Kana Energy Services, Inc. v. Jiangsu Jinshi MacHinery Group Co. Ltd. D/B/A JMP Technologies, and Helios Oil & Gas Equipment LLC

Affirmed and Opinion filed October 9, 2018.
In The
Fourteenth Court of Appeals
NO. 14-17-00863-CV
KANA ENERGY SERVICES, INC., Appellant
V.
JIANGSU JINSHI MACHINERY GROUP CO. LTD. D/B/A JMP
TECHNOLOGIES, AND HELIOS OIL & GAS EQUIPMENT LLC,
Appellees
On Appeal from the 190th District Court
Harris County, Texas
Trial Court Cause No. 2017-55123
OPINION
In this case concerning claims, among others, of breach of fiduciary duty and
misappropriation of trade secrets, appellant Kana Energy Services, Inc. appeals the
trial court’s denial of its application for a temporary injunction. Given the
conflicting evidence, we cannot say that the trial court abused its discretion in
denying the application. We accordingly affirm the trial court’s ruling.
I. BACKGROUND1
“API-6A” is an international specification used by the American Petroleum
Institute to measure the quality of equipment manufactured in different countries.
Appellee Jiangsu Jinshi Machinery Group Co. Ltd. (“JMP China”) manufactures
API-6A oilfield equipment in China. From 2006 until 2016, JMP China’s products
were sold in the United States and Canada only by Wellhead Distributors
International (“WDI”), a wholesale distributor with whom JMP China had an
exclusive-distributorship contract.
Appellant Kana Energy Services, Inc. (“Kana”) was formed in 2008, and like
WDI, Kana is a wholesale distributor of API-6A oilfield equipment in the United
States and Canada. Where WDI obtained its products from JMP China, Kana
obtained its products Jiangsu Jinjia Drilling & Production Equipment Co., Ltd.,
known in the industry as “JHK.”
In 2013, Kana believed that JMP China was unhappy with its exclusive-
distributorship arrangement with WDI. In October of that year, Kana took one of its
customers to China to meet with JMP China about the possibility of becoming JMP
China’s exclusive distributor in North America.
In December 2013, Kana hosted a meeting in Houston with JMP China’s
chairman, JHK’s chairman, and a few employees of either company to discuss a joint
venture in which Kana would become the exclusive distributor of JMP China’s
products in the United States. The meetings extended for several days, during which
Kana showed JMP China and JHK a 42-page PowerPoint presentation of its plan to
1
In accordance with the standard of review, we summarize the evidence in the light most
favorable to the trial court’s ruling. See Section II, infra.
2
market JMP China’s products. Kana also introduced JMP China and JHK to some
of Kana’s current and potential customers.
JMP China and Kana failed to reach an agreement, but WDI sued both
companies in early 2014. WDI sued JMP China for breach of contract, and in a
separate suit, WDI sued Kana for tortious interference with WDI’s contract with
JMP China. The outcome of the two suits is not expressly stated in the record, but
JMP China continued to sell its products in North America exclusively through
WDI, and Kana continued to obtain its API-6A products from JHK.
When JMP China’s relationship with WDI ended in 2016, JMP China began
using Helios Oil & Gas Equipment, LLC (“Helios”) as its distributor. Helios wanted
an exclusive distributorship relationship with JMP China, but after its experience
with WDI, JMP China refused. JMP China instead founded a Texas subsidiary, JMP
Petroleum Technologies, Inc. (“JMP Tech”), which imports JMP China’s API-6A
products for sale in the United States. JMP China also continues to sell its products
through Helios.
After learning of these arrangements, Kana sued Helios, JMP China, and JMP
Tech.2 Kana asserted claims against JMP China and JMP Tech for fraud,
misappropriation of trade secrets, breach of contract, breach of fiduciary duty,
breach of express warranty, breach of implied warranty of merchantability, and
breach of implied warranty of fitness for a particular purpose. Against JMP China,
JMP Tech, and Helios, Kana asserted a claim for conspiracy to breach fiduciary duty.
Kana also requested a temporary restraining order, a temporary injunction, and a
permanent injunction to prevent all three companies from selling API-6A equipment
2
Although Kana identified JMP Tech as an assumed name for JMP China, the two
companies answered the suit separately, and we treat them as separate entities.
