Texas Governor recently signed House Bill 1995, which amends Texas Uniform Trade Secrets Act (“TUTSA”) and aligns is with the Defend Trade Secrets Act (“DTSA”).
HB 1995 will go into effect on September 1, 2017 and will eliminate the difference between the TUTSA’s and DTSA’s definitions of “trade secrets,” removing an incentive to forum shop. Additionally, the statute will emphasize that the owner must take reasonable “measures,” and not just “efforts,” to protect its trade secrets. HB 1995 also introduces the following new definitions:
• “Owner” means, with respect to a trade secret, the person or entity in whom or in which rightful, legal, or equitable title to, or the right to enforce rights in, the trade secret is reposed.
• “Willful and malicious misappropriation,” means intentional misappropriation resulting from the conscious disregard of the rights of the owner of the trade secret.
• “Clear and convincing evidence” required to establish willful and malicious misappropriation is defined as the “measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.”
Additionally, come September, Texas courts will have to apply a balancing test first articulated in In re M-I, L.L.C., 505 S.W.3d 569 (Tex. 2016) when determining whether a party involved in a trade secrets lawsuit can be denied access to documents or testimony about its competitor’s trade secrets. TUTSA codified this test as follows:
a presumption exists that a party is allowed to participate and assist counsel in the presentation of the party’s case. At any stage of the action, the court may exclude a party and the party’s representative or limit a party’s access to the alleged trade secret of another party if other countervailing interests overcome the presumption. In making this determination, the court must conduct a balancing test that considers:
• the value of an owner’s alleged trade secret;
• the degree of competitive harm an owner would suffer from the dissemination of the owner’s alleged trade secret to the other party;
• whether the owner is alleging that the other party is already in possession of the alleged trade secret;
• whether a party’s representative acts as a competitive decision maker;
• the degree to which a party’s defense would be impaired by limiting that party’s access to the alleged trade secret;
• whether a party or a party’s representative possesses specialized expertise that would not be available to a party’s outside expert; and
• the stage of the action.
Bottom Line: In light of these new amendments, companies involved in trade secrets disputes in Texas will have to strategize early on – even pre-litigation – not only about proving their claims and defenses but also about protecting their trade secrets during the lawsuit and gathering evidence necessary to obtain attorney’s fees related to the trade secrets misappropriation claim.
Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. If you are a party to a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.