Dallas Bar Association

The Uniform Trade Secrets Act Comes to Texas

by Kelsey Weir Johnson

The recently enacted Texas Uniform Trade Secrets Act (TUTSA) governs any misappropriation of a trade secret that occurs on or after its effective date, September 1, 2013. Texas has now joined the overwhelming majority of states in adopting a version of the model Uniform Trade Secrets Act. While TUTSA primarily codifies current Texas common law, it also brings about a few major changes and clarifications that will strengthen trade secret protections and provide more certainty to trade secret misappropriation claims.

 

Expanded Definition of “Trade Secret”

TUTSA prohibits the unauthorized acquisition, disclosure and use of a trade secret. TUTSA defines a “trade secret” as information that derives independent economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Information falling under the trade secret umbrella includes “a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers.”

While TUTSA is largely similar to the model act, it modifies the model act’s definition of a trade secret by adding “financial data” and a “list of actual or potential customers or supplier” to types of trade secret information. Although financial data and customer lists have typically been considered trade secrets under Texas common law, the specific inclusion of those categories of information in TUTSA clarifies and further strengthens the protection of this information.  Moreover, the inclusion eliminates the need for courts to perform a case-by-case examination to determine whether the information is indeed protectable.

Also, TUTSA’s definition of trade secret conspicuously omits “continuous use” language, which suggests that there may no longer be such a requirement for a trade secret to be protectable. Under current Texas law, there is some uncertainty about whether information must be in continuous use in the operation of a business to gain trade secret protection.

TUTSA also provides express limitations on what can be considered trade secret misappropriation. For example, TUTSA specifically excludes certain acts from being considered trade secret misappropriation, including discovery by independent development and reverse engineering.

 

Broadened Remedy of Injunctive Relief

Texas courts have been reluctant to expressly recognize the idea of “threatened misappropriation,” but TUTSA specifically broadens the availability of injunctive relief for actual and threatened misappropriation. This broadening of possible injunctive relief should be very useful for companies seeking to enjoin activities of an ex-employee before any trade secret information is actually disclosed and the damage is done.

TUTSA also allows the continuation of an injunction to eliminate any commercial advantage derived from misappropriation, rather than the termination of the injunction once the protected information is no longer secret. Moreover, TUTSA provides courts with the power to compel “affirmative acts to protect a trade secret” under certain circumstances.

 

Attorneys’ Fees a New Form of Relief

In saving perhaps the best change for last, TUTSA now makes the ability to recover attorneys’ fees a new form of relief. Texas courts will now have the discretion to award the prevailing party its reasonable attorneys’ fees where willful and malicious misappropriation is demonstrated. Additionally, attorneys’ fees may be awarded for any misappropriation claims brought in bad faith or where a motion to terminate an injunction was made or resisted in bad faith. Previously, any claim for attorneys’ fees required a separate cause of action. Thus, TUTSA’s damages provisions have the potential to benefit plaintiffs and defendants in trade secret misappropriation disputes, by penalizing frivolous claims but also permitting increased awards in cases of truly malicious and willful conduct.

 

Other Notable TUTSA Provisions

With respect to monetary damages, TUTSA allows for the actual loss caused by the misappropriation, as well as any unjust enrichment not included in the actual loss calculation. Alternatively, damages may be calculated by a reasonable royalty for the unauthorized use or disclosure of a trade secret. TUTSA also makes exemplary damages available for willful and malicious misappropriation proven by clear and convincing evidence. Unlike common law, an exemplary damages award is limited under TUTSA to no more than twice the amount of actual damages.

Finally, TUTSA also creates a presumption in favor of granting protective orders to preserve the secrecy of trade secrets during litigation. Under these provisions, courts can seal documents and limit disclosure of information to only the attorneys and their experts and can order parties not to disclose alleged trade secrets.

 

Kelsey Weir Johnson is a Senior Associate at Klemchuk Kubasta LLP and can be reached at kelsey.johnson@kk-llp.com.

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