions,answersto interrogatories,
and adm issionson file,togetherwith the affidavits,ifany,show thatthere isno genuine
issueasto anymaterialfactand thatthemovingpartyisentitledtojudgmentasamatter

oflaw.''Keev.City ofRowlett,247 F.3d206,210 (5th Cir.2001)(quotationsomitted).
A genuine issue ofmaterialfactexistsifareasonablejury could enteraverdictforthe
non-moving party. Crawford v.Formosa Plastics Corp.,234 F.3d 899,902 (5th Cir.
2000). ThisCourtmustview a11evidencein thelightmostfavorableto thenon-moving
party and draw a11reasonable inferences in thatparty's favor. The Courtm ay not
make credibility determ inations orweigh the evidence. Reeves v.Sanderson Plumbing
Prods.,Inc.,530 U.S.133,l50 (2000). (t'

l'hecourtshould givecredencetotheevidence
favoring the nonm ovant as w ell as that ûevidence supporting the m oving party that is
uncontradicted and unimpeached,at leastto the extentthatthat evidence com es from
disinterested w itnesses.''' 1d. at 151. H earsay,conclusory allegations,unsubstantiated
assertions,and unsupported speculation arenotcompetentsummaryjudgmentevidence.

FED.R.CIV.P.56(e)(1);seealsoLittlev.LiquidAirCorp.,37F.3d 1069,1075(5th Cir.
1994)(notingthatanon-movant'sburdenisûtnotsatisfiedwith tsomemetaphysicaldoubt
astothematerialfacts''')(citingM atsushita Elec.Indus.Co.v.ZenithRadio Corp.,475
U.S.574,586(1986)).
B . A nalysis
1. C opyrightpreem ption
Knobloch and W ES m ove to dism iss ûtM -l's tort claim s based on wrongful
copying oftooldesignsbecausethe claim sarepreempted''by theU.S.CopyrightAct,17
U.S.C.jj 101-1332.(Doc.No.181,!j7.) W hetherafederalstatutepreemptsstate1aw is

a question of1aw forthisCourt. Franka Inv.Co.v.Union Pac.R.R.Co.,593 F.3d 404,
407 (5th Cir.2010)(citingFriberg v.Kan.fR/y S.Ry.Co.,267 F.3d 439,442 (5th Cir.

2001)).
Section 301(a)ofthe CopyrightActStaccomplishesthegeneralfederalpolicyof
creating a unifonn m ethod for protecting and enforcing certain rights in intellectual
property by preem pting other claim s.'' Daboub v.Gibbons,42 F.

3d 285,288 (5th Cir.
1995).Itprovides:
On and aher January 1, 1978, a1l legal or equitable rights that are
equivalent to any of the exclusive rights within the general scope of
copyright as specified by section 106 in w orks of authorship thatare fixed

in atangiblemedium ofexpression and comewithin thesubjectmatterof
copyright as specified by sections 102 and 103,whether created before or
aAer that date and whether published or unpublished, are governed
exclusivelyby thistitle. Thereafter,no person isentitled to any such right
orequivalentrightin any such work underthe comm on 1aw orstatutesof
any State.
17 U.S.C.j301(a). The Fifth Circuithas established a two-parttest to determine

whether a state law claim is preem pted. First, the cause of action is ûtexnm ined to
determinewhetheritfallstwithinthesubjectmatterofcopyright.'''Daboub,42 F.3d at
289. Second,the cause of action is ttexmnined to detennine if itprotects rights that are
ûequivalent'to any ofthe exclusive rights ofa federalcopyright,as provided in 17 U .S.C .
j106.55 f#.(citationsomitted). Section 106,foritspart,grantstheûtexclusive rightto

reproduce,distribute,perform, and display the copyrighted work''to the holder of a
copyright.f#.
The frststep requiresthe Courtto determine whetherthe claim fallswithin the
subjectmatterofcopyright.Knobloch andW ESarguethatthiscase'stlimplicationofthe

copyright laws relates to the drawings,desir s,technical m anuals,specifications and
plansofM-l'stoolswhich M -Iallegesitownsand Defendantscopied.'' (Doc.No.181,

! 12.) They urgethatthoseitemsfallwithin the subjectmatterofcopyright. M -1does
notdispute thatitstooldrawingsand otherm aterialare copyrightable,butinstead argues
thatthe claim sin thissuitare based on élreplicating toolsusing tradesecretinformation,
notcopyingcopyright-protected drawings.'' (P1.M -lLLC'SRequestforRelief& Resp.

to D efs.Benton K nobloch & W ellbore Energy Solutions,LLC'S M ot.for PartialSum m .
as a M atter of Law,Doc.No.195,!(7)(emphasis in original). Focusing on tool
24
copying rather than tool draw ing copying is im portant, M -I argues,because tools are
usefularticlesthatdonotqualifyforcopyrightprotection undertheCopyrightAct.
N either party, however, disputes the other's argum ent regarding what is
copyrightablem atter. Thatis,M -Idoesnotdispute thatitsdrawings,desir s,technical
manuals,specifications,and plansfallunderthesubjectmatterofcopyright. TheCourt

agrees. Section 102 oftheCopyrightActextendscopyrightprotection to 4toriginalworks
ofauthorship fixed in any tangiblemedium ofexpression,now known orlaterdeveloped,
from which they can be perceived, reproduced, or otherwise com municated, either
directly orwith the aid ofa m achine ordevice.'' ltthen providesa listofcategoriesof
works ofauthorship thatincludes tipictorial,graphic,and sculpturalworks.'' 17 U.S.C.
j102.Section 101,inturn,definesatçpictorial,graphic,and sculpturalwork''to include

tltwo-dim ensional and tllree-dimensional works of fine, paphic, and applied art,
photov aphs,prints and art reproductions,m aps,globes,charts, diap am s, m odels,and
technical drawings, including architecmral plans.'' Several courts have found that
technicaldrawingsand desir s fallwithin thesubjectmatterofcopyright. Taquino v.

TeledyneM onarchRubber,893F.2d 1488,1490,1501(5th Cir.1990)(affirmingopinion
thattreats engineering drawings as within the subjectmatter ofcopyright);Seiler v.
Lucashlm,Ltd.,808F.2d 1316,1320 (9th Cir.1986)(notingthatbluepdnts,engineedng
drawings,and architecturaldesignsarea11capable ofcopyright);Jedson Eng'
g,Inc.v.
SpiritConstr.Senw,Inc,2010W L 2541619,at*1-8 (S.D.OhioJune18,2010)(treating
draw ings of tissue m anufacturing plant design and construction as copyrightable
material);Guillot-vogtAssocs.,Inc.v.Holly (f Smith,848 F.Supp.682,686 (E.D.La.

1994) (noting thatboth architecturaland engineering drawings fallwithin the subject
25
matterofcopyright)(quotingSchuchart& Assocs.v.Solos'
czw Cor#.,540F.Supp.928,
943 (W .D.Tex.1982)). M -l'stooldesir s,drawings,and specificationsfallwithin the
subjectmatterofcopyright.
Sim ilarly,Knobloch and W ES do notdispute thatthe tools them selves do not
qualify for copyrightprotection. The definition ofa pictorial,graphic,or sculpturalw ork
undertheCopyrightActissubjecttoalluseftzlarticle''exception'
.
(Tlhe desir of a useful article, as defined in this section, shall be
consideredapictorial,graphic,orsculpturalwork onlyitland only to the
extent that, such design incorporates pictorial, F aphic, or sculptural
featuresthatcan beidentified separately from ,and arecapable ofexisting
independentlyof,theutilitarian aspectsofthe article.
17U.S.C.j 101. A ûtusefularticle''isûtan articlehaving anintrinsicutilitarian function

thatisnotm erely to portray the appearance ofthe article orto convey inform ation.'' 1d.
M -Iasserts,and Knobloch and W ES do notdispute,thatthe tools in question are useful
articleswhose aesthetic elem ents,ifany,cannotbe identified separately from ,and exist
independently of,theutilitarian aspectsofthetool.
Giventhatthepartiesagreethatthedrawingsofthetoolsaresubjecttocopyright,
butthetoolsthem selvesare not,thequestion forthisCourtto decide iswhetherthe claim
in question concerns the drawings or tools. After a review of the Second Amended
Complaint(Doc.No.355),thelivepleading inthiscase,theCourtconcludesthatM -l's

claim srelate to tooldrawings and sim ilarinfonnation,and thus fallwithin the scope of
copyright. In the relevantcounts,M -1focuses on the theû of tooldrawings and other
inform ation. M -l asserts,for example,that Knobloch, Stelly,and Squyres ttreceived
access to M -l's tooldesir and technology,and draw ings and specifications,especially
theSPS and GCS toolswhich wereacquired by M -lin200659(Doc.No.355,!(47);that
26
1çM -l's tool desir s and technology are proprietary information used by M -I in its
business''(id.!(49);thatir efendantshave unlawfully obtained,used,and taken M-l's

Confidentiallnformation in violation ofapeementsand Texaslaw''(1*
#.!(69);and that
çtD efendants have taken and/or used,w ithoutperm ission,inform ation and otherproperty
from M -1''(id.!84).Takenasawhole,themavamenofM -l'scomplaintfocusesalmost

exclusively on Stelly,Squyres,and Knobloch's alleged theftoftooldrawings,designs,
and otherconfidentialinformation from W ES. The Courtfindsthattheclaim sfallunder
thesubjectmatterofcopyright.Thetirstprongofthetestismet.
Next,the Courtm ustconsiderwhetherthe claim protectsrightsequivalentto any
ofthe exclusive rightsofafederalcopyright. A state1aw claim protectsrightsequivalent
to federalcopyrightclaim where the core of the state 1aw theory ofrecovery speaks to
wrongful copying. Daboub v. Gibbons,42 F.3d 285,289 (5th Cir. 1995). This
examination requires a tteomparison ofthe nature ofthe rights protected under federal
copyright1aw with the nature ofthe state rights''asserted by a claim ant. AlcatelUSA,
Inc.v.DG1Techs.,Inc,166F.3d772,787(5thCir.1999). ltthesetwosetsofrightsare
ûtdetermined to be çequivalent,'then the state 1aw cause ofaction ispreem pted.'' Id. A
state-law created rightis equivalentto copyrightlawsétéifthe mere actofreproduction,
distribution,ordisplay infringesit.'''RecursionSoftwareInc.v.InteractiveIntelligence,
Inc,425F.Supp.2d756,764(N.D.Tex.2006).
TheFilh Circuitttevaluatelsqtheequivalency ofrightsunderwhatiscommonly
referred to as the textra elem ent'test.'' A lcatel, 166 F.3d at 772. U nder this test,ifthe
actsofDefendantsaboutwhich M -lcomplainswould violate both thestate 1aw cause of
action and copyrightlaw ,then the state rightisconsidered equivalentto copyright. Id.
27
ltlflhowever,oneormorequalitatively differentelementsarerequired to constitutethe

state-created cause of action being asserted,then the right r anted under state 1aw does
not1ie iwithin the generalscope ofcopyright,'and preem ption doesnotoccur.''Id.
W ES and Knobloch assertthatM -l'sstatetortclaim sare equivalentto copyright
claim s. The claim s include com mon 1aw m isappropriation of trade secrets,tortious
interference w ith M -l's custom er contracts, tortious interference w ith prospective
business relations, tortious interference with M -l's employm ent contract, breach of
tiduciary duty,violationsoftheTexasTheû Liability Act,conspiracy,unfaircom petition
bym isappropriation,and conversion.
W ES and Knobloch argue thatthe ûlcore theory''of M -l's state 1aw tortclaim s is
that Defendants wrongfully copied M -l's tool designs through its drawings,desir s,
teclmicalm anuals,specifications,and plans. Knobloch and W ES assertthat M -I has
stated throughoutthiscase,including in answersto interrogatoriesand in hearingsbefore
the Court,thatW ES has copied its engineering drawings,specifications,and technical
units. M -l argues that its state tort claim s are not equivalentto copyright law claim s,
because each cause of action ûûrequires at least one additional elem ent not found in
copyrightlaw.'' (Doc.No.195,! 10.) Specifcally,M -lassertsthatitsclaimsoftrade

secretsandteclmologymisappropriationincludestheadditionalelementsof(a)useofM -
l's trade secrets to create competing tools,(b) in directviolation oftheircontractual
obligations and fiduciary duty to M -I. M -l believes that its allegations that certain
defendantsdownloaded contidentialinformation and took itto anew com pany is simply
aprologueto itsm ain allegation ofthe Defendants'wrongfuluse ofthe misappropriated
docum ents. Knobloch and W ES counter that M -I has drawn a distinction without a
28
difference, arguing that to çsmake a tool from a desir is to reproduce the design,''
becausethedesir itselfmustbecopiedin orderto beused. (Defs.BentonT.Knobloch

& W ellbore Energy Solutions,LLC'S Reply to P1.M -lLLC'SResp.to Defs.'M ot.for
PartialSumm.J.asaM atterofLaw,Doc.No.211,!J4.)
The Courtdoesnotbelievethatthe elem entofuse ofthecopyrighted drawingsto
make tools constitutes qualitatively differentbehavior from the elements foran action
under copyright law. M -1 cites G.S.Rasmussen tfrAssociates lnc. v. Kalitta Flying
Senice in supportofits argum ent. ln thatcase,the plaintiffhad obtained a certificate
from the governm entto show theailw orthinessofhisaircrah design. He lateroffered to
license it to defendant so they could use the same design for their own aircrah.
Defendantdeclined to licensethecertificate from plaintif: and instead copied plaintiffs

flightmanualand used itto obtain itsown ailw orthiness certificate. Plaintiffthen sued
defendantforconversionandunjustenrichment,anddefendantarguedthatcopyright1aw
preem pted these state claim s. The courtdisagreed,stating'
.
W ere gplaintifq claiming an exclusive right to copy the manual,the

drawings and plansorthe gcertificate)itself,hisclaim would surely be
preempted by the Copyright Act. (Plaintiffj claims a much different
interest,however:Therightto usethe(certificate)asabasisforobtaining
an airworthinesscertificate foran airplane thatism odified in a particular
way. (Plaintiffl thus complains not aboutthe actual copying of the
docum entss but of their use as a shortcut in obtaining a valuable
governm entprivilege- the lightto m odify an airplane in a particularw ay
withoutgoing to the trouble and expense ofproving thatthe modification
m eetsFAA standards.
958 F.2d 896,904 (9th Cir.1992). Theplaintiffin thatcasewasnotcomplaining about

the actual copying of its draw ings,but instead an unlikely use of that copied m aterial:
obtaining a valuable govelmm entprivilege. The Courttinds the case inapposite to the
factspresented here. ln the instantcase,dow nloading the draw ings alone does constitute
29
the m isappropriation,because M -l ow ns the exclusive rights to its technical draw ings.
TheCourtbelievesthatthiscaseismuch closerto Gemcra? Homes,discussed above,

than Rasmussen. There,the defendants stole architecturalplans,which fallwithin the
subjectmatterofcopyright,and used them to makeabuilding,which thecourtfoundto

be uncopyrightable. Despite the factthatthe plaintiffalso alleged use ofthe plans,the
courtfound thatplaintiffhad framed its state claims so thatthe m ere actofcopying the
plansconstituted the violation. 688 F.Supp.at295. The Courtbelieves M -Ihas done
the sam e thing here. D efendants alleged downloading,copying,or transferring of work
filesconstitutesunauthorized copying,and thusfallsunderfederalcopyrightlaws. M any
othercasesthathave found federalcopyrightpreemption did so in the contextofuse of
the products. In othercases,both the copying and the useoftheproductwere bound up
in the very sam e act- forexample,recording and releasing a non-originalsong without
authorization. See,e.g.,Daboub v.Gibbons,42 F.3d 285,287 (5th Cir.1995). The

Court is not convinced that W ES'S alleged use of M -l's tool drawings supplies a
qualitatively differentelem entundertheFihh Circuit'sextra elem enttest.
Based on itsreview ofthe case 1aw discussing federalcopyrightpreem ption,the
Courtconcludes thatsom e ofM -l'sstate tortclaim s are equivalentto federalcopyright
legalrights,and are therefore atleastpartially preem pted. A tleastsom e ofthe claim s,at
their core,allege thatDefendantscopied and used tooldesir s,technologies,drawings,
and specifications. The Courtbelievesthatthetortelem entsforsom eofM -l'sclaim sdo
not include qualitatively different elem ents than the elem ents for an action under the
CopyrightAct. Thenarrative thatM -1hasinvariably constructed forthisCourtrecounts
the story ofM -l's former employees downloading and taking with them tooldrawings,
30
which W ES then used to create,manufacture,and selltools. lndeed,the overarching
them e of the allegations contained in the com plaint is one of the theft of M -l's tool
drawings.
In thatw ay,this case is sim ilar to Gem cra.p Homesv.Sumurdy. In thatcase,the
court analyzed a similar preemption question and determined that copyright 1aw
preem pted plaintiffs conversion and tortious interference claim s. There, two of the
plaintiffsem ployees leR theiremploym entassales counselors to starta new company.
They had previously entered into em ploym entagreem ents with the employer,prom ising
that they would not take or use plaintiff s documents. Plaintiff sued its former
employees,accusing them ofstealing,copying,andplagiarizing building plans,andusing
them tobuildttçidenticallyvirtual'''floorplans.688F.Supp.289,291(E.D.Tex.1988).
The court found that plaintiffs conversion claim was preem pted by copyright law,
because as plaintiff had fram ed its conversion claim , the m ere act of copying the
architecmralplanswould infringethestate1aw right.1d.at295.Asto plaintiffstortious
interference claim ,the courtfound itpreempted to the extentthatthe claim com plained
that plaintiff had lllost benefits flowing from its exclusive rights to the architectural
plans-''Id.
TheCourtfindsinstructiveGemcra? Homes'factsandreasoning. Given thatthe

basisofliability form any ofM -l'sstate tortclaim sis the theh ofitstrade drawings,and
littleelse,the Courtfindsthem tobepreem pted. The Courtnow turnsto M -l'sindividual
tortclaim sto determ ine whetherthe rightstherein are equivalentto,and thuspreem pted
by,federalcopyrightlaw .
a. C om m on law m isappropriation oftrade secrets
31
Count3 of the Second A m ended Com plaintaccuses K nobloch,W ES,Stelly,and
Squyres of comm on 1aw misappropriation of trade secrets. çl'ro prevail on a
misappropriation claim underTexaslaw,ça plaintiffmustshow that(1) atrade secret

existed,(2)thetrade secretwasacquired through abreach ofaconfidentialrelationship
ordiscovered by impropermeans,and (3)the defendantused the trade secretwithout
authorization from theplaintiff.'''CQ,Inc.v.TXU M ining Co.,565F.3d 268,273 (5th
Cir.2009)(quoting Gaia Techs.lnc.v.Recycled Prods.Corp.,175 F.3d 365,376 (5th
Cir.1999:. By contrast,to establish a claim forcopyrightinfringement,çûûa plaintiff
mustprovethat:(1)heownsa valid copyrightand (2)thedefendantcopied constituent
elem entsofthe plaintiffswork thatare original.''' Amazing Spaces,Inc.v.M etro M ini
Storage,680 F.3d 225,251 (5th Cir.2010)(quoting PositiveBlack Talk Inc.v.Cash

MoneyRecordsInc.,394 F.3d357,367 (5thCir.2004)).
Texas's m isappropriation claim is typical of trade secrets claim s nationwide,
which tçloften are v ounded upon a defendant'sbreach ofduty oftrustorconfdence to
the plaintiffthrough improperdisclosure ofconfidentialm aterial.''' Stromback v.New
LineCinema,384 F.3d283,303(6th Cir.2004)(quoting ComputerAssocs.Int1v.Altai,

Inc., 982 F.2d 693,717 (2d Cir. 1992)). M-I has properly pled the breach of a
confidentialrelationship orimproperdiscovery. (See Doc.No.355,!43 (ç$Ste1ly and
Squyres had a confidential relationship with M -lwhich gave rise to certain fiduciary
obligations.'l;id.!24 (noting thatKnobloch maintained a Contidentiality Agreement

with SPS/GCSI.)
The Courtconcludes thatthe additionalelem entin trade secretm isappropriation,
which requires either a breach of contidentialrelationship or discovely by im proper

m eans,liregulates conductqualitatively differentfrom thatregulated by federalcopyright
law.'' DSC Commc'ns Corp.v.Pulse Commc'

ns,Inc.,170 F.3d 1354,1365 (4th Cir.
1999).
TheCourtisguided tothisconclusion by Fifth Circuitcase law,aswellasitsown
prior decisions. In Computer M anagementAssistance Co. v.RobertF.D ecastro,Inc.,
the plaintifffiled suit againstdefendants,alleging copyright infringement,trade secret
misappropriation, unfair and deceptive trade practices and breach of contract.
Defendants alleged that the unfair trade practices claim was preem pted by federal
copyright law. The FiAh Circuit dism issed the defendants' argum ent,holding that,
ûtgbjecause a cause ofaction underthe Louisiana UnfairTrade PracticesActrequires

proof of fraud, m isrepresentation or other unethical conduct, w e find that the relief it
provides is not tequivalent'to thatprovided in the CopyrightActand,thus,it is not
preempted.'' 220 F.3d396,404-05 (5th Cir.2000).Theelementin questionhereisnot

fraud or m isrepresentation,but instead the breach of a confidentialrelationship. The
Courttinds,nonetheless,thatbreach ofa conidentialrelationship providesthe sam ekind
ofadditionalelem entas fraud ormisrepresentation. Both elements introduce a layerof
unfair competitive conductthatis qualitatively different from the simple unauthorized
copying addressed by federal copyright law. See 1 M ELVILLE B.N IMMER & DAVID
NIMMER, NIMMER ON COPYRIGHT j 1.01(Bq(11gh) CtActions for disclosure and

exploitation oftrade secretsrequire a statusofsecrecy,notrequired for copyright,and
hence,arenotpreempted.'')
This Court's own precedent also establishes that the breach of a confidential
relationship provides the necessary additional elem ent that m akes a state tort claim
qualitatively different from a federal copyright claim . See, e.g.,Baisden v.1'm Ready
Prod.,Inc,2008 W L 2118170,at*9 (S.D.Tex.M ay 16,2008)CW lthough plaintiff

argues that his unfair competition claim seeks to vindicate gdefendants'q unlawful
attempts to obtain access and derive profits from his currentand prospective business
relationships,he has neither alleged in his complaint that(defendants) breached a

confidentialrelationship or othem ise engaged in fraudulentor unethicalconduct,nor
argued that proof of his state 1aw claim for unfair competition requires proof of an
additionalelementnotrequired to provehis federalcopyrightc1aim.''),

'Keane v.Fox
Television Stations,Inc,297 F.Supp.2d 921,945 (S.D.Tex.2004) (11The way that
gplaintifq claimsto havedisseminated hisidea defeatshisabilityto circumventfederal
copyright preemption because he cannot establish that his idea was conveyed in
confidenceaspartofacommercialrelationship ....'').Courtsnationwidehavereached
the sam e conclusion. See,e.g.,Stromback v.New Line Cinema,384 F.3d 283,303-04
(6th Cir. 2004) (noting that 1$a considerable number of cases have held that
m isappropriation oftrade secrets claims are notpreem pted because they require proofof
a confidential relationship, which provides the extra element required to survive
preemption,''and holding the same);Dun & BradstreetSoftware Servs.,Inc.v.Grace

Consulting,Inc.,307 F.3d 197,218 (3d Cir.2002)(1t(l)fan employeeof(plaintiftlwho,
by virtueofa confidentialposition,had accessto thesourcecode,m isappropriated it,and
used it to prom ote his ow n interests,such breach of confidentiality w ould be the extra
elem entto a copyrightinfringem entclaim . The claim ,therefore,w ould notbe preem pted
by the act.'')(citationsomitted);Bateman v.Mnemonics,Inc,79 F.3d 1532,1549 (11th

Cir.1996)(%$Asageneralmatter,state1aw tradesecretstatueshavebeen deemed notto
be preem pted because the plaintiffm ustprove the existence and breach ofa contidential
relationship in orderto prevail....W ehaveno doubtthattheFloridatrade secretstatute
at issue satisfies the textra elem ent' test generally employed by courts in perfonning
copyrightpreemption analysis.''l;Data Gen.Corp.v.GrummanSystemsSupportCorp.,

36 F.3d 1147,1165 (1stCir.1994)(ltl-frade secrets)claimsarenotpreempted because
participation in thebreach ofaduty ofconfidentiality- an elem entthatformsno partofa
copyright infringement claim- represents unfair competitive conduct qualitatively
different from mere unauthorized copying.''),abrogated on other grounds by Reed

Elsevier,Inc.v.Muchnick, ---U.S.---,130 S.Ct.1237(2010),
*TrandesCorp.v.GuyF.
Atldnson,996F.2d655,660(4th Cir.1993)(t:ltistheemploymentofimpropermeansto
procure the trade secret, rather than the mere copying or use,which is the basis of
gliability)....Because(plaintiffs)clam fortradesecretmisappropriationrequiresproof
ofabreach oftrustorconfidence,gcopyrightlawjdoesnotpreemptthec1aim.'');Gates
Rubber Co.v.Bando Chem.Indus.,Ltd.,9 F.3d 823,848 (10th Cir.1993)(tiBecause
gplaintiffsjclaim fortrade secretmisappropriation underthe Colorado Uniform Trade
Secrets Actrequiresproofofabreach oftrustorconfidence- proofthatisnotrequired
under the CopyrightAct- lplaintiffs) state 1aw claims are notpreempted by federal
law.'');ComputerAssocs.1nt'l,Inc.v.Altai,Inc.,982F.2d693,717(2dCir.1992)(tThe
defendant'sbreach ofduty is the gravam en of...trade secretclaim s,and suppliesthe
ttextra elem ent''that qualitatively distinguishes such trade secret causes of action from
claimsforcopyrightinfringementthatare based solely upon copying.''l;S.O.S.,Inc.v.