3
to the fourteen actual or potential Kana customers that Kana identified to JMP China
and JHK during the joint-venture negotiations.
The parties agreed to a temporary restraining order preventing JMP China,
JMP Tech, and Helios from initiating any new sales of API-6A equipment in the
United States or using Kana’s marketing plan. After expedited discovery and an
evidentiary hearing, the trial court denied Kana’s application for a temporary
injunction. Kana challenges that ruling in this interlocutory appeal.
II. STANDARD OF REVIEW
A temporary injunction is used to preserve the status quo of the subject matter
of the litigation pending a trial on the merits. Butnaru v. Ford Motor Co., 84 S.W.3d
198, 204 (Tex. 2002) (op. on reh’g). The status quo is the last actual, peaceable,
non-contested status preceding the pending controversy. Wash. DC Party Shuttle,
LLC v. IGuide Tours, 406 S.W.3d 723, 740 (Tex. App.—Houston [14th Dist.] 2013,
pet. denied) (en banc).
To obtain a temporary injunction, the applicant must plead and prove (a) a
cause of action against the defendant, (b) a probable right to the relief sought, and
(c) a probable, imminent, and irreparable injury in the interim. Butnaru, 84 S.W.3d
at 204. In three corresponding issues, Kana contends that it established each of these
three elements.
We review the trial court’s ruling for clear abuse of discretion. Davis v. Huey,
571 S.W.2d 859, 861–62 (Tex. 1978). When reviewing the record for abuse of
discretion, we consider the evidence in the light most favorable to the trial court’s
ruling and draw all legitimate inferences in support of it. See Wash. DC Party
Shuttle, 406 S.W.3d at 740. On appeal, the party challenging the trial court’s ruling
must establish that, with respect to the resolution of factual issues, the trial court
4
reasonably could have reached but one decision. Id. (citing N. Cypress Med. Ctr.
Operating Co. v. St. Laurent, 296 S.W.3d 171, 175 (Tex. App.—Houston [14th
Dist.] 2009, no pet.)). If the facts are established, a trial court abuses its discretion
if it misapplies the law to those facts. N. Cypress Med. Ctr., 296 S.W.3d at 175. A
trial court does not abuse its discretion if its decision is based on conflicting
evidence. Davis, 571 S.W.2d at 862.
III. BREACH OF FIDUCIARY DUTY
In its opening brief, Kana argues that it pleaded and proved a cause of action
for breach of fiduciary duty. We disagree. There are two kinds of fiduciary
relationships—formal and informal—but Kana does not contend on appeal that it
has either type of relationship with JMP China.
Fiduciary duties arise in certain formal relationships, such as the relationship
between an attorney and a client. Meyer v. Cathey, 167 S.W.3d 327, 330–31 (Tex.
2005) (per curiam). Joint venturers have such a formal fiduciary relationship. See
Rankin v. Naftalis, 557 S.W.2d 940, 944 (Tex. 1977); Four Bros. Boat Works, Inc.
v. Tesoro Petroleum Cos., 217 S.W.3d 653, 668 (Tex. App.—Houston [14th Dist.]
2006, pet. denied). Although Kana argued in the trial court that it had a joint-venture
relationship with JMP China beginning in December 2013, it has abandoned those
arguments on appeal, affirmatively asserting that the existence of such a relationship
is “immaterial” to the issues presented. Moreover, Kana’s corporate representative
admitted at the evidentiary hearing that Kana has no written joint-venture agreement
with JMP China. Viewed in the light most favorable to the trial court’s ruling, the
evidence supports the trial court’s implied finding that Kana and JMP China were
not joint venturers.
Kana nevertheless contends that it has a “confidential relationship” with JMP
China. In the context of a breach-of-fiduciary-duty claim, a “confidential
5
relationship” also is known as an informal fiduciary relationship. An informal
fiduciary relationship “arises from ‘a moral, social, domestic or purely personal
relationship of trust and confidence.’” Meyer, 167 S.W.3d at 331 (quoting
Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex.
