A Cautionary Tale About Sharing Trade Secrets With Consultants — Fifth Circuit Affirms $44 Million Verdict

Last week, the Fifth Circuit affirmed a Texas jury verdict awarding the plaintiff, Wellogix, Inc, $26.2 million in compensatory damages and $18.2 million in punitive damages on its claim against Accenture, LLP for misappropriationĀ of trade secrets.

This case was decided under Texas law. Because Texas just adopted the Uniform Trade Secrets Act, I’m not going to focus on the substantive law applied. Instead, I want to take a look at how this case arose, and what companies can learn about protecting their trade secrets when dealing with consultants and business partners.

Wellogix developed software that allowed oil companies to estimate oil well construction costs called “complex services.” Between 2000 and 2005, it was the only company offering complex-services software.

This software did not perform core accounting functions. Instead, Wellogix contracted with SAP to integrate Wellogix’s specialized software with SAP’s general accounting software. In connection with this agreement, Wellogix gave its source code to SAP.

Wellogix also entered into marketing agreements with Accenture, which was responsible for promoting the software. As part of this arrangement, Wellogix gave its source code to Accenture, subject to a confidentiality agreement.

Wellogix and Accenture worked together to provide BP with a pilot project. After BP discontinued the project, it sought to implement global software, including complex services. SAP and Wellogix pitched their integrated software to BP.

Soon after, Accenture and SAP worked together to develop the complex services component of BP’s global software — without telling Wellogix. As part of this process, they accessed and used Wellogix’s critical source code. Wellogix sued Accenture, BP (found in arbitration to have breached a confidentiality agreement), and SAP (dismissed for lack of venue).

Wellogix, like many companies, needed to partner with outside companies to make its product viable. Without SAP’s accounting software, or Accenture’s marketing capabilities, it may not have been able to bring its software to market. But this case shows the risk of divulging critical proprietary information to outside consultants.

To avoid ending up in the same situation as Wellogix, companies need to choose their consultants and business partners wisely. Evaluate whether the proposed business partner could use the proprietary information to its advantage. The more valuable this information, the more tempting it is for the business partner to put it to its own use. Ideally, a company should only share its proprietary information with consultants/business partners who have no use for this information.

When that is not possible, very strong confidentiality agreements need to be in place. Consider including significant liquidated damages provisions. And also consider including contract provisions that only permit listed employees to have access to the data. If possible, negotiate the right to audit or search the consultant’s IT systems to see where the proprietary information is located. Finally, as always, the company needs to make sure it is reasonably protecting its proprietary information, so that it can get the benefit of trade-secrets laws.

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