Payday,886 F.2d 1081,1090 n.13 (9th Cir.1989)(çlsincetheCalifomia gtradesecrets)
statute pleaded in this case does notinvolve a legalor equitable rightequivalentto an
35
exclusive rightof a copyrightow ner under the CopyrightA ct,but only prohibits certain
m eans ofobtaining confidentialinform ation,its application here w ould notconflictw ith
federalcopyright1aw.'')(citationsomitted).
W ES and Knobloch'scitations to the contrary do notsway this Court's opinion.
First,W ES and Knobloch do notanalyze each state tol4 claim elem entby element,but
instead aver generally that the ûicore theory'' of all of M -l's state tort claim s is that
Defendants comm itted wrongful copying. Defendants fail to proffer any argum ent
regarding the confidentialrelationship elem ent discussed above. Second,Defendants'
citations to case 1aw refer the Court to cases that either do not actually decide the
questionofpreemption ofatradesecretsclaim,see UltrafoCorp.v.Pelican TankParts,

Inc.,2008 W L 5141029,at *5 (S.D.Tex.Dec.8,2008) (noting that çûgdlefendants
presumably could have made argum ents for complete preemption under the
Copyright Act,''but concluding that llgwqhether those arguments would have been
persuasive ...need ...notbe decided,''because defendants failed to remove the case
properly to federalcourt),do notconsidertrade secretsclaims,Daboub v.Gibbons,42

F.3d 285,289 (5th Cir.1995),or,the Courtrespedfully submits,failto undertakethe
proper inquiry in their equivalency analysis,Butler v.ContinentalAirlines,31 S.W .3d
642,651(Tex.App. Houston (1stDist.)2000,pet.denied);M icrosource v.Superior

Signs,Inc.,1998W L 119537,at*2@ .D .Tex.M ar.9,1998).5
5Both ButlerandM icrosource focuson theconductalleged to supporta misappropriation oftrade secrets

claim,ratherthantheelementsrequiredtoprovetheclaim.However,ûtgtlodetenninewhetheraparticular
causeofaction involvesrightsequivalenttothosesetforthin(Sectionj106,theelementsofthecausesof
action should be compared,notthe factspled to prove them.'' Trandes Corp.v.Guy F.Atkinson Co.,996
F.2d 655,659 (4th Cir.1996). W herethetûstate 1aw claim itselffurnishesthe extraelementneeded to
avoid equivalency,acourtshould comparetheelementsofthestateclaim and copyrightclaim.Stromback
v.NewLine Cinema,384F.3d 283,304 (6th Cir.2004). tGWhethertheplaintiffhasactually allegedthe
properelementsofthe claim goesto thequestion ofwhethertheclaim could survive aRule 12(b)(6)
motion to dismiss,notwhetherthe claim is preempted.'' 1d.(citations omitted). Nonetheless,in some
Therefore,the Courtseesno need to disturb thebalance ofcase law,which holds
thatthe breach of a confidentialrelationship establishes an elem entthatisqualitatively
differentfrom a copyrightinfringementclaim . M -l's misappropriation oftrade secrets
claim survivespreem ption.
b. T ortious interference with M -l's custom er contracts
CountFourofthe Second Am ended Complaintalleges tortiousinterference with
M -l's custom er contracts. lsTexas 1aw protects existing contracts from interference by
third parties.'' Specialtl-esofMex.Inc.v.Mastelfoods USA,20l0 W L 2488031,at*9

(S.D.Tex.June 14,2010). A plaintiffmustestablish thefollowing elementsto succeed
on atortiousinterferencewith contractclaim:(1)the existence ofa contractsubjectto
interference,(2)willfuland intentionalinterference,(3)thatproximatelycausesdamage,
and(4)actualdamageorloss.1d.(citingAllAm.Tel.,Inc.v.USLD Commc'ns,Inc.,291
S.W .3d 518, 531 (Tex.App.- Forth W orth 2009,pet.deniedl). As stated above,
copyright infringem ent requires copyright ow nership and copying. The tw o claim s
appear to target very different conduct. N evertheless, m any courts tind tortious
interference claim s to be preem pted where the defendant has allegedly destroyed the
exclusiverightofaplaintiffto exerciseand enjoy thebenefitsofacopyrighted work.ln

a widely cited case, the Second Circuit held that a plaintiffs claim for tortious
interferencewaspreem pted whereitwasbased on the unauthorized publication ofawork
thatwasprotected by the CopyrightAct.ltnoted:
cases,acourtmaybe required toreview thefactspledbyaplaintiffûtinorderto determinewhethertheacts

givingriseto thestate1aw claim are merely actsofcopyrightinfringement.'' 1d.(citationsomitted). A
conversion claim,for example,willsunive where the plaintiff pleads conversion of tangible physical
property. See Carson v.Dynegy 344 F.3d 446,456-57 (5thCir.2003). W here plaintiffhaspled only the
unlawfulretention ofits intellectualproperty rights,however,a conversion claim willbe preempted by
federalcopyrightlaw. 1d. In itsanalysis,the Courthasfocused itsinquiry on whethertheelementsofa
state cause ofaction incom orate requirementsbeyond those necessary to prove copyrightinfringement,
unlesscaselaw foraspecitictortclaim directstheCourttodo otherwise.
ln both cases,itis the actofunauthorized publication which causes the

violation. Theenjoymentofbenefitsfrom derivativeuseisso intimately
bound up with the right itself that it could not possibly be deem ed a
separateelement. See 1Nimmeron Copyrightj 1.01(B),atn.46 (1983).
As the trialcourtnoted,the factthatcross-appellantspleaded additional
elem entsofawarenessand intentionalinterference,notpartofa copyright
infringem ent claim ,goes m erely to the scope of the right;it does not
establish qualitatively differentconducton thepartoftheinfringing party,
nor a fundam entalnonequivalence between the state and federalrights
implicated.
Harper& Aow Publishers,Inc.v.Nation Enters.,723 F.2d 195,201 (1983)rev'd on

othergrounds,471U.S.539 (1985). Since thatdecision,many courtsconsidering the
snm e question have held that a tortious interference claim does notrequire an extra
elem ent that establishes qualitatively different conduct than that of copyright
infringem ent. lnstead,the additional intent elem ents required in tortious interference
claim s go lim erely to the scope of the right,''and do not tûehange the nature of the
action.'' Warren Sign Co.v.PirosSigns,Inc,2010 W L 2802023,at*3 (E.D.M o.July

l5,2010),
.see also Data Gen.Corp.v.Grumman s'
yw.SupportCorp.,36 F.3d 1147,
1l64-65(1stCir.1994),abrogatedon othergroundsbyReedElsevier,Inc.v.M uchnick,
---
U.S.---,130 S.Ct.1237(2010).
,ProgressiveCorp.v.IntegonP&C Corp.,1991W L
218010,at*6 (4th Cir.Oct.29,1991);Tegg Corp.v.BecH trom Elec.Co.,650 F.Supp.
2d413,431(W .D.Pa.2008);Huclçshold v.HSSL,LLC,344F.Supp.2d 203,1208(E.D.
M o.2004)(noting thatawarenessorintentdo notconstituteextraelementsthatmakea
state 1aw claim qualitatively differentform a copyrightinfringem entclaim ,butinstead
lim it the scope of the copyright infdngem ent claim without altering its fundam ental
nature);Gemcra.ftHomes,Inc.v.Sumurdy,688 F.Supp.289,295 (E.D.Tex.1988)

(preempting plaintiffs tortious interference claim and noting that ûtgtlhe fact that
intentional interference with contract requires elements of knowledge of the existing
contractand intentionalintedkrence with the contract,in addition to copying the plans
m erely m eans that the tortious interference claim is narrow er than a copylight
infringementclaim'')(citationsomitted).
Based on this case law, the Court holds that, to the extent M -l's tortious
interference claim s are based on M -llosing benetits flowing from its exclusive rightto
tooldrawings,desir s,and other copyrightable m aterial,its claim s are preem pted. To
the extent the tortious interference claim s relate to other than the benefits lost from
exclusiveenjoymentoftooldrawingsandothercopyrightablematerial,however,theyare
notpreem pted.6
The Courtdoes notbelieve that the presence of a contidential relationship is
m aterial to M -l's tortious interference claim s. A breach of duty or trust does not
constimte a necessary elem ent for tortious interference, and courts have found such
claim sto be preem pted in the contextoftheA oftradesecrets.H uckahold v.HSSL,LLC,
344 F.Supp.2d 1203,1208-10 (E.D.M o.2004)(preemptingtortiousinterferenceclaim

butnotmisappropriation oftradesecretsclaim).TheCourtfollowssuit,andfindsM-l's
claimsto bepreempted asto copyrightabletradesecrets.
c. T ortious interference w ith prospective business

relations
CountFive alleges thatDefendants tortiously interfered with M -l's prospective
business relations. In addition to protecting existing contracts from interference,Gl-rexas
1aw also protects contractsthatare notyetform ed,buthave a reasonable probability of

6TheCourtisunclearon thebasisforM -l'stortiousinterferenceclaims. Iftheyrelateto anym attersother
than M -l's rightto the tool drawings and other copyrightable m aterial,they are not preempted. For
exam ple,Count Five alleges that D efendants used both the know ledge and position of M -l's form er
employees,aswellasthe trade secretinformation,to encourage clients to diverttheirbusiness to W ES.
M atters falling within the çlknow ledge and position''ofform erM -lem ployees,forexam ple,contacting
formercustom ersto solicittheirbusiness,would notfallwithin copyrightlaw preemption.N eitherwould
thetheftanduseofconfidentialinfonnationthatisnotsubjecttocopyright.
39
being form ed,from wrongfulinterference.'' ln order to establish tortious interference
with prospective businessrelations,aplaintiffmustprove:(1)areasonableprobability

thattheplaintiffwould have entered into a businessrelationship;(2)an independently
tortiousor unlawfulactby the defendantthatprevented the relationship from occurring;
(3)thedefendantdid such actwith a consciousdesire to preventtherelationship from

occuning orthe defendantknew the interference was certain orsubstantially certain to
occurasaresultoftheconduct;and (4)theplaintiffsufferedactualhanu ordamagesasa

resultofthedefendant'sinterference. SpecialtiesofMex.Inc.v.M asteéoodsUSA,2010
W L 2488031,at*10(S.D.Tex.June14,2010)(citing Smithv.RoyalSeating,Ltd.,2009
W L 3682644,*3 (Tex.App.- Austin Nov.6,2009)). The Courtseesno reason to
deviate from itsanalysis regarding M -l'stortiousinterference with contractsclaim . The
independent unlawful act,from the Court's reading ofthe complaint,is the unlawful
copying ofM -l's originaltooldrawings and designs. CountFive is preem pted to the
extentitisbased on M -llosing prospective businessthatwould otherwise flow from its
exclusive use oftooldrawings,designs,and othercopyrightablem aterial. To the extent
theclaim relatestootherthantheprospedivebusinesslostfrom exclusiveenjoymentof

tooldrawingsand othercopyrightablem aterial,however,itisnotpreempted.
d. Tortious interference w ith M -l's em ploym ent