1998)). Informal fiduciary duties arise in a business transaction only if the special
relationship of trust and confidence arose prior to, and apart from, the agreement that
is the subject of the suit. Id. Kana neither alleged nor offered evidence of such a
preexisting relationship of trust and confidence between it and JMP China. To the
contrary, Kana affirmatively states on appeal that it does not assert the existence of
such a preexisting relationship.
Because Kana does not contend that it has a formal or informal fiduciary
relationship with JMP China, the trial court did not abuse its discretion in failing to
grant Kana a temporary injunction based on a cause of action for breach of fiduciary
duty.
IV. MISAPPROPRIATION OF TRADE SECRETS
Although Kana refers to the cause of action at issue as breach of fiduciary
duty, its arguments and authorities actually pertain to a different cause of action:
misappropriation of trade secrets.3 The source of the confusion appears from the use
3
The Texas Uniform Trade Secrets Act “applies to the misappropriation of a trade secret
made on or after” the Act’s effective date of September 1, 2013. Act of Apr. 23, 2013, 83d Leg.,
ch. 10, §§ 3, 4, 2013 TEX. GEN. LAWS 12, 14. The Act “displaces conflicting tort, restitutionary,
and other law of this state providing civil remedies for misappropriation of a trade secret.” TEX.
CIV. PRAC. & REM. CODE ANN. § 134A.007(a) (West Supp. 2018). Kana alleges that JMP China
misappropriated Kana’s trade secrets on and after December 2013 but has briefed only a common-
law trade-secrets claim. Assuming, without deciding, that the Act provides more protection than
the common law in certain areas and less in others (either of which would result in the Act
displacing the common-law claim), that would not change our decision. In any areas where the
Act may provide more protection, Kana waived it for the purpose of obtaining a temporary
injunction by failing to brief the issue in the trial court or on appeal. In areas where the Act
6
of the same phrase—“confidential relationship”—in both causes of action, but with
different meanings and implications.
As used in fiduciary-duty cases, “confidential” in the phrase “confidential
relationship” refers to the “close personal relationship of trust and confidence” that
one party has reposed in another. Willis v. Donnelly, 199 S.W.3d 262, 277 (Tex.
2006). As used in a claim for misappropriation of trade secrets, on the other hand,
“confidential relationship” means a relationship in which the owner of a trade secret
discloses it “in confidence so as to place the other party under a duty to keep his
secret.” Furr’s Inc. v. United Specialty Adver. Co., 385 S.W.2d 456, 459 (Tex. Civ.
App.—El Paso 1964, writ ref’d n.r.e.). For example, one who has access to a trade
secret pursuant to a license stands in a confidential relationship with the licensor.
See Hyde Corp. v. Huffines, 314 S.W.2d 763, 768 (Tex. 1958), cert. denied, 358 U.S.
898 (1958). Employers and employees have a confidential relationship in which the
employee is given access to trade secrets only in furtherance of the employer’s
business. See, e.g., John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80, 86–87
(Tex. App.—Houston [14th Dist.] 1996, writ denied).
Despite Kana’s references to breach of fiduciary duty, we understand from
Kana’s arguments and authorities that it uses the expression “confidential
relationship” in reference to its claim for misappropriation of trade secrets,4 for as
the Supreme Court of Texas explained in Hyde,
provides less protection, any error in failing to apply the Act is harmless because Kana cannot
prevail on appeal even under the common law for the reasons we explain.
4
Although misappropriation of trade secrets is not listed in the “Legal Causes of Action”
section of Kana’s petition, it is mentioned in the opening paragraph and in the “Facts” section of
the pleading. See Kopplow Dev., Inc. v. City of San Antonio, 399 S.W.3d 532, 536 (Tex. 2013)
(“[A] petition is sufficient if it gives fair and adequate notice of the facts upon which the pleader
bases his claim.” (quoting Roark v. Allen, 633 S.W.2d 804, 810 (Tex. 1982)).
