The Texas Uniform Trade Secrets Act (TUTSA) became effective on September 1, 2013, replacing the hodgepodge of common law, restatements and the Texas Theft Liability Act with a well-established statutory framework that 46 other states are already employing. TUTSA is a welcome change in our state because it modernizes and clarifies a lot of outdated rules, some of which have not been updated since 1930s. TUTSA does not apply to any misappropriation, including continuing misappropriation, occurring prior to September 1, 2013.
This post explains the major changes brought by TUTSA and their effect on trade secret litigation n Texas.
1. TUTSA clarifies and expands the definition of “trade secret.“
Under TUTSA § 134A.002(6), “trade secret” means information that derives independent economic value from not being generally known or readily ascertainable and for which reasonable efforts are made to maintain its secrecy. Such “information” includes “a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers.”
2. TUTSA requires “knowing” misappropriation.
Under TUTSA § 134A.002(3), “misappropriation” includes: (1) acquiring a trade secret by improper means or (2) disclosing a trade secret without consent. Unlike the old common law, this new statutory definition makes clear that liability applies only to those who know or have reason to know that a trade secret was acquired by improper means, rather than accident or mistake. Thus, for example, if an employee misappropriates a former employer’s trade secrets and uses them in his new job, the new employer is not liable for misappropriation of trade secrets unless the employer had actual or constructive knowledge that the material was improperly obtained. Needless to say, this provision is a great improvement for employers.
3. Under TUTSA, “improper means” might include reverse engineering.
Under TUTSA § 134A.002(2), “improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, to limit use of, or to prohibit discovery of a trade secret, or espionage through electronic or other means. When a license agreement prohibits reverse engineering, such activity would constitute a breach of the duty to limit the use of trade secret information and would constitute “improper means.” In absence of any prohibition in a license agreement, however, reverse engineering would constitute “proper means” as defined in § 134A.002(4).
4. TUTSA broadens injunctive relief.
5. TUTSA creates a cap for exemplary damages.
Under TUTSA § 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 any award” of actual damages. Such cap did not exist under Texas common law.
6. TUTSA allows recovery of attorneys fees.
Prior to TUTSA, the only way a party could recover attorneys’ fees for misappropriation of trade secrets was by filing a claim under the Texas Theft Liability Act, which allows for the recovery of attorneys’ fees to the prevailing party. Now, under TUTSA § 134A.005, a court may award reasonable attorney’s fees to the prevailing party if: (1) a claim of misappropriation is made in bad faith; (2) a motion to terminate an injunction is made or resisted in bad faith; or (3) willful and malicious misappropriation exists.
7. TUTSA enhances protection of trade secrets in court.
TUTSA provides “a presumption in favor of granting protective orders to preserve the secrecy of trade secrets” and under TUTSA § 134A.006, “protective orders may include provision 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.”