contracts
CountSix accusesKnobloch,W ES,and Squyresoftortiously interfering with M -
employment contracts. The elem ents of tortious interference with contract are
outlined supra PM I1I(B)(1)(b). The Courtholds thatCountSix ispreempted to the

extent it alleges that D efendants induced one another, and Stelly, to steal, copy,
download,orotherwise reproduce M -l'stooldrawings,designs,and othercopyrightable
40
material. The Court tinds that this claim fails the extra elem ent test and thus is
preempted.A1lotherallegationsunderthiscauseofaction sunive.
e. Breach offiduciary duty
CountSeven asserts breach oftiduciary duty claims againstStelly,Squyres,and
Knobloch. The Fihh Circuitis clear thatsuch a claim suw ives copyrightpreemption.
See Daboub v. Gibbons, 42 F.3d 285, 290-91 (5th Cir. 1995) (finding copyright
preemption whereplaintiffiûfailed to allegeorproduceevidence oflany elem ent,such as
an invasion ofpersonalrightsorabreach offiduciaryduty,which render(theirclaims)

differentin kind from copyrightinfringement.''')(quoting#.f.ILS.Filmsv.Laconis,588
F.Supp.1383 (E.D.M ich.1984));see alsoRandolph v.DimensionFilms,630F.Supp.
2d 741,750 (S.D.Tex.2009)Clllowever,iftheplaintiffhasallegedfactscorresponding
to an textra elem ent,'such as a breach of fiduciary duty thatwould render his claim s
tdifferentin kind from a copyrightinfringem entclaim ,'then his state law claim s are not
preempted.'')(quotingSejtonv.Jew,201F.Supp.2d 730,745(W .D.Tex.2001)).M -l's

breach offiduciary duty claim survives.
f. Texas TheftLiability Act
Count Eight alleges violations under the Texas Theft Liability Act,TEX.CIV.
Pn c.& REM.CODEANN.jj 134.001-134.005 (Vernon 2005). UndertheTexasTheh

LiabilityAct,tlga)personwho commitstheh isliableforthedamagesresultingfrom the
theh.''1d.j 134.003. Thefk in turn,isdetined asçûunlawfully appropriatingpropertyor
unlawfully obtaining servicesasdescribed by''certain sectionsoftheTexasPenalCode.
f#.j134.00242). M -lassertstheftunderSection 31.05ofthePenalCode,which states

that a iûperson commits an offense if, without the owner's effective consent, he
41
knowingly:(1)stealsatrade secret;(2)makesacopyofan article representing atrade

secret;or(3)communicatesortransmitsatradesecret.''TEX.PENALCODEANN.j31.05
(Vernon 2003). The only potentialextra elementin theA liability isthe téknowingly''
requirement;however,asdiscussed supra PartlIl(B)(1)(b),elementsofknowledge do
not establish an elem ent that is qualitatively different from a copyright infringem ent
claim . Therefore,the CourtfindsthatCountEightispreempted asto the theh oftrade
secretsthatfallwithinthesubjectmatterofcopyright.ltisnotpreempted astomaterials
notfallingwithinthesubjectmatterofcopyright.
g. C onspiracy
CountNine allegescivilconspiracy againsta11Defendants. The elem entsofcivil
conspiraey in Texasare:(1)acombination oftwo ormorepersons;(2)an objectto be

accomplished (an unlawfulpumose or a lawfulpumose by unlawful means);(3) a
meeting ofthemindson theobjectorcourse ofaction;(4)oneormoreunlawful,overt
acts;and (5)damagesastheproximateresult.FinservCas.Corp.v.SettlementFunding,
LLC,2010 W L 2757536,at*10 (S.D.Tex.July 13,2010)(citing Ins.Co.ofN Am.v.
Morris,981S.W .2d 667,675 (Tex.1998)). Much likethetortiousinterferenceclaims,
theconspiracy claim requiresan elementofknowledge and planning,butfailsto add any
qualitatively differentconductto the claim . Warren Sign Co.,Inc.v.Piros Signs,Inc,
2010 W L 2802023,at*4 (E.D.Mo.July 15,2010)CllBecause copyright1aw already

recognizes the concepts of contributory infringem ent and vicarious copyright
infringementconcepts,which extendjointand severalliabilitytothosewhopm icipatein

the copydght infringem ent, a civil conspiracy claim does not add substantively to the
underlying federalcopyrightclaim and should thereforebepreempted.''')(quotingIrwin
42
v.ZDF Enterprises Gmblli2006 W L 374960,at*4 (S.D.N.Y.Feb.16,2006:. This

Court,like others,concludes thatthe intentelementof the conspiracy claim does not
constitute qualitatively different conductwhere the elem ent of intent only goes to an
intent to form an aveem ent to copy and use M -l's copyrightable trade secrets and
confdentialinform ation. See Tegg Corp.v.Bech trom Elec.Co.,650 F.Supp.2d 413,
427(W .D.Pa.2008).Totheextenttheallegedconspiracy speakstoan agreementother

than to stealM -1'scopyrightablematerial, however,itisnotpreempted.?
h. Unfair com petition by m isappropriation
Count Ten brings an unfair competition by misappropriation claim against a11
Defendants.Theelementsofunfaircompetitionbymisappropriationare:(1)thecreation
by plaintiffofa productthrough extensivetime,labor,skill,and money;(2)the useof
thatproductby defendantin competition with plaintiff,thereby giving the defendant a
specialcompetitive advantagebecausehe wasburdenedwith little ornoneoftheexpense
incurred by plaintiff in the creation of the product;and (3) commercialdamage to

plaintiff.CableElecs.,Inc.v.N Am.CableEquljz,Inc.,2010W L 1541504,at*3(N.D.
Tex.2010)(citingAlcatelUSA,Inc.v.DG1 Techs.,166F.3d 772,788(5th Cir.1999)).
Ailn contrastto federal copyright law ,which focuses on the value of creativity,state
m isappropriation law is specifically designed to protectthe labor- the so-called çsweat
equity' thatgoes into creating a work.'' Alcatel USA, 166 F.3d 772,788 (5th Cir.
1999). Nevertheless,theFihh Circuithasfound thattherightsprotected underthelaws
can be equivalent. 1d. ln Alcatel, the basis of plaintiff s unfair com petition by
1Again,itisunclearfrom M -l'sconspiracy claim , aspl ed,whattheobjectoftheconspiracy is. So,for

example,this Cotmt is notpreempted to the extent it claims thatDefendants conspired to stealnon-
copyrightable information,to solicitM -l'scustomers,orto commitotheracts relating to materialsother
thanM -l'scopyrightable inform ation.
43
misappropdation claim wasthatdefendantreproduced itsfirm ware and otherm aterials,
used these m aterials to prepare derivative w orks, and distributed these works in
competition with plaintiff. Defendantargued thatplaintiffs unfair competition claim
waspreem pted by copyrightlaw. The Fihh Circuitagreed. 166 F.3d at789. ltfound
thatthe plaintiff had tlfailed to dem onstrate the presence of any elem ent that renders
differentin kind itsrightsunderstateand federallaw.''Id. Specifically,theAlcatelcourt
found thatneitherthe elem entrequiring the investm entoftlextensive tim e,labor,skill,
and m oney''nor the requirement that defendant use the product in com petition with
plaintiffestablished the necessary qualitatively differentelem ent. f#. This Courtcomes
to the sam e conclusion,and tindsM -l'sunfaircompetition by misappropriation claim to
be preem pted by federalcopyright 1aw to the extent the claim is based on M -l's tool
designs. From the Court's reading ofM -l's complaint,Defendants'use of M -l's tool
desir s appearsto form the bulk ofthisCount. N evertheless,the claim survives to the
extent M -I alleges that Defendants have engaged in unfair competition by
m isappropriation ofnon-copyrightablem aterial.
i. Conver:ion
M -l's last tort claim alleges that Defendants have comm itted conversion. The
elementsofconversionunderTexaslaw areasfollows:(1)theplaintiffowned,hadlegal
possession of,orwasentitled to possession oftheproperty;(2)the defendantassumed
and exercised dominion and controloverthe property in an unlawfuland unauthorized
manner,to the exclusion of and inconsistentwith the plaintiffs rights;and (3) the
defendantrefused the plaintiffs dem and for the return of the property. City Bank v.
CompassBank,---F.Supp.2d ---,2010W L 195808,at*10 (W .D.Tex.M ay 12,2010)
44
(citing Huffmeyerv.Mann,49 S.W .3d 554,558 (Tex.App.- corpusChristi2001,no

pet.).lnCarson v.Dynegy theFifthCircuitexplainedthattheelementsofconversionof
physicalproperty are qualitatively differentthan those ofcopyrightinfringem entwhere
the allegationsconcern tangible property. Accordingly,itfound thata state conversion
claim,based on the conversion ofa tangible worksheet,survived preemption. The Fifth
Circuitcited with approvalsources which noted thatpreem ption does occur where the
plaintiffallegesonly thetûçunlawfulretention ofitsintellectualproperty rightsand notthe
unlawfulretention ofthe tangibleobjectembodying itswork.''' 344 F.3d 446,456-57

(5th Cir.2003)(quotingPritikin v.LiberationPubl'ns,Inc.,83F.Supp.2d 920,923n.1
(N.D.Ill1999)). Here,the property allegedly converted by Defendantswasintangible.
M -Im akesno allegation thatDefendantsconverted tangible docum ents. The conversion
claim is therefore preempted to the extent it covers tool drawings,desir s,and other
matter subject to copyrightprotection. not preem pted as to non-copyrightable
m aterial.
2. C ovenantnotto com pete enforceability
Asitssecondbasisforpartialsummaryjudgment,W ES and Knobloch arguethat

the covenantnotto compete in Knobloch'sConfidentiality Agreem entand Employment
Agreem ent are unenforceable under Texas law. W ES and Knobloch assert that the
covenantnotto compete in Knobloch'sconfidentiality agreementisinvalid due to a lack
of lim itation on geop aphic area or scope of activity lim itation. N ext, they aver that a
separate covenant, contained in Knobloch's employm ent agreem ent,is unenforceable
because itoperates as an industrpwide exclusion,is overbroad as to custom er contact,
and containsno reasonablegeographic limitation.Finally,W ES and Knobloch arguethat
45
the covenantnotto com pete in the employmentagreem entis unenforceable on itsown
term s. M -ldisputeseach ofthese argum ents.
The Texas Business and Comm erce Code govem s the enforceability of
covenantsnOtto com pete. ltprovides:
(A)covenantnotto competeisenforceableifitisancillaryto orpartofan

othem ise enforceable agreem entatthe tim e the agreem entis madeto the
extentthatitcontainslimitations asto tim e,geographicalarea,and scope
ofactivity to be restrained thatarereasonable and do notimpose a greater
restraintthan isnecessary to protectthe goodw illorotherbusiness interest
ofthe prom isee.
TEX.BUS.& COM.CODE j 15.50(a)(Vernon 2005). The1aw relatingtocovenantsnotto

compete adopted the Texas comm on law in m any respects.John R.Ray tt Sons,Inc.v.
Stroman,923 S.W .2d 80,84 (Tex.App.- Houston (14th Dist.j1996,writdenied). This

Courtm ay therefore look to casespriorto the statute's enactm entfor guidance. f#.at84-
85. W hethera covenantnotto com pete is an unreasonable restraintoftrade isa question
of law for this Court. Gallagher H ealthcare Ins.x% rv.ç.v. Vogelsang,--- S.W .3d ---,
2009W L 2633304,at*4 (Tex.App.- l-louston(1stDist.jAug21,2009).