7
“One who discloses or uses another’s trade secrets, without a privilege
to do so, is liable to the other if (a) he discovers the secret by improper
means, or (b) his disclosure or use constitutes a breach of confidence
reposed in him by the other in disclosing the secret to him. . . . .”5 [I]t
matters not whether the suit be designated as a ‘trade secret’ case or as
a suit for breach of confidence . . . .6
In its first issue, Kana contends that the trial court erred in denying Kana’s
application for a temporary injunction based on its implied finding “that Kana did
not plead a cause of action supporting a confidential relationship and a fiduciary duty
between Kana and JMP [China].” We conclude that Kana did plead a cause of action
for misappropriation of trade secrets, including facts supporting the existence of a
confidential relationship; however, to obtain a temporary injunction, the applicant
must “plead and prove” a cause of action against the defendant and a probable right
to the relief sought. Butnaru, 84 S.W.3d at 204 (emphasis added). To prevail on a
common-law trade-secret claim at trial, Kana will have to establish (a) Kana’s
ownership of a trade secret; (b) JMP China’s breach of a “confidential relationship”
or its discovery of Kana’s trade secret through improper means; (c) JMP China’s use
or disclosure of the trade secret without Kana’s authorization; and (d) resulting
damages to Kana. See Cuidado Casero Home Health of El Paso, Inc. v. Ayuda Home
Health Care Servs., LLC, 404 S.W.3d 737, 744 (Tex. App.—El Paso 2013, no pet.).
For the reasons addressed below, the trial court reasonably could have found on this
record that Kana failed to prove a cause of action against JMP China and thus, failed
to establish a probable right to the relief sought.
5
Hyde, 314 S.W.2d at 769 (quoting RESTATEMENT OF TORTS § 757 (1939)).
6
Id. at 777 (op. on denial of reh’g).
8
A. Existence of a Confidential Relationship Between Kana and JMP China
As used in a claim for misappropriation of trade secrets, a “confidential
relationship” may exist when the disclosing party reveals a trade secret to allow the
recipient of the information to assess a proposed business arrangement or
transaction, and the recipient either (a) expressly promises to keep the information
confidential; or (b) receives the information under circumstances that justify a
conclusion that the recipient knows or has reason to know that the disclosure is
intended to be in confidence, and the disclosing party reasonably infers that the
recipient has consented to keep the information confidential. See Eagle Oil & Gas
Co. v. Shale Exploration, LLC, 549 S.W.3d 256, 272 (Tex. App.—Houston [1st
Dist.] 2018, no pet. h.) (citing RESTATEMENT OF TORTS § 757 cmt. (j) (1939) and
RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 41 (1995)).7
Although Kana maintained in the trial court that it had a fiduciary relationship
with JMP China as co-adventurers, a “confidential relationship” may exist outside a
formal fiduciary relationship for the purpose of a trade-secret claim. See Sw. Energy
Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 729 (Tex. 2016) (referring to fiduciary
relationships and “other types of confidential relationships”). Kana pleaded in the
trial court and contends on appeal that it entered into a confidential relationship by
disclosing trade secrets to JMP China during and after the December 2013
negotiations for the proposed joint venture.
In Hyde, the Supreme Court of Texas referred in dicta to a similar scenario.
In that case, the court emphasized that the plaintiff revealed trade-secret information
to the defendant not only as part of a license agreement, but during the course of
7
“The original Restatement’s section 757 has been omitted from the Restatement (Second)
of Torts and incorporated into the Restatement (Third) of Unfair Competition.” In re Bass, 113
S.W.3d 735, 739–40 (Tex. 2003) (orig. proceeding).
9
negotiating the agreement. Hyde, 314 S.W.2d at 768 (licensee gained knowledge of
the device “as a result of this agreement and the negotiations preceding its
execution”); id. at 769 (access to information was “granted as a result of contract
negotiations” as well as later disclosures); id. (defendant “secured information which
enabled him to manufacture the device through the licensing agreement and the
negotiations relating thereto”). Because the negotiations culminated in a licensing
agreement, the court was “not called upon to consider at what period in the course
of negotiations [the defendant’s commercial use of the plaintiff’s information] may
have ceased to be ethically permissible.” Id. But in dicta, the court identified
analogous examples of circumstances under which a duty of confidentiality may
exist:
For example, A has a trade secret which he wishes to sell with or
without his business. B is a prospective purchaser. In the course of
negotiations, A discloses the secret to B solely for the purpose of
enabling him to appraise its value. Or, A requests a loan from B, a
banker, for the purpose of aiding the manufacture of a product by A’s
secret process. In order to assure B about the soundness of the loan, A
discloses the secret to him in confidence. In both cases B is under a
duty not to disclose the secret or use it adversely to A.
