Texas Becomes 47th State to Enact the Uniform Trade Secrets Act

Following the passage of the Texas Uniform Trade Secrets Act, which will take effect on September 1, 2013, businesses in Texas will now have a clearer definition of what can be classified as a “trade secret.” The Federal Act of the same name (Uniform Trade Secrets Act, 1979) has often been cited in trade secret cases, but Texas had not adopted the law until May of 2013 during its 83rd Legislative Session.

The act is very similar to the federal act, outside of a few notable differences. The definition of “trade secret” has been broadened to include financial data and current and potential client and supplier lists. Such information is commonly disputed in litigation dealing with noncompetition agreements, meaning the new law should provide companies with more ability to protect trade secrets.

The act also contains a few limitations on what is considered a “trade secret.” Specifically, information gathered through reverse engineering is not considered to be a trade secret, allowing businesses to legally practice reverse engineering. In order to constitute as “reverse engineering,” however, the item in question cannot have been acquired unlawfully.

The Act also provides for injunctive relief as a possible legal solution for both threatened and committed misappropriation. It recommends that an injunction should end when the trade secret in question no longer exists but can be lengthened to prevent the person committing the misappropriation from gaining a competitive advantage as a result of said misappropriation.

The new law also allows businesses to pursue monetary damages for both unjust enrichment and actual loss. A court also has the ability to apply a royalty for further use of a trade secret that has been misappropriated. Punitive damages and attorneys’ fees can be recovered in cases in which the misappropriation of a trade secret is proven willful and malicious. Additionally, if the misappropriation was shown to be in bad faith or a motion to remove an induction is made or resisted in bad faith, attorney’s fees can also be rewarded.

The new law protects trade secrets through legal theory in the absence of noncompetition agreements, which is very valuable to employers, but employers still need to be cautious in marking which secrets they aim to protect as confidential information.