Courtsgenerally disfavorcovenantsnotto com pete tsbecauseofthepublicpolicy
againstrestraints oftrade and the hardships resulting from interference with a person's
meansoflivelihood.'' Zep Mfg.Co.v.Harthcock,824 S.W .2d 654,658 (Tex.App.-

Dallas 1992,no writ)(citingMartinv.finen sy
'-ç.forHosps.,Inc.,671S.W .2d 706,706
(Tex.App.- llouston (1st Dist.) 1984,no writll.CûA covenant notto compete is a
restraint of trade and unenforceable as a m atter of public policy unless it meets a
reasonablenessstandard.''Stroman,923S.W .2d at85(citationsomitted).Covenantsnot

to com pete are unreasonable ifthey are ltbroader than necessary to proteetthe legitim ate
interestsofthe em ployer.'' Stroman,923 S.W .2d at85;seealso Desantis v.Wackenhut
46
Corp.,793 S.W .2d 670,681-82 (Tex.1990);Henshaw v.Kroenecke,656 S.W .2d 416,

418(Tex.1983).
Knobloch appearsto have signed two covenantsnotto compete during histenure
with M -I. The firstiscontained in hisConfidentiality Ap eement,and the second in his
Enaploynnentytgreenaent. W ES and Knobloch ask this Courtto tind the Confidentiality
Agreement's covenantto be unenforceable. 'I'

he Courtseesno need to take this action,
however,because M -lhasnotsued Knobloch forviolation ofthiscovenant. Instead,M -I
pleads:
Knobloch hasbreached and continuesto breach thesecontracts. Knobloch

breached and continues to breach the contracts by using and disclosing
SPS/GCS'SConfidentiallnform ation. Further,Knobloch hasbreached the
Employm entAgreem entby fonning and operating W ES,competing and
soliciting SPS/GCS employees and custom ers within six m onths ofhis
term ination atM -1.
(Doc.No.355,!(88.) Upon itsreading ofM -l'spleading,the CourtbelievesthatM -I

alleges only that Knobloch has breached the covenant notto compete located in the
Employm entAgreem ent. In its briefing,M -l affirm s this,arguing that they have not
plead anon-competeclaim undertheConfidentialityAgreement. (Doc.No.195,at29.)

The Courtaccepts and binds M -Ito this representation;it is therefore unnecessary to
considertheenforceability ofthe ConfidentialityAgreement'scovenantnotto compete.
The Courtnow turnsto the covenantnotto compete located in the Emplom ent
Agreem ent. M -l'spleading,reproduced above,clearly brings a cause ofaction forthat
covenant. The Em ploym entA greem entprovides:
Noncompete' .W orking for Competitor:ln consideration of Em ployee's

em ploym ent by Em ployer, the specialized training and access to
contidentialinformation prom ised by and given to Employeeby Em ployer
and other good and valuable consideration provided to Employee by
Em ployer, Em ployee w ill not, at any tim e during the term of this
47
Ameementoratanytimeforsix(6)monthssubsequenttothetennination
ofEmployee'semploymentforanyreason (exceptasprovidedin Section
5uponterminationwithoutcause),directlyorindirectly,individuallyoras
an agent,employee,owner,manager,consultantor representative ofany
entity, in any geographic area where Employer does business or is
authorized todo business:
a. solicit, influence or attempt to influence any Custom er,

Potential Custom er,or supplier of Employer to stop doing
business with Em ployer or to do business with any of
Employer's competitors in the area of the Restricted
Business. For purposes of this Section 8(a),ttcustomer''
m eansany naturalperson orany entity thatconductsbusiness
with Employer or has an account with Em ployer, and any
parent, affiliates or subsidiaries of such persons or entities.
Also,forpumosesofthisSection 8(a),tlpotentialCustomer''
m eansany naturalperson orany entity thatm ightreasonably
be expected to conduct business with Employer because
Employer has,within the immediately prior six (6) month
period,offered or presented its senices to such persons or
entities'
,
b. interfere with the relationship between Employer and any of

Em ployer's affiliates, Custom ers, Potential Custom ers or
suppliers;
engage in the Restricted Business with any of Em ployer's

competitors. For pum oses of this Agreem ent, çtRestricted
Business''shallm ean any business or transaction involving
oilfield displacementtoolsorsenicesorany otherbusinesses
then conducted by Em ployer.
(Doc.No.181,Ex.2,at6.) W ES and Knobloch do notdisputethatthecovenantmeets

the firstrequirem entunderTexaslaw- thatis,thatthe covenantwas ancillary to orpart
ofan otherwise enforceable agreem entatthe tim e itwasm ade. Thus,the Courtturnsto
thesecond requirem entforcovenantsnotto compete,and exam ineswhetherthecovenant
is reasonable and does notim pose a greater restraint than is necessary to protect M -l's
business interest.
48
Knobloch and W ES advance tlzree objections to Knobloch's covenantnot to

com pete. First,they argue thatthe covenantimposes upon Knobloch an impennissible
industrpwide work exclusion. The covenantnotto compete prevents Knobloch from
engaging in the ttRestricted Business'' w ith any of the em ployer's com petitors.
ttRestricted Business'' is defined as tlany business or transaction involving oilfield
displacem enttoolsor servicesorany otherbusinessesthen conducted by''the em ployer.
(Doc.No.181,Ex.2,at6.) Defendantsarguethat,accordingto Texaslaw,acovenant

not to com pete containing an industrp w ide exclusion from subsequent em ploym ent is
unenforceable.(Doc.No.181,!29.)
Second,Knobloch and W ES argue thatthe covenant's restriction on soliciting
tlpotentialcustomers''isoverly broad and unduly restrictive. They urge thisCourtthat,
because the elause isnotlimited to clientswith whom Knobloch actually interacted,the
covenantnOtto compete is unenforceable. (Id.!(33.) The covenantnotto compete

preventsKnobloch from soliciting custom ers and ûipotentialcustom ers,''who aredefined
asnaturalpersonsorentitiesûtthatmightreasonably be expected to conductbusinesswith
Employerbecause Employer has,within the immediately prior six (6)month period,

offeredorpresenteditsservicestosuchpersonsorentities.''(Doc.No.181,Ex.2,at6.)
Third,Knobloch and W ES argue thatthe covenantis unenforceable because it
contains no reasonable geographic lim itation. The limitation in the covenant forbids
Knobloch from competing in ûlany geographic area where Employerdoesbusinessor is
authorized to do business,''which Defendantsarguecoversabroad area encom passing at
least300 locations in 75 countries. Given such an indefinite description ofgeographic
restriction,Knobloch and W ES urgethiscourttorulethecovenantto beunenforceable.
49
M -Idisputes each of these points. lt asserts firstthatthe relevantemployer,as
defined in the covenant,isSPS/GCS,notM -I. Next,M -1arguesthatthe geographic and
scope ofactivity limitations are reasonable given K nobloch's position as a high level
em ployee. M -l urges the Court to take a holistic approach in assessing the
reasonableness of the covenantnotto com pete by considering the com bination ofthe
tim e,geographic,and scope of activity lim itations together,rather than apart. M -linsists
thatthe covenantnotto com pete's geographicaland scope of activity lim itations should
beviewed in lightofthe shortsix month duration oftheentirecovenant.
The Court considers M -l's first countem oint- that the relevant employer is
SPS/GCS,and notM -l- before moving to the meritsofthe covenant's enforceability.
Defining the relevantemployerisan importantstep,ofcourse,because thatdefinitively
setsthegeographicand scopeofactivity lim itations.
The Em plom ent A p eem ent, which contains the covenant not to com pete at
issue,definesçtGlobalCompletionServices,lnc.''astheemployer.(Doc.No.181,Ex.2,
at1.) M -1explainsthatGlobalCompletion Serviceschanged itsname to SPS when it
wasacquiredbyM -1.(Doc.No.195,!32.) M-1arguesthatthecovenantnottocompete
relatesto SPS/GCS businessneeds,ratherthan M -l'sbusinessneeds. The Courtagrees.
$W n assignee standsin thesam eposition astheassignor,andm ay assertonly thoserights
thattheassignorhad. Adams v.PetradeInt'l,Inc,754 S.W .2d 696,720 (Tex.App.-

Houston (1stDist.)1988,writdenied). Texascourtshaveheld that,when abusinessis
sold and the covenant not to com pete is assigned to the purchaser, the reasonable
geographic restriction m ustbe ûtno largerthan to protectthebusiness sold.'' Williams v.
PowellElec.Mfg.Co.,508 S.W .2d 665,668 (Tex.Civ.App.- Houston (14th Dist.j
50
1974,no writ)(citingBarrettv.Curtis,407 S.W .2d 359(Tex.Civ.App.- Dallas1966,

no writll. Settled law confirmsthatcontractualrightsmay notexpand following an
assignment. Knobloch's covenantnotto compete is therefore intem reted by SPS/GCS
businessneeds.
W ES and Knobloch respond that,although M -1arguesthatthe relevantemployer
is SPS/G CS, M -I is nevertheless seeking dnm ages based on M -l's ow n lost profits,
customers,and loss of future business opportunities. (Doc.No.211,! 13.) M -l's

pleading does state dam agesin tenusofM -l's lostm oney,employees,and opportunity.
M -1isnot,however,theproperbenchm ark fordeterm ining lossunderthe covenantnotto
compete. lfM -1prevails on this claim ,it mustsubmit evidence showing the loss to
SPS/GCS asaresultofKnobloch'salleged breach. The Courtwillaward damagesonly
on thisbasis. To do otherwise,by granting M -Idam agesbased on itstotallosses,would
reward M -Iwith dam agesbeyond whatitisentitled to receiveinthecovenant,and would
imperm issibly expand itsrights.
TheCourtnow turnsto the tllreeobjectionsto the covenantadvanced by W ES

and Knobloch. They argue thatthe covenantnotto compete operates as an :iindustrp
wide exclusion,''which they assertisim perm issible underTexas case law. M -1argues
thatthecovenantisnotan industrp wideban,butinstead,appliesonly to wellcompletion
services. Thus,M -1insists,Knobloch ttcould havechosen to work in any ofthem ultim de
ofotherservice sectorsin the oiland gasindustly '' (Doc.No.195,!r50.) W ES and

Knobloch appeartoconcedeasmuch in theirreply,butarguethat,nevertheless,ltltjoan
individual...a globalindustrp wide prohibition forhalf a year,banning his ability to
work in the oiltield displacem ent tools or services industry for six m onths, is not
reasonable''because itimposesan unduehardship on an individual'slivelihood. (Doc.

No211,!(15.)
ln supportoftheirposition,W ES and Knobloch citeJohn R.Ray & Sons,Inc.v.
Stroman. In thatcase,an employee washired as an insurance agentby a family-owned
insurance agency. Pursuantto hisemploym entcontract,the employeecould notç'engage
in or have an interest in any business that sold insurance policies or engaged in the
insuranceagencybusinesswithin gthecounty)and al1adjacentcounties''foraperiod of

fiveyearsfrom thedateofthecontract. 923 S.W .2d 80,83 (Tex.App.- llouston (141
Dist.) 1996,writdenied). ltalso provided thatthe employee would never solicitor
acceptbusinessfrom any ofthe employer'saccounts,eitheraloneorasan employee for
another com pany. Before the tive-year term had ended, the em ployee leh his
em plom ent and began working with another insurance agency in the sanae county.
W hen the form er employerchallenged hisactions,the employee filed suit,arguing that
the covenantnot to compete was unenforceable. The court agreed,holding thatthe
employee's contract had created tlan unenforceable industry-wide exclusion'' by
preventing him from working in the localinsurancebusiness. TheStroman courtfurther
found the contractunenforceable because the prohibition on custom er solicitation was
unlimited asto tim e,extended to customerswith whom the employee had no association,
and because the employerhad notshown thatthe lim itationswere necessary to protectits
goodwillorbusinessinterests.f#.at85.
The com bination of factors presented in Stroman convinces the Courtthat the
case is readily distinguishable. First, as the Stroman court noted,the covenant not to
com pete in thatcase restricted the employee's ability to work in the insurance business
52
altogether. By contrast,as W ES and Knobloch concede,Knobloch's covenant notto
com pete does notbarhim from working in the oiland gas industry altogether. AsM -I
notes,Knobloch could work in other senrice sectors within that industzy particularly
given hisengineeringbackground.
Knobloch'ssituation strikesthe Courtasmoresim ilarto the employeein Curtisv.
Zt Energy Grp.lnthatcase,theemployeeworkedforemployerastheVicePresidentof
Pipelines and Energy M arketing. The relevant covenant not to compete in that case
prohibited the employee from engaging in competitive business in Canada orthe United
States. ln theensuing litigation overthecovenant'senforceability,theem ployee claimed
thathew asrestricted from working forany oiland gascompany in N orth Am erica. The
employer disav eed, and subm itted evidence to show the court that it lim ited its
competitorsto twenty companies,which were com prised ofoiland gasconsulting tirm s.
12 S.W .3d 114,119 (Tex.App.- Houston (14th Dist.j1999,no pet.). TheCourtsided