Id. at 770 (quoting RESTATEMENT OF TORTS, § 757 (1939), cmt. j to clause (b)).
Citing these examples, the Thirteenth Court of Appeals determined that a
disclosure was made pursuant to a confidential relationship when a seller of pre-
marinated fajitas disclosed its marination process to a grocery chain as part of the
negotiations for the sale of the business or the alleged trade secret. See H.E. Butt
Grocery Co. v. Moody’s Quality Meats, Inc., 951 S.W.2d 33 (Tex. App.—Corpus
Christi 1997, pet. denied). In that case, the seller did not state that the process was
confidential, and rather than buying the business or the alleged trade secret, the
grocery chain began selling pre-marinated fajitas using the same process the seller
described. See id. at 36–37. Nevertheless, the court concluded that a confidential
10
relationship existed because the grocery chain knew that the seller was trying to sell
all or part of his business; that the seller’s business had profited from the sale of pre-
marinated fajitas; and that the seller thought the grocery chain could enjoy a business
advantage by selling pre-marinated fajitas using the same process. See id. at 37.
Because the seller disclosed its alleged trade secret in confidence and the grocery
chain knew or should have known that, the court held the evidence sufficient to
support the existence of a confidential disclosure—or as commonly stated, a
confidential relationship.
The evidence in this case shows similar indicia of a confidential relationship.
Kana produced evidence that the December 2013 meeting was part of its
negotiations for a joint venture with JMP China. Gary Taylor, Kana’s vice president
in charge of sales and marketing, testified without contradiction that he informed
JMP China at the meeting that its marketing PowerPoint was confidential, and that
he asked anyone who was not willing to keep the information confidential to leave
the meeting. No one did so. For the purpose of this appeal, we can assume, without
deciding, that in December 2013, Kana began to negotiate entering into a joint
venture with JMP China and that JMP China had reason to know, and Kana
reasonably inferred, that any trade secrets Kana disclosed to JMP China during the
course of the negotiations would remain confidential. See Hyde, 314 S.W.2d at 770;
Eagle Oil, 549 S.W.3d at 272.
But, even assuming the existence of a confidential relationship, we must
affirm unless the trial court’s ruling is contrary to the only reasonable view of the
evidence on the other elements of the misappropriation claim. See Wash. DC Party
Shuttle, 406 S.W.3d at 740. As discussed below, there is conflicting evidence about
whether certain information was shared with JMP China, whether information that
was shared was Kana’s trade secret, and whether JMP China has used or disclosed
11
a Kana trade secret as Kana alleges. Because there is conflicting evidence on these
elements of Kana’s claim for misappropriation of trade secrets, the trial court did not
abuse its discretion in denying Kana’s application for a temporary injunction.
B. Conflicting Evidence that JMP China Possessed, Used, or Disclosed Kana
Trade Secrets
A “trade secret” is “any formula, pattern, device or compilation of information
which is used in one’s business, and which gives him an opportunity to obtain an
advantage over competitors who do not know or use it.” Hyde, 314 S.W.2d at 776
(quoting RESTATEMENT OF TORTS § 757, cmt. b (1939)). Trade secrets may include
customer lists, customer contact information, pricing information, and market
strategies. Sharma v. Vinmar Int’l, Ltd., 231 S.W.3d 405, 424 (Tex. App.—Houston
[14th Dist.] 2007, no pet.). Kana alleges that it has shared, or that JMP China has
used or disclosed, each of these categories of information, as well as information
about a customer’s indebtedness and about Kana’s product numbers.
1. Customer Lists
Kana alleges that in December 2013 it identified fourteen of its customers to
JMP China. We cannot precisely identify these customers. The records filed under
seal include Kana’s marketing materials presented at the meeting, and these
materials include the names of nine of Kana’s then-current customers and five
additional companies that Kana intended to target. We cannot be sure that these are
the customers to which Kana refers because when witnesses at the hearing were
given a list of the fourteen customers to whom Kana seeks to enjoin JMP China’s
sales and asked which companies on the list they had contacted before December
2013, these witnesses identified companies that are not named in Kana’s marketing
materials.
