On May 2, 2013, Texas adopted the Texas Uniform Trade Secret Act (“TUTSA”). The TUTSA takes effect on September 1, 2013, and applies to the misappropriation of trade secrets occurring on or after that date. The law provides trade secret owners more certainty about what information is a trade secret and how to protect that information. Prior to the TUTSA, Texas trade secret law was based solely on an amorphous common law. While the TUTSA in large part codifies Texas’ common law, several notable changes should provide additional protection and certainty for trade secret owners.
Attorneys’ Fees
Perhaps the most important change from the common law is that a prevailing party may now recover attorneys’ fees in certain cases. Prior to the TUTSA, there was no basis for recovery of attorneys’ fees in Texas for the misappropriation of trade secrets unless it was based upon a separate cause of action such as breach of a confidentiality agreement or violation of the Texas Theft Liability Act. The TUTSA allows for the recovery of attorneys’ fees in certain cases, including bad faith claims and for willful and malicious misappropriation. The possibility of attorneys’ fees for the prevailing party may make it more practical for a trade secret owner to seek an injunction, often the most powerful and effective way for a trade secret owner to protect its information.
“Trade Secret” Defined
The TUTSA also provides a slightly different definition of trade secret. Prior to the TUTSA, Texas common law defined a trade secret as “any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it.” See, e.g., Computer Associates Int’l v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996). The TUTSA clarifies the common law definition of trade secrets, as well as expands the uniform act’s definition, by expressly including “financial data” and customer lists as trade secrets. Prior to the TUTSA, Texas courts did not necessarily exclude these types of information, but rather evaluated them on a case-by-case basis. Beyond the types of information that may be considered a trade secret, the TUTSA continues the common law requirement that a trade secret “derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons” and be the “subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
Reverse Engineering
The TUTSA also maintains the common law view that reverse engineering is “proper” so long as the product was “acquired lawfully or from a person having the legal right to convey it.”
Stronger Injunctive Relief Under the TUTSA.
Courts may enjoin any actual or threatened misappropriation, which was previously allowed under the common law. However, the TUTSA offers substantial additional protection by empowering courts in “appropriate circumstances” to compel “affirmative acts to protect a trade secret,” as opposed to simply preserving the status quo under common law. Moreover, under the common law, an injunction terminated when the trade secret ceased to exist, but the TUTSA provides that an injunction may be “continued for an additional reasonable period of time to eliminate a commercial advantage that otherwise would be derived from the misappropriation.”
Inevitable Disclosure Revisited?
Finally, although not expressly addressed in the TUTSA, it will be interesting to see if Texas courts will revisit the “inevitable disclosure” doctrine, which was rejected under the common law.
This article was prepared by Jayme Partridge (jpartridge@fulbright.com or 713 651 5438), Brett McKean (bmckean@fulbright.com or 713 651 5417) and Paul Dyson (pdyson@fulbright.com or 713 651 5391) from Fulbright’s Intellectual Property Practice.
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