with the employer, holding that, based on the employee's tjob description and
responsibilities,itwasreasonable to restlict(him) from working in other oi1and gas
consulting tirmsinNorthAmericaforasixmonth period.''Id.(citing Weed Eater,Inc.
v.Dowling,562 S.W .2d 898,902 (Tex.Civ.App.- ldouston (1stDist.j1978,writrefd
n.f.e.).
According to Knobloch's covenant not to compete, he is prohibited from
competing in the ûlRestricted Businessy''which isdetined asûtany businessortransaction
involving oilfield displacem enttools or services or any other businesses then conducted
byEmployer.'' (Doc.No.181,Ex.2,at6.) Though M -l,unliketheemployerin Curtis,

did notprovide evidence of SPS/GCS'Scom petitorsin supportofitsargumentthatthe
covenantisnotan industrp wide exelusion,the Courtissatisfied thatthe plain language
oftheagreem entdoesnotcreate an industry-wide exclusion thatencom passesal1oiland
gas, but instead restricts Knobloch from working for a com petitor within the oi1
displacem enttools or services industry. M -I asserts that SPS/GCS provided çlniche''
senices to the oi1 and gas industry, and W ES and Knobloch do not refute that
characterization. Furtherm ore,although the definition ofitRestricted Business''contains
acatchallphrase thatencom passesçtany otherbusinessthen conducted''by SPS/GCS,no
allegation hasbeen m adethatSPS/GCS operated businessesoutside ofwellcompletion
senices. The Courtfinds thatKnobloch'scovenantnotto com pete does notimpose an
im permissible industrp wide exclusion, but instead, restricts his competition to a
reasonably narrow businessareathatcorrelatesto hiswork with SPS/GCS.
The Courtnow turns to Knobloch's and W ES'S argum entthat the covenant is
unenforceable because itcontains no reasonable geop aphic lim itation. Texas courts
generally require som e geographic limitation in a valid covenantnotto compete. See,
e.g.,Goodin v.Joll? 257 S.W .3d 341,352 (Tex.App.- Forth W orth 2008,no pet.)
(citing casesl;Zep Mfg.Co.v.Harthcock,824 S.W .2d 654,660-61 (Tex.App.- Dallas
1992,nopet.) CtA reasonablegeographicscopeisgenerallyconsidered tobetheterritory
in which the employee worked for the employer.'' TranspetfectTranslations,Inc.
Leslie,594 F.Supp.2(1742,754(S.D.Tex.2009)(citingHarthcock,824 S.W .2dat660).
W ES and Knobloch rely on Goodin v.Jolfffoïtheirargumentthatthecovenant
should failbecause itfails to setforth a reasonable geographic lim itation. Goodin is
inapposite. The covenantin thatcase failed to include ûûany lim itation asto geop aphic
scope whatsoever.'' 257 S.W .3d at 352. By contrast, Knobloch's covenant not to
com pete prevents him from com peting Ktin any geographic area''w here SPS/G CS does
businessorisauthorized todobusiness.(Doc.No.181,Ex.2,at6.) Thoug,h SPS/GCS'S

authorized or actual business areas are not further detined in the covenant,M -1 has
submitted evidence showing that SPS/GCS did business in North Am erican, South
Am erican,and the Caribbean. AsM anagerofSales forthe Am ericas,Knobloch worked
throughout this tenitory. He testitied that his territory covered North Am erica, the
Caribbean,andpartsofSouthAmerica.(Knobloch Dep.95:17-96:12.)
ltlNqon-competecovenantswithrestrictionscovering awidegeovaphicareamay
bereasonable ifthey are limited in scope to a tirm 's currentorprospective clients such
thatthey do notpose a greaterrestraintthan necessary to protectthe tirm 's goodwill.''
TranspelfectTranslations,Inc.v.Leslie,594 F.Supp.2d 742,754 (S.D.Tex.2009)

(citing cases). Covenantswith wide geopaphic areashave been upheld frequently in
Texascourts,especially when the areacovered constitutestheem ployee's actualsalesor
work tenitory.See,e.g.,VaisArms,Inc.v.Vais,383F.3d 287,295(5thCir.2004).The

Courtacknowledges thata geographic area covering the W estem hemisphere is broad,
reaching to the outerlim its ofa restriction. However,the Courtis satisfied that,given
Knobloch'sextensivejobresponsibilities,hisposition inuppermanagementatSPS/GCS,
and the fact thathis actualterritory did span the Am edcas,the geographic restriction
contained in the covenantwas reasonable to protectSPS/GCS'Sbusiness interests. See
Curtisv.ZLffEnergyGr.p.,12 S.W .3d l14,119(Tex.App.- llouston (14th Dist.)1999,

nopet.).
55
Knobloch and W ES'Sthird and lastobjection to the covenantnotto compete

concerns the lim its on K nobloch interacting w ith all custom ers and potentialcustom ers.
Theyarguethatsuch arestriction isoverbroad and unreasonable.
The covenantprovidesthatKnobloch m ay notsolicitany custom ers orpotential
custom ers fora period ofsix months. A customer isdetined as an entity thatconducts
businessorhasan accountwith SPS/GCS.A ûtpotentialcustom er''isdefined assomeone
who t4m ight reasonably be expected to conduct business'' with SPS/GCS because
SPS/GCS has,ttwithin theimmediately priorsix (6)month period,offered orpresented

itsservicestosuchpersonsorentities.'' (Doc.No.181,Ex.2,at6.) W ES andKnobloch
cite Goodin v.Jol;fffor the proposition thatrestricting Knobloch from contacting all
custom ers,including those with whom he had no contact,is unzeasonable. W ES and
Knobloch also object to the covenant's requirementthat Knobloch not iûdirectly or

indirectly''competewith SPS/GCS.(Doc.No.181,Ex.2,at6)(emphasisadded).They
arguethatthislanguage,sim ilarto thatfound in Goodin,isalso overbroad.
TheCourtaddressesthesecond argum entfirst.Thepertinentpm ofthe covenant
in Goodin provided thatthe em ployeescould notstarta competing business,directly or
indirectly,withoutçsany lim itation asto geom aphic scopewhatsoeven'' 257 S.W .3d 341,
352 (Tex.App.- Forth W orth 2008,no pet.).ln otherwords,itwasthecombination of

factors, which prevented the employees in Goodin for a period of five years from
competing indirectly with their form er em ployer without any geographic limitations,
played a significantrole in that court's decision. The Courtis notconvinced that,ifthe
ttdirectly orindirectly''language had been combined with a reasonable geographic and
tim e-period restriction,thecourtwouldhave neverthelessstruck down the covenant.
56
The Courtfinds m ore troubling Knobloch and W ES'S central argum entin this
objection the restriction on contacting customers. The covenant's restriction on

solicitation of al1 custom ers and potential custom ers,which surely covers clients with
whom Knobloch had no contact. Texas courts have struck down such covenants as
unenforceable. TranspelfectTranslations,Inc.v.Lcslie,594 F.Supp.2d 742,754(S.D.

Tex.2009)(liTexascourtsnotethatnon-competecovenantsthat...preventcontactwith
clientswith whom the employee had no contactare unenforceable.'');PeatMarwick
Main v.Haass,818S.W .2d 381,386-87 (Tex.1991)(holdingthatan accounting firm's
protectable interest was its client base,and that the non-solicitation provision,which
iA ibited departing partners 9om engaging accounting services for clients who were
acquired aûerthe em ployeelel,orwith whom theaccountanthad no contactwhileatthe
firm,wasoverbroad and unreasonable). On the otherhand,however,courtshave also

dispensed with oneorm ore factorsentirely when thetotality ofcircum stances indicated
thatthe covenantnotto com pete w as reasonably nanow to protecta com pany's business
interest or goodwill. So, for exam ple, courts have held that covenants with no
geographicallim itation werereasonable and enforceable. See,e.g.,TradersInt'

I,Ltd.v.
Scheurmann,2006 W L 2521366,at *8 (S.D.Tex.Aug. 30,2006) (ûçAlthough the

Consdentiality and Invention Agreem entdoesnotspecify a geographic limitation on the
non-competition agreem ent, it is nonetheless enforceable. W hile there is a split of
authority on thislegalissue,the courtispersuaded thatwhere the employm entagreem ent
restdcts the em ployee from contacting form er custom ers w ith whom the em ployee dealt
while employed by the employer, this is a reasonable substitute for a geographic
limitation.'')(intem alcitationsomittedl;Totino v.Alexander & Assocs.,Inc,1998 W L

552818,at*3(Tex.App.- llouston (1stDist.jAug.20,l998)(noting thatthelackofan

expressgeographicrestrictionisnotperseunreasonable).
The Court agrees with M -1 that the factors included in the covenant not to
competeshouldbeconsidered in combination with one another,ratherthan asstand alone
requirements. Applying thatapproach,theCourtcnnnotsay thattheban on allcustom er
and potentialcustom er contacts is unreasonable to proteet SPS/G CS'S business interest.
Tllree im portant factors bring the Court to this conclusion. First, the short six-m onth
duration ofthe covenantnotto competeim posesa lim ited burden on Knobloch. During
thatsix-m onth period,Knobloch stillhad severaloptions:hecould have chosen to work
outside the wellbore completion industly to work in that industry but outside of the
Am ericas,ornotto work and launch acom peting businesssixm onthslater. The Courtis
convinced that,given Knobloch's scientific background and in-depth knowledge ofthe
industry,al1of those optionsremained open to him when he leh his em ploym entwith
SPS/GCS.
The second factor is the upper m anagem ent position held by Knobloch at
SPS/GCS. M -1has submitted evidence showing thatKnobloch wasmuch m ore than a
m anager and salesm an forhis fonner em ployer. He oversaw SPS/GCS'S relationships
with majorinternationalclients. (Knobloch Dep.85215-86:25,

-Doc.No.196,Exs.25-
A n engineer by training, Knobloch participated in the design of SPS/GC S'S tools
and in facilitating w ellbore com pletions. He delivered technical presentations
intem ationally, fonnulated com pany grow th strategies, and discussed product
developmentwith engineers. (Doc.No.196,Ex.16.) Given Knobloch'shigh levelof
58
involvem ent in the com pany's gowth and developm ent, the Court believes that
restricting him from contacting SPS/GCS'Scustom erbasewasreasonable.
The third, and perhaps m ostimportant, factor goes to SPS/GCS'S protectable
interest.Texascourtsaregenerally concem ed aboutcustom ercontractrestrictionswhere
theclientbaseistheprotectablebusinessinterest. See,e.g.,PeatHarwickM ain & Co.v.
Haass,818 S.W .2d 381,387 (Tex.1991)(defining thebusinessinterestin thatcaseto

includepreservingthefirm'sclientbase).M -1hasmadeastrong casethatthebusiness
interestin this case extends beyond SPS/GCS'S clientbase,given Knobloch's intim ate
knowledgeoftooldesignsand functionality. Knobloch had accessto sensitive company
information,including m any trade secrets. '

I'
he Courtis convinced thatthe defnable
business interests in this case involve notjust preserving a client bases but also
m aintainingtrade secretsand othersensitive inform ation. Therestriction on a11custom er
contact is accordingly not an unreasonable restraint of trade as to this particular
employee. See Weed Eater,Inc.v.Dowling,562 S.W .2d 898,902 (Tex.Civ.App.-

Houston (1stDist.j1978,writrefdn.r.e.).
'
Fhe Court declines to grant W ES and Knobloch summary judpnent on the
covenantnotto compete. The covenantnotto compete is areasonablerestraintoftrade,
and isthereforeenforceable.
lV . D EFEN D AN TS'M O TIO N FO R PR O TEC TIO N
Defendantshavefiled ajointexpedited motion forprotection from discovery of

their trade secret infonuation. They argue that,underthe burden shihing m echanism
applied in Texas state courts,when a party seeking protection has established that the
infonuation soughtis a trade secret,the party requesting the infonnation m ustestablish
59
thatthe information isnecessary fora fairadjudication ofitsclaim ordefense. (Defs.'