12
In any event, some of Kana’s contentions are self-defeating. For example,
Kana contends that it introduced JMP China to “a company named Sunbelt, which
was at the time (unknown to JMP) their largest U.S. customer through [WDI].” But
WDI was Kana’s competitor in the distribution of API-6A products. If the identity
of a distributor’s customers were a trade secret as Kana contends, then how could
Kana know the identity of its competitor’s largest purchaser of JMP China’s
products? If the customers for JMP China’s products were a trade secret, then it
would be a trade secret belonging not to Kana but to WDI.
There is ample evidence, however, that the names of buyers of API-6A
products are not secret. Kana’s founder and president Gavin Liu admitted that
“[e]verybody can log on [the] Internet to find—find out the company names.” He
added that to do business with a company, one has to “develop a personal
relation[ship]” with a contact at the company. But, JMP China sells its products in
North America through Helios and JMP Tech, and there is evidence that employees
of these companies had contacted most of the companies at issue before Kana
disclosed them in 2013.
For example, Guangyuan “Robert” Xiong is the founder of Helios and the
president of JMP Tech. Xiong formerly was the United States director for a different
Chinese API-6A manufacturer, and in that capacity, he had established his own
contacts among North American companies that buy API-6A products. When
shown the list of Kana’s fourteen actual or potential customers and asked which of
the companies he’d contacted during his previous employment, Xiong named ten
companies. He also explained that no one had taught him how to identify customers,
and that he’d simply cold-called customers he identified from an internet search. He
stated that JMP China did not tell him which companies to solicit as customers; to
the contrary, he told JMP China which companies would be targeted.
13
Similarly, Mark Huston, JMP Tech’s regional sales manager, testified that he
has worked in the industry off and on since 1979. He testified that he’d previously
been in contact with at least seven companies on the list, including three of the
companies that were on the list of customers that Kana introduced to JMP China in
December 2013. Huston also listed a number of personal contacts at these
companies, including Kana’s only “personal contact” identified by name at the
hearing. In addition, Kana supported its application for a temporary injunction with
an affidavit from Kana sales representative David Davila, who attested that a former
employee of WDI is a sales representative for “JMP.” Kana, too, employs a former
WDI employee as its vice president in charge of sales and marketing. Because WDI
was JMP China’s exclusive distributor for at least ten years before JMP China began
selling its products through Helios and JMP Tech, a former employee of WDI would
be familiar with the market for JMP China’s products—whether employed by Kana,
JMP China, Helios, or JMP Tech.
On this record, the trial court reasonably could conclude that a list of past
consumers and potential future customers for JMP China’s products was not Kana’s
trade secret. See also Allan J. Richardson & Assocs., Inc. v. Andrews, 718 S.W.2d
833, 837 (Tex. App.—Houston [14th Dist.] 1986, no writ) (holding evidence
sufficient to support the trial court’s implied finding that applicant’s client list was
not a trade secret where witness testified that names of actual or potential clients are
readily available to the general public or by asking potential customers which
companies they have done business with).
2. Customer Contact Information and Pricing from Purchase Orders
and Price Quotations
Kana also asserts that after December 2013, it shared with JMP China certain
purchase orders from, or price quotations to, Kana’s customers, and that these
documents contained trade secrets such as the customer’s contact information and
14
the price at which Kana was selling API-6A products. But, Kana maintained at the
hearing that JMP China includes not only that company, but all of JMP China’s
affiliates and “any subsidiary in which it owns stock,” so arguments that Kana sent
purchase orders and price quotations to “JMP” do not indicate whether Kana sent
these materials to JMP China or to a different company. Indeed, Kana’s corporate
representative testified that the purchase orders were sent to JHK “[e]very time.”
The emails discussing these documents do not appear to include a JMP China email
address, and JMP China’s sales manager Liu Xiang “Andy” Jun denied receiving
purchase orders from Kana. Kana’s own purchase orders identify its vendor as JHK.
Given the state of the record, the trial court reasonably could find that Kana
failed to show that it shared this information with JMP China.
