Earlier this month, Texas Governor Rick Perry signed the Texas Uniform Trade Secrets Act (Texas UTSA) into law. The new law becomes effective September 1, 2013 and governs any misappropriation of a trade secret that occurs on or after that date. The purpose of the act is to provide uniformity with other states in the protection of trade secrets, with Texas joining the overwhelming majority of states (excepting New York, Massachusetts, and North Carolina) in adopting a version of the model Uniform Trade Secrets Act (model UTSA). While Texas courts often cited the model UTSA in trade secret cases, Texas had not expressly adopted it. As a result, while in the past it was difficult (and often turned on the facts of a particular case) to predict what would be classified as “trade secrets,” it is believed that now businesses will have more guidance and broader protection of information under Texas law. While the new Texas UTSA will not end the fact-specific nature of a trade secret inquiry, it should serve to provide greater predictability for companies or individuals that are considering asserting claims in Texas courts for misappropriation of trade secrets.

The Nuts and Bolts of the Texas UTSA

The Texas UTSA prohibits the unauthorized acquisition, disclosure, and use of a trade secret. It also defines trade secrets to include the following: a process, financial data, or list of actual or potential customers, a formula, pattern, compilation, program, devise, method, technique, process, financial data, or a list of actual or potential customers or suppliers, that: (1) derives independent economic value from its disclosure or use and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Although largely similar to the model UTSA, the Texas UTSA contains some notable differences. For instance, it includes a broader definition of “trade secret” in that it provides that financial data and lists of actual or potential customers or suppliers can constitute trade secrets. Because this kind of information is often at issue in noncompetition litigation involving solicitation of clients by competitors, the new law should give employers increased ability to protect trade secrets.

The Texas UTSA does contain some express limitations on the definition of “trade secret.” It provides that information acquired through reverse engineering generally does not constitute a trade secret and that businesses may lawfully engage in reverse engineering, but to fall under the definition of “reverse engineering,” the product or devise must have been acquired lawfully.

Also notable is that the Texas UTSA expressly provides for injunctive relief as an available remedy and provides for an injunction to enjoin “actual or threatened misappropriation.” The new law provides that the injunction should end when the trade secret no longer exists but that courts may extend the injunction reasonably so that a person does not get a commercial advantage through misappropriation.

Claimants under the new law may also seek monetary damages for the actual loss caused by the misappropriation, as well as for unjust enrichment. In addition, a court may impose a reasonable royalty as a condition for future use of a misappropriated trade secret. In the case where it is shown that the misappropriation was willful and malicious, exemplary damages and attorneys’ fees are recoverable. Attorneys’ fees may also be awarded upon a showing that the misappropriation was in bad faith or if a motion to terminate an injunction is made or resisted in bad faith.

Take Aways for Businesses

The Texas UTSA makes it possible for employers to prevent unfair competition through legal theories as opposed to noncompetition agreements, which can be difficult to enforce. Businesses should be careful to separate and mark as “confidential” the information they seek to protect even though the new law provides for more definitive guidance as to what is a trade secret encompasses. The ultimate inquiry as to whether something is a trade secret will likely still be fact intensive and may still turn on the measures taken by an employer to protect their confidential information.

For more information, please visit our trade secrets litigation service page.

Source: http://www.capitol.state.tx.us/tlodocs/83R/billtext/pdf/SB00953E.pdf

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