JointExpedited M ot.forProtection f'
rom Disc.ofProprietary Trade SecretInform ation,
Doc.No.300,!J!8-9.) Defendants assertthatM -1has failed to make this critical

showing,andthusisnotentitledtodiscovery.(1d.!!(17-21.) Theyarguefurtherthatthe
depositionsrecently taken in Scotland ofM -1engineersshowsthatM -lhaslittleproofof
its claimsthatDefendantshave stolen itstradesecrets. (ld.!! 1-6.) M -Icountersthat

Defendantsare tlouting thisCourt'sdiscovery orders,which have already provided that
Defendantsm ustproduce trade secretinform ation,and argue furtherthatthey have m et
theirburden to show thatthe trade secretsare necessary fora fairadjudication oftheir

claims.(M -ILLC'SResp.to Defs.'JointExpedited M ot.forProtection from Disc.of
ProprietaryTradeSecretlnformation,Doc.No.316,15 5,35-40.) M -Ialso arguesthat
itsengineersidentified severalsuspected misappropriationsoftrade secrets. (1d.M(8-
28.)
Discovery in thiscase hasbeen farfrom sm ooth. ln November2009,this Court
ordered discovery to proceed along a certain schedule,due to the sensitive nature ofthe
discoverablem aterial. TheCourtdivided discovery into two phases. Thefirstphasewas
to includediscoveryofa11mattersçsexclusiveoftradesecrets.'' (Disc.Hr'gTr.33,Nov.
24,2009.) Aherthetirstphase,theDefendantswouldbeallowedtodeposecertain M -I
engineersin orderto obtain m ore detailasto thetradesecrettheû atissue. Following the
depositions,the case wasto proceed to a second round ofdiscovery where t4trade secret
information (wouldjbedisclosed''pursuantto the agreed protective orderin thiscase.

(1d.) The Courtsubsequently issued a written order outlining the planned discovery
schedule.(SeeDoc.No.155.)
60
Despite M -l's protests that the frst phase of discovery had not yet been
completed,the Courtordered depositions of four key M -l employees to go fonvard in
April2010. n edepositionsofGeorge Telfer,M ark Temple,Graeme Laws,and Dennis
H ankstoolplace in Scotland from April5-7,2010.
According to the discovery schedule,then,phase two discovery requiring trade
secretdisclosureshould havebegun aqertheScotland depositions. Defendants,however,
haveadamantlyobjected toproducing anyoftheirtradesecrets,and M-lhascomplained

equally loudly that Defendants are circum venting this Court's orders by refusing to
producesensitiveinformation.AûeradjudicatingalargenumberofdisputesinApriland
M ay,theCourtstayed thecasein orderto decide thepending dispositivem otions.
A . Analysis
Defendants,in som e ways,m ake a pitch for a question already decided. They
seek protection underTexasRule ofEvidence 507by arguing thatM -1hasfailed to m eet
itsburden ofshowing thatdiscovery oftrade secretsisnecessary in thiscase,asrequired
underthecase1aw thathasdeveloped around thatnzle.
TexasRule ofEvidence507 protectsdiscovery oftradesecrets,allowing aperson
to refuseto discloseatradesecretundercertain circum stances.Theruleprovides:
A person has a privilege,which m ay be claim ed by the person or the

person's agent or employee,to refuse to disclose and to prevent other
persons from disclosing a trade seeret owned by the person, if the
allowanceoftheprivilegewillnottend to concealfraud orotherwisework
injustice.W hendisclosureisdirected,thejudgeshalltakesuchprotective
m easures asthe interests ofthe holderofthe privilege and ofthe parties
andthefurtheranceofjusticemayrequire.
The Texas Supreme Court has established a burden shiRing mechanism by which
evidencem ustbeproduced underRule 507.
61
First,the party resisting discovery m ustestablish thatthe inform ation isa

trade secret. The burden then shihs to the requesting party to establish
thattheinformationisnecessary forafairadjudication ofitsclams.Ifthe
requesting partym eetsthisburden,the trialcourtshould ordinarily compel
disclosure ofthe information,subjectto an appropriateprotective order.
ln each circum stance, the trial court m ust weigh the degree of the
requesting party's need for the inform ation with the potential harm of
disclosure to theresisting party.
InreContinentalGen.Tire,Inc.,979S.W .2d 609,613(Tex.1998).

The Federal Rules of Civil Procedure also provide for the protection of trade
secretinformationundercertaincircumstances.Rule26(c)(1)provides'
.
A party or any person from whom discovery is soughtm ay move for a
protective order in the court where the action is pending--or as an
alternative on m attersrelating to a deposition,in the courtforthe district
where the deposition willbe taken....The courtm ay,for good cause,
issue an order to protect a party or person &om annoyance,
embarrassment,oppression,or undue burden or expense,including .. .
requiring thatatrade secretorotherconfidentialresearch,development,or
comm ercialinform ation notbe revealed orberevealed only in a specified
W ay ....
'
It is ûtwell settled that there is no absolute privilege for trade secrets and similar
confdentialinformation.'' 8 CHARLESALAN W RIGHT,ARTHURR.M ILLER & RICHARD L.
MARCUS,FEDERAL PRACTICE AND PROCEDURE j2043 (2d ed.1994). Rather,federal

courtsfollow asimilarscheme in determining whetherand how to orderthe disclosureof
trade secretsor otherconfidentialinfonuation. First,the party seeking protection must
establishthattherelevantinfonnation fallswithin theprovision ofthisrule.Id. ûtûlr

flhe
burden is upon (the party seeking the protective order) to show the necessity of its
issuance, which contemplates a particular and specific dem onstration of fact as
distinguished from stereotyped and conclusory statem ents.''' Sanchez v.Proper# &
Cas.,2010W L 107606,at*1(S.D.Tex.2010)(quotingfnrc Terra Int'l,134 F.3d 302,

306 (5th Cir. 1998)). The party seeking protection Vtimust first establish that the
62
information sought is a trade secret or other eontidential information and then
dem onstrate that its disclosure would cause an identifiable, sir iticant hann.''' f#.
(quotingStoneConnection,Inc.v.Simpson,2008W L 1927033,at*1(E.D.Tex.Apr.28,
2008)).
If the party seeking protection establishes thatthe information sought is both
confidentialand thatdisclosurewould cause harm,then the burden fallson the opposing
party to çtestablish thatthe inform ation issuo ciently relevantand necessary''to itscase
to outweigh the harm thatdisclosure m ay cause. 8 CHARLES A LAN W RIGHT,ARTHUR R .
MILLER & RICHARD L.M ARCUS,FEDERAL PRACTICE AND PROCEDURE j2043 (2d ed.
1994).Kççltiswithinthesounddiscretion ofthetrialcourttodecidewhethertradesecrets
are relevantand whethertheneed outweighstheharm ofdisclosure.Likewise,ifthetrade
secretsare deem ed relevantand necessary,the appropriate safeguards thatshould attend
theirdisclosure by m eans ofa protective order are also a m atter within the trialcourt's
discretion.''' A.C.Olmstead,Inc.v.CU Interface,LLC,606 F.3d 262,269 (6th Cir.

2010)(quoting Centurion Indus.,Inc.v.Fcrren Steurer& Assocs.s665 F.2d 323,326
(10thCir.1981)).
The state and federal standards are very similar. Given its federal question
jurisdiction over this case,the Courtapplies the Texas proceduralruleshere. As to

Defendants' initial burden of proving that the m atter is a trade secret, M -1 does not
dispute,and the Courtdoesnotdoubt,thatthe materialsin question qualify. Defendants'
trade secrets include sensitive inform ation such as tool drawings, engineering data,
individualcom ponentsketches,pricing and inventory lists,certain com m unications with
63
manufacturers,andmore. (Doc.No.300,!13.) Both parties have acknowledged from

the outsetofthecasethatsuch m aterialqualitiesastradesecrets.TheCourtagrees.
As discussed at length in this opinion,M -lbrings several state 1aw causes of
action against Defendants in this suit. Their core allegation is that Defendants
m isappropriated theirtrade secrets. M -lhas stated a claim form isappropriation oftrade
secrets, and now seeks discovery in order to support those claim s with evidence.
Importantly,trade secrets are the subjectofthislitigation. M -lisnotseeking W ES'S

trade secrets so it may use the information to prove a tangential or connected point.
Rather,thetrade secrets are soughtbecause M -Iallegesthatthetrade secretsthem selves
were stolen,and needs evidence to bolster its claim . Specifically,the third elementof
trade secretm isappropriation requiresthataplaintiffprove thatthe defendantisusing the
trade secret. ln order to prove this element, M -l must establish that W ES'S tools
ineorporate M -l's design features. lndeed, M -l has submitted aftidavits from two
retained expertswho state thatthey cannotcome to any determ ination ofwhetherW ES
hasm isappropriated M -1trade secrets in its own toolline withoutfirstinspecting tools
drawings and otherproprietary infonuation. (Doc.No.317,Exs.J & K.) The trade

secrets are both relevant and necessary for thatreason. Notbeing able to argue that
certain tooldiameters were identical,orthatW ES adopted the same unique m aterialas
M -Iin the constnzction ofits tools,would be fatalto M -l's claim s. W hatDefendants
seek in protection,then,isnotaslightm odification ofdiscovery,butinstead a dismissal
ofal1ofM -l'sclaims. ThistheCourtcannotdo. M-l's casehascleared the 12(b)(6)

hurdle,and assuch,itisentitled to certain discovery thatwillallow itto litigatethiscase.
64
The Courttindsthatthe trade secretdrawings and otherconfidentialinform ation,which
form thecruxofthisentire case,to be discoverable.
The Court is not convinced, as Defendants insist, thatthe deposition of the
Scotland engineers exposed the frivolity of M -l's claim s. Although all deponents
stopped shortof claiming thatW ES tools were exactcopiesofM -ltools,each ofthem
was able to point to specific design features that were unique to M -I before W ES
launched its suite ofwellbore cleanouttools. The engineerspointed to stabilizersleeve
sizes,pressure equalization components,m andreldesir ,filtertoolsimilarities,m ar et
type, tool m atedal,bolts,and other dimensions, designs, and m echanism s that they
strongly believe W ES copied from M -I. From the Court's review of the testim ony,it
believes that the testim ony was specific and supported by the engineers' technical
knowledgeaboutthedesignsand com ponentsofthesetools. Atthe very least,they have
boosted M -l'sargum entthatexam ining drawingsofthesetools,and otherinform ation,is
necessarytofairlyadjudicateitsmisappropriation oftradesecretsclaim.
The Courtdoes notfinding convincing Defendants'citation to case 1aw on trade
secretprotection. Theseminalcaseintem reting and applying Rule507,In re Continental
GeneralTire,Inc.,isreadily distinguishable. ln thatcase,a driver's fronttire blew out,
and he struck an oncoming vehicle,killing two people. Certain heirsbroughta products
liability action againstdefendant,the manufacturerofthefailed tire. Plaintiffscontended
thateither a design or manufacturing defectprevented the belts ofthe failed tire from
properly bonding. During discovery,the plaintiffs requested defendant to produce the
chem ical fonnula for w hat is known at t'skim stockr''in order to prove its claim . 979
S.W .2d 609,610 (Tex.1998). Defendantobjected on them oundsthatits skim stock
65
formula was a trade secretprotected by Rule 507. The Texas Suprem e Courtreviewed
theundem inningsofRule507,established the burden shifting schem eoutlined above for
production oftrade secretsunderthe rule,and applied thatschem e to the factsbefore it.
In thatcase,the only evidence putforward by plaintiffs to establish thatthe skim stock
fonuulawasnecessary to the litigation wasdeposition testim ony from defendant'sexpert
stating thatacom pound thatdidn'thavethe rightingredientsin itcould cause tire failure.
The unrefuted countervailing evidence,however,established thatthe form ula could not
determ ine thephysicalpropertiesofatire,thatthe finished tireitselfhad to betested,and
that plaintiffs had no other skim stock formulas with which to compare defendant's
formula. ln other words,the evidence did notshow thatproduction ofthe skim stock
formulawould allow plaintiffto establish thatthe failed tirew asdefective. The formula
itselfcould notshow thespecificpropertiesofthefailed tire,and even ifthe fonuula was
defective in som e way,plaintiffs would notbe able to show thatby comparing the
formula to others. In this case, by contrast, Defendants' tool drawings and other
infonnation willpointdirectlytothedesign featuresofitswellboretools(thatis,because

m anufacturing flaws are not a concern in this litigation,the question of whether the
drawingsreflectexactl
y the tinalmanufactured productisirrelevantl;f'urthermore,M -I
m ay compare Defendants' trade secrets to its own to establish whether Defendants'
com mittedm isappropriation.
The Courtfinds Defendants' other citations sim ilarly unconvincing. ln those
cases,the courtsrejected discovery oftrade secretinformation whereplaintiffsfailed to

indicate how the trade secret inform ation would show whether the finalproduct was
defective, were able to prove defectiveness of products without discovery of the
66
inform ation,failed to establish thatthe information would be necessary to its experts
ratherthan m erelyuseful,orfailed entirely to offerany evidenceshowing production was
necessary. See,e.g.,In re Bridgestone/Firestone,Inc.,106 S.W .3d 730,733-34 (Tex.

