Texas Adopts the Texas Uniform Trade Secrets Act

The Texas Uniform Trade Secrets Act (TUTSA) took effect on September 1, 2013. Texas is now the 46th state to adopt this act, which adds a new chapter (referred to as 134A) to the Civil Practice & Remedies Code. For the most part, TUTSA tracks the original Uniform Act, but now includes several clauses that clarify Texas common law by expanding injunctive relief, defining the term trade secret, authorizing recovery of attorney's fees, and modifying rules pertaining to the sealing of records. Notably, provisions like the statute of limitations and the general form of recoverable damages remain unchanged. The following is a summary of the key changes to Texas trade secret law as a result of the TUTSA. 1. Applicability. TUTSA focuses on the date of the alleged misappropriation by holding that all trade secret misappropriation claims arising on or after September 1, 2013 will be brought under TUTSA. For claims that arose before September 1, 2013, prior common law and the Texas Theft Liability Act still govern. For claims that began before September 1, 2013 and continue after, prior law governs. TUTSA does not displace contract claims, which may still be brought no matter the date they actually arise.

2. Recovery of Attorney Fees. Unlike the common law, Section 134A.005 specifically allows for the recovery of attorney fees by a prevailing party if a claim or misappropriation is made is made in bad faith; a motion to terminate an injunction is made or resisted in bad faith; or willful and malicious misappropriation exists. Previously, the common law did not provide for the recovery of attorney's fees. The Texas Theft Liability Act (TTLA) permitted the "prevailing party" to recover, but did not require the same showing that TUTSA does. This rule change may be viewed as favoring defendants, who can now recover attorneys' fees if the claim is brought in bad faith. Plaintiffs face a higher hurdle than common law or TTLA previously required. Moreover, if there is a contract, plaintiffs may choose to assert a breach of contract claim to avoid subsection (1) while still seeking to recover attorney's fees under Civil Practices and Remedies Code Section 38.001.

3. Damages. Under Section 134A.004, damages can still be measured by the plaintiff's actual loss and the amount of unjust enrichment. A reasonable royalty may be awarded, especially as a part of injunctive relief. However, exemplary damages are recognized and capped. Under Section 134A.004, if willful and malicious misappropriation is proven by clear and convincing evidence, the fact finder may award exemplary damages in an amount not exceeding twice actual damages.

4. Expanded Injunctive Relief. Section134A.003 provides that both actual or threatened misappropriation may be enjoined. While Texas previously recognized "probable" or "inevitable" disclosures as the basis for an injunction, some courts were reluctant to issue injunctions based on this theory. This new explicit recognition could be useful in the context of a former employee who is hired by a competitor to fill a position substantially similar to the position he or she previously held or where trade secret information was disclosed to by not yet used by a competitor or other third party.

5. New Definition of Improper Means. The "improper means" element existed under Texas common law, but Sec.134A.002 now offers more explicit definitions to help courts clarify improper behavior. The list of conduct constituting "improper means" includes theft, bribery, misrepresentation, and breach, or inducement of a breach of a duty to maintain secrecy. The definition of "proper means" of obtaining information includes "discovery by independent development, reverse engineering unless prohibited, or any other means that is not improper." The emphasized language suggests that reverse engineering is no longer an absolute defense to a trade secret misappropriation claim.

6. A More Subjective Definition of "Trade Secret"? The common law defined a trade secret as information that (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Under Texas common law, "secrecy" means "except by use by improper means, there would be difficulty in acquiring the information." The TTSA defines "secrecy" to mean information that "is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." This definition appears to be more subjective than Texas common law. The inclusion of "reasonable under the circumstances" suggests that there will be litigation surrounding non absolutely secret information and whether the actions taken to protect it were reasonable.

7. Protective Orders for Trade Secret Cases. Under common law, Civil Rule 76a requires public notice, hearing, and specific showing before the sealing of court records. This rule and differing judicial interpretations made protective orders difficult to obtain. Moreover, if a litigant leaves a record unsealed, that party could be deemed to have waived the disclosed trade secrets. TUTSA creates a presumption in favor of granting protective orders to preserve the secrecy of trade secrets. "Protective orders may include provisions limiting access to confidential information to only the attorneys and their experts, holding in camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval." This provision will likely provide trade secret attorneys an easier mechanism to obtain protective orders.

8. TUTSA Appears to Require Knowing Misappropriation. Under Section 134A.002(3), "misappropriation" includes: (1) acquiring a trade secret by improper means or (2) disclosing a trade secret without consent. This language suggests that knowledge or reason to know is required to trigger liability.

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