3. Marketing Strategies
Kana also alleges that JMP China has used or disclosed, or presumably will
use or disclose, the 42-page marketing strategy that Kana presented at the December
2013 meeting. Kana’s two-pronged marketing strategy called for JMP China to sell
its products (a) through a distributor in a “marketing channel,” a method that Kana
sometimes referred to as “just-in-time inventory” or U.S. “direct sales”; and
(b) directly to customers, a marketing channel that Kana referred to as “China
Direct.” Kana’s president admits that neither of these concepts are original, but that
the way Kana proposed to implement them was new.
Given Kana’s contention that its proposed implementation of these two
marketing strategies is a trade secret, we will not describe them in further detail;
however, we have reviewed the record, including the marketing materials filed under
seal, and we conclude that the trial court did not abuse its discretion in declining to
extend trade-secret protection to either of Kana’s marketing strategies pending a trial
on the merits.
15
4. Customer Indebtedness
Kana’s corporate representative testified about an exhibit that Kana’s counsel
represented to be an April 2017 email from Robert Xiong to Helios employee John
Holland. Although the email was admitted as an exhibit, it is not in the record before
us; however, the record contains testimony about the email’s contents. According
to Kana’s corporate representative, Xiong wrote, “I heard from Johnny that [Kana
Customer] still owes Kana [amount], that it has been a longtime debt.” “Johnny”
was said to be Johnny Yin, the current chairperson of JMP China.
This email is dated four years after the meeting at which Kana allegedly
shared confidential information. Although Kana contends the customer’s debt is
Kana’s trade secret, there is no evidence that Kana ever shared this information with
JMP China, and Kana does not argue that the customer was prohibited from
disclosing information about its own debt. Moreover, the 2017 email purportedly
states that Kana “still” owes the debt, which suggests that JMP China was relating
current information rather than information learned from Kana years earlier.
On this record, the trial court reasonably could find that Kana failed to show
that the email contains an unauthorized disclosure of a trade secret that Kana
revealed to JMP China as part of a confidential relationship.
5. Product Numbers
Kana’s Gavin Liu testified that JMP China must be disclosing Kana’s trade
secrets because Helios was using Kana product numbers that Helios could have
obtained only from JMP China. As evidence of this, Gavin relied on a comparison
of product price quotes by Helios containing some product numbers in the form “J-
K-##-#####,” and purchase orders from Kana to JHK having product numbers in
the form “K-##-#####,” with both Kana and Helios completing the product number
16
with the same numerals for a given product. According to Kana, this is evidence
that Helios is using Kana’s product numbers and simply adding “J-” to the
beginning.
Mark Huston of JMP Tech, however, testified that product numbers are not a
trade secret, but are like a product’s bar code, and generally are marked directly on
the product. Liu agreed that the manufacturer marks the product number on the
product, although he added that some products were marked with two product
numbers. He also admitted that Kana did not create these numbers but obtained
them from “JMP.” Liu further admitted having previously testified that Kana
actually bought its products from JHK. Moreover, Kana’s evidence includes a
September 2014 product delivery schedule that Kana admittedly obtained from JHK
and that uses the product numbers of the same format that Kana claims is its trade
secret. From this, the trial court reasonably could find that “Kana’s product
numbers” are actually the product numbers that manufacturer JHK marked on its
own products, and that the product numbers using a slightly different format in
Helios’s price quote are the product numbers that JMP China marks on its products.
For all of the foregoing reasons, we conclude that the trial court did not abuse
its discretion in impliedly finding that Kana failed to satisfy its burden to (a) prove
a cause of action for misappropriation of trade secrets, or (b) establish a probable
right to relief. We overrule Kana’s first two issues.
C. Probable, Imminent, Irreparable Injury
In its third issue, Kana argues that we can infer from JMP China’s possession
of Kana’s trade secrets that Kana will suffer irreparable injury if JMP China uses or
discloses them. In light of our disposition of Kana’s first two issues, we do not reach
its third issue.
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V. CONCLUSION
Given the conflicting evidence, we cannot conclude that the trial court could
have reached but one result. Finding no abuse of discretion, we affirm the trial
court’s ruling.
/s/ Tracy Christopher
Justice
Panel consists of Justices Boyce, Christopher, and Busby.
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