2003);In reA'FO Res.L LP,248 S.W .3d 898,904 (Tex.App.- FortW orth 2008,no
pd.);In re Waste Mgmt.of Fcx.,Inc.,286 S.W .3d 615,618 (Tex.App.- Texarkana
2009);ln reLeviton Mfg.Co.,1S.W .3d898,902-03 (Tex.App.- W aco 1999,no pet.);
In reContinentalTireN Am.,Inc.,74 S.W .3d 884,886(Tex.App.- Eastland 2002,no
pet.);InreFrost,998 S.W .2d 938,939 (Tex.App.- W aco 1999,no pet.) M -ldoesnot
stand in the sam e position as the plaintiffs in the cited cases. First,the m anufacturing
process is im materialto whetherDefendants misappropriated trade secrets. Second,as
stated above,M -l will notbe able to prove m isappropriation of trade secrets,which
requiresthem to show thatDefendantshave actually incom orated trade secrets into their
own competitive products,without exam ining Defendants' tool drawings and other
proprietary information. Last,M -Ihasproffered evidence on the issue ofnecessity,and
thattvidenceestablishesthatexpertsmusthave accesstoproprietary information in order
to prepare their conclusions. In other words,the inform ation is necessaly notsimply
useful,forM -l'sexperts. TheCourtthereforerejectsDefendants'attemptsto analogize
theinstantlitigation to caseswheretradesecretdiscoveryhasbeen rejected onRule507

grounds.
Additionally,neitherparty disputesthatM -Ihas virtually no othersource forthe
information. Although itmay go afterthem anufacturersofthe tools,a strategy thatM -l
has undertaken, this is sim ply a m ore circuitous w ay of obtaining the m aterials from
W ES itself. A11ofW ES'Sm anufacturershave signed confidentiality agreem entsnotto

disclose the trade secrets,and so have referred requested item s to W ES so thatW ES
could assertthetradesecretprivilege.
The Courtpoints outthatit is notonly W ES'S disclosure thatis atissue here.
Rather, it is clear that M -1 will need to produce its own tool drawings and other
inform ation to Defendants so thatDefendantsm ay build theirdefense in this case. The
Court is satisfied that, with both parties disclosing the m aterial at the heart of their
companies' success,each of them willhave strong incentives to rigorously apply the
protectiveorderand safeguard oneanother'strade secrets. TheCourttruststhe attom eys
on allsidesofthiscaseto abide bytheterm softheprotectiveorder.
Parties are generally given w ide latitude in conducting diseovery,even as to trade
secretm atters. lndeed,in m ostcasesconcerning trade secretdiscovery,t4the key issueis
notwhetherthe inform ation w illbe disclosed butunderwhatconditions.'' 8 CHARLES
ALAN W RIGHT,A RTHUR R. M ILLER & RICHARD L.M ARCUS,FEDERAL PRACTICE AND
PROCEDURE j2043 (2d ed.1994). The Supreme Courthasrecognized thatésorders

forbidding any disclosure of trade secrets or confidential comm ercial information are
rare.''Fc#.OpenMarketComm.oftheFed.Resen'es'
ys'.v.Merrill,443 U.S.340:363
n.24 (1979). éûM ore commonly,the trialcourtwillentera protective orderrestricting
disclosuretocounsel,ortotheparties.''f#.(intemalcitationsomitted).Defendantshave
failed to citeto any federalcasesthatprohibited trade secretdisclosure outdght. lndeed,
from the Court's own research, it is clear that such action is exceedingly rare.
D efendants have failed to set forth com pelling reasons for why this m aterial should be
entirely exempt from discovery. The Court finds that the material is relevant and
necessary to the claim satissue in thiscase.
68
O fcourse,the Courtprefers thatthe partieshave a m utually agreeable protective
orderin place. Defendantshave indicated thatthecurrentprotective orderisinsufficient.
The Courtwillconvene the parties to discuss how the tenns of the currentprotective
order m ay be m odified. Given the sensitive namre of the inform ation,the Court is
amenableto m aking the orderasstrictaspossibleto ensure the continuing secrecy ofthe
infonnation disclosed.
The Courtm akes one finalpoint. ltunderstandsthatDefendants are extrem ely
frustrated with the filing ofthislawsuit. Defendantshave repeatedly argued to the Court
that this is a sham law suitbroughtby a large com oration seeking to extinguish a sm all
one. Ifthis is tnze,ofcourse,an allocation of costsand fees,as wellasm ore serious
m easures,m ay be in orderso thatW ES may be m ade whole again. Butthe Courtisnot
in a position to dism iss an entirelawsuitatthisstage based on Defendants'impassioned
arguments and accusations. It is the Court's task to adjudicate this case neutrally.
HavingfoundnobasisforRule 12(b)(6)orRule56dismissaloftheentiresuit,theCourt
m ustallow this litigation to proceed. Ithasconcluded that,in orderto try these claim s,
both sidesmustproduce trade secretm aterial. The m erits ofM -l'sclaims can form no
basisforthe Court'sdecisions atthisphase. Rather,a11itcan do,and indeed whatitis
bound to do,is monitorthe pleadings and evidentiary standards to ensure thatthe case
proceedsin away thatprotectsallparties'rights.The Courttdesto do so faithfully,and
remainswilling to discussproblemsduring discoveryasthey arise.
V. C O NC LU SIO N
Forthereasonsstated intheorder,Defendants'motion to dismiss(Doc.No.9l)

is granted in partand denied in part. Counts Four,Five, and Eleven are dism issed.
69
Defendants'motion forpartialsummaryjudgment(Doc.No.181)isgrantedinpartand
denied in part. Counts Four,Five, Six,Eight,Nine,Ten,and Tw elve are preem pted to
the extent they are based on M -l's tool draw ings and other copyrightable m atedal.
Defendants'motionforpartialsummaryjudpnentisdenied astoM -l'smisappropriation

oftrade secretsclaim ,and itscovenantnotto compete argum ent. Defendants'motion
forprotection(Doc.No.300)isdenied.
M -lmustfile an amended complaintwithin twenty (20)daysofthedate ofthis
Orderthatreflecttherulingsherein.
IT IS SO O R D ERED .
<
SIGNEDatHouston,Texas,onthisthe/ 7dayofAugust,2010.
KEIT .E LISON
UN ITED STA TES D ISTRICT JU D GE
TO ENSURE PROPER NO TICE, EACH PARTY W H O RECEIVES

TH IS O RDER SH ALL FO RW ARD A COPY OF IT TO EVERY
OTHER PARTY AND AFFECTED NO N-PARTY EVEN THO UGH
TH EY M AY HAVE BEEN SENT ON E BY THE CO URT.
70

M-I LLC v. Stelly (S.D. Tex. Aug. 17, 2010)

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M-I LLC v. Stelly (S.D. Tex. Aug. 17, 2010)

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111111III111I

UN ITED STA TES D ISTRIC T C O U RT

Pending beforethe Courtare Defendants'JointM otion to Dism iss forPlaintiffs

Failureto State aClaim (Doc.No.91);DefendantsBenton T.Knobloch and W ellbore

(Doc.No.181);Defendants'JointExpedited M otion forProtection from Discovery of

Defendants'motion to dismiss should be granted in pa14 and denied in part,Defendants'

motion forpartialsummaryjudgmentshould bevanted in partand denied in part,and

This suitinvolves the alleged m isappropriation oftrade secretsand violation of

non-compete ap eementsby formeremployeesofPlaintiffM -lLLC (ûiM -l''),including

'Unlessotherwisenoted, thebackground factsofthiscaseare notin dispute.

M -lLLC CtM -1'')isan oilfield contractorthatprovidestçproductsand servicesto

operations and the cleanoutofwellbores.'' (Second Am.Compl.,Doc.No.355,IJ8.)

competeagainstM -Iforaperiodoftwo yearsafterterminationofemployment.@d.!9.)

custom erstluoughoutthe GulfofM exico,Texas,Louisiana,and Alabam a. M -lalleges

proprietary infonnation,includingtooldrawings,desir s,and specifications. (1d.!g

DefendantBenton T.Knobloch (dçKnobloch'')wasan employeewith Specialised

(IISPS/GCS'') which was a subsidiary of SPS Petroleum Services Group Limited

SPS/GCS'Scustom errelationships,orcom petewith SPS/GCS. M -IaversthatSPS/GCS

designs,and specifications. On August21,2006,Knobloch resir ed hisposition with

M -l,and wasthereaûer term inated. Knobloch was M anagerofSales forthe Americas

job atM -l,Knobloch formed a new company,DefendantW ellbore Energy Solutions,

from M -I,ultimately hiring atotalofthirteen employeesfrom M -I. SquyresjoinedW ES

notto compete. (Id.!5 15-16.) M-lbelievesthatW ES designed twelve ofitswellbore

Based on these averm ents,M -lbrings fourteen counts against Stelly,Squyres,

Knobloch, and W ES. Those counts include: breaches of various employment

confidentiality contracts; com mon 1aw m isappropriation of trade secrets'

interference w ith M -l's custom er contracts, prospective business relations, and

employmentcontracts;breach offiduciary duty;violations ofthe Texas TheftLiability

copyrightlaw,and thatKnobloch's covenantsnotto compete areunenforceablebecause

tradesecretmaterialsin discovery. The Courttakesup each oftheargum entsinturn.

II. M O TIO N TO D ISM ISS

Defendantshavefiled ajointmotion todismissforfailureto stateaclaim .They

Twombly and Iqbaldecisions. (Defs.'JointM ot.to DismissforP1.'s Failure to State

than legalconclusionsfortheremaining ten claims. (f#.15 15-19.) M -Irespondsthat

can be ranted.'' FED.R.CIV.P. 12(b)(6). il'

Taylor,503 F.3d 397,401(5th Cir.2007)(citing#c//Atl.Corp.v.Twombly,550 U.S.

Case 4:09-cv-01552 Document 376 Filed in TXSD on 08/17/10 Page 5 of 70

U.S.---,129 S.Ct.1937,1949 (2009)(quoting Twombly,550U.S.at570).A claim has

(citing Twombly,550U.S.at556).Theplausibility standardisnotakinto atiprobability

unlawfully. 1d. A pleading need notcontain detailed factualallegations,butm ustset

plaintiff'' Johnson v.Johnson,385 F.3d 503,529 (5th Cir.2004),

documentsattached to the motion,ifthey are referenced in the plaintiffs complaintand

arecentraltotheclaims.Collinsv.M organStanleyDean Witter,224 F.3d496,499(5th

unw arranted deductions,or legal conclusions.''' R2 Investm ents LD C v. Phillips,401

F.3d 638,642 (5th Cir.2005)(quoting Southland Sec.Corp.v.Inspire Ins.Solutions,

The Courtnotes,atthe outset,thatsubsequentto Defendants'm otion to dism iss,

The CourttirstconsiderswhetherDefendantshave waived theirRule 12(b)(6)

answered M-l's originalcomplaint. (See Doc.Nos.7,9,& 28.) They now move to

m otion istim ely and notwaived.They arguethat,because Defendantsare allowed to file

a responsive pleading to M -l's am ended complaint,they are also allowed to çlchallenge

Tht courtsubsequently ordered plaintiff to tile an amended complaint curing certain

12(b)(6) motion could be filed. The courtrejected thatargument,noting thatRule

fmustbem adebeforepleading ifaresponsivepleading isallowed.''' 2008 W L 2746289,

at*1(W .D.W as.July8,2008)(quotingFed.R.Civ.P.12(b)).Becausetheplaintiffhad

complainton Rule 12(b)(6)grounds.Inthiscase,bycontrast,each Defendantanswered

The Courtdoes nothave to decide thatquestion,however,because Defendants

prevailforanotherreason. Each Defendantraised the defense offailure to state a claim

uponwhich reliefcanbegrantedin theiranswers. (SeeChad Stelly'sAm.Answer,Doc.

12(i). Because the Defendants'motion to dismiss isbased on a defense they raised

M otorcycles,Inc.v.Robinson,2010W L 2757523,at*3(S.D.Tex.July 13,2010).

Defendants aver that M -l has failed to plead adequately its m isappropriation of

are:(1)a tradesecretexisted,(2)the trade secretwas acquired through a breach ofa

to obtain an advantage overhis competitors who do notknow or use it.''' Tri

Go% Inc.v.Nike,Inc.,285F.3d253,261(5th Cir.2007)(quoting Taco Cabana Int1v.