The Texas Uniform Trade Secrets Act

The most important event that took place in 2013 for intellectual property law in Texas was the Legislature’s April enactment of the Texas Uniform Trade Secrets Act (TUTSA). The act, which went into effect on Sept. 1, brings Texas in line with the 46 other states that have adopted some version of the Uniform Trade Secrets Act. Prior to the TUTSA’s enactment Texas trade secret law was mostly derived from the 1958 Texas Supreme Court decision in Hyde v. Huffines as well as from the Restatement (Third) of Unfair Competition.

The four key substantive changes resulting from TUTSA’s enactment are as follows.

  1. Definition of trade secret: The TUTSA’s new definition of “trade secret” likely will have the most effect on Texas trade secret litigation than any other provision of the act. TUTSA defines “trade secret” as information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers, 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 there was some uncertainty as to whether “continuous use” was necessary to maintain trade secret status. Under the TUTSA’s definition of “trade secret,” it appears that continuous use is not required. Further, the old definition originally came from the 1939 Restatement of Torts and until now remained substantially unchanged but for a litany of inconsistent case law interpreting the definition based on the six nonexclusive factors in the Restatement.

  1. Definition of misappropriation: Under the TUTSA, misappropriation occurs when a trade secret is acquired by improper means or when it is disclosed without consent. Further, the TUTSA makes clear that only those who know or have reason to know that a trade secret was acquired improperly are subject to liability. Previously, courts were reticent to so limit liability and subjected to liability those who had acquired a trade secret by accident or mistake.
  2. Damages and injunctive relief: Under the TUTSA, plaintiffs are entitled to recover the same types of damages (actual lost profits, infringer’s profits or a reasonable royalty) as they were under the Texas common law. In addition, the TUTSA clarifies that injunctive relief is available in addition to, rather than in lieu of, monetary damages. The new TUTSA allows for exemplary damages for malicious misappropriation, but unlike the common law, the new Act caps exemplary damages at two times the amount of actual damages.
  3. Attorney fees: Previously there was no provision for attorney fees in a trade secret case under common law. Parties had to seek attorney fees under the Texas Theft Liability Act. The new TUTSA now specifically requires an award of attorney fees where the plaintiff’s claim of misappropriation was in bad faith, a motion to terminate and injunction was resisted in bad faith, or willful or malicious appropriate exists.

The TUTSA is a great step forward especially in a state growing and prospering in the technology and (of course) energy sectors. It modernizes the state’s laws pertaining to misappropriation of trade secrets and provides clearer guidelines for litigating trade secrets cases. Hopefully, the TUTSA will aid courts, lawyers and litigants in navigating trade secret matters with more certainty.

This article was first published in the Texas Lawyer on December 16, 2013.

Katie Sunstrom gives legal assistance to her clients in intellectual property and business litigation matters as an associate with Lorance & Thompson in Houston. She posts about intellectual property matters under the Twitter handle @beingkatie.

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