On Sept. 1, Texas will join 46 other states currently governed by some form of the Uniform Trade Secrets Act. Historically, a trade secret consisted of a formula, device or compilation of information which gives a business a competitive advantage over others who do not know or use it. Perhaps the most famous example is Coca-Cola’s secret recipe for its soft drink. Coca-Cola is legendary for its efforts to keep the recipe a closely guarded secret and out of the hands of its competitors.
But trade secrets are not limited to formulas or recipes or even to large corporations like Coca-Cola. A number of businesses both large and small rely on trade secret protection every day to protect their formulas, devices, financial data, customer lists, programs and the like. For many businesses, trade secret protection provides their only means of protecting their proprietary information. Before this year, however, Texas had no central law governing trade secrets. Instead, Texas law was cobbled together from Texas case law and many other sources. Much of this law was outdated and simply not designed for the technological developments of the modern area. As a result, Texas businesses were left to guess what proprietary information Texas would and would not protect. During the 2013 legislative session, however, the Legislature enacted the Texas Uniform Trade Secrets Act (TUTSA) to provide a simple legislative framework for resolving disputes over misappropriation of trade secrets.
Expanding the definition of trade secret TUTSA includes a new definition of “trade secret” that broadens the term to include new classes of trade secrets. Trade secret is defined 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. Unlike under previous law, Texas businesses can now protect the efforts of their research and development without having to actually put the trade secret to use.
Clarifying the definition of misappropriation TUTSA specifically defines prohibited conduct as: (1) acquiring a trade secret by improper means or (2) disclosing a trade secret without consent. TUTSA also clarifies what constitutes “improper” and “proper” means for acquiring a trade secret.
Additional remedies TUTSA adds additional remedies and protections for parties who have had their trade secrets misappropriated. For instance, TUTSA empowers a court to stop someone from using or disclosing a trade secret. In addition, TUTSA has new streamlined procedures for protecting the confidentiality of a trade secret during court proceedings. TUTSA also has new damages provisions. A successful litigant may recover actual damages and, in cases of willful and malicious misappropriation, exemplary damages not exceeding twice the amount of actual damages. Plus, for the first time, the court may award attorneys’ fees to the prevailing party if the plaintiff makes a bad faith claim for misappropriation or if the defendant commits willful and malicious misappropriation. Uniformity of the law With the passage of TUTSA, Texas joins the vast majority of states that have adopted some version of the Uniform Trade Secrets Act. This uniformity provides Texas businesses (and those businesses looking to move to Texas) with greater certainty in protecting their companies’ trade secrets. Given these and other changes, TUTSA is an enormous benefit to those businesses that rely on trade secret protection for their innovations, financial information and customer lists. It provides consistent and predictable laws for trade secret protection that are in step with the laws of virtually every other jurisdiction. And it should decrease the cost for businesses to litigate trade secret cases. In short, enacting TUTSA is a great benefit to Texas businesses and those businesses looking to expand to Texas.
Joseph F. Cleveland Jr. and J. Heath Coffman practice in the areas of intellectual property and commercial litigation at Brackett & Ellis PC in Fort Worth. They routinely counsel clients on issues related to trade secrets and represent clients in trade secret cases in both state and federal court.