What is a Trade Secret Under New Texas Law?
Every business has some amount of confidential and proprietary information that it does not want its competitors knowing. When someone uses a business’ confidential information without consent, or threatens to do so, filing a claim for misappropriation of trade secrets is one way for a business to protect its information.
However, in Texas, for a misappropriation of trade secrets claim to succeed, the alleged confidential information must fall under the statutory definition of trade secret. Which information is subject to this classification, however, is not altogether clear.
The Texas Uniform Trade Secrets Act
In 2013, the Texas Uniform Trade Secrets Act (“TUTSA”) – which has now been adopted by virtually every state in the U.S. – was signed into law.
Largely similar to Texas’s common law trade secret protections, the Texas Uniform Trade Secrets Act provides greater protection to employers’ trade secrets by expanding the definition of “trade secret”.
Texas now defines a 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:
(A) 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
(B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The Texas Uniform Trade Secrets Act can be an invaluable tool for employers to protect their proprietary information when lacking an enforceable non-compete. Or, even if an employer has its employees sign noncompete agreements, asserting a claim under The Texas Uniform Trade Secrets Act can help an employer protect its interests.
How does the Texas Uniform Trade Secrets Act impact trade secret litigation outcomes?
It’s still unclear if the Uniform Trade Secrets Act will prove itself to be more or less restrictive than the common law which it supplanted.
However, court cases in other states which have adopted the Uniform Trade Secrets Act indicate that the common law will still play a significant role in defining what a trade secret is.
For example, in Illinois, where the uniform trade secret act was adopted years before Texas did so, case law demonstrates the use of the same six-factor test that has been traditionally used in Texas to determine whether information constitutes a trade secret. These six factors are:
- The extent to which the information is known outside of the business seeking to protect it;
- The extent to which it is known to employees and others involved in the business in question;
- The extent of the measures taken by the business to guard the secrecy of the information;
- The value of the information to the business and its competitors;
- The money or effort expended by the business in developing the information; and
- The ease or difficulty with which others might properly acquire or duplicate the information.
Guided by these factors, a business in Texas which has information (such as confidential client information, pricing information, business strategies, etc.) which it believes to be secret, and which gives it a competitive advantage, should ask itself whether, if it has to sue to protect the information, it is likely to prevail.
The above factors show the things that a business should do to ensure the “protectability” of its information. Also, in addition to assessing the factors listed above, a business which has important confidential information should consider requiring its employees and contractors to sign nondisclosure and noncompete agreements. These can be even more effective than statutory claims in protecting a business trade secrets.
At Lindquist Wood Edwards, LLP, our attorneys have years of experience protecting business’confidential information and trade secrets. If you are concerned that your trade secrets are being used without your authorization, or if you would like to discuss how to better protect your trade secrets, contact us today.
Learn more. Browse articles on Texas trade secret law, written by Attorney Robert Wood: