How Specifically Must a Trade Secret Be Identified Under Texas Law?

February 8, 2017 / By Robert Wood

specificity-trade-secrets-texas In Texas, a business and/or employer can bring a claim for misappropriation of trade secrets if a competitor or employee acquires a business’s trade secrets improperly or uses them without permission.  Tantamount to establishing a misappropriation of trade secrets claim is establishing that a trade secret, in fact, existed.

Under Texas law, a “trade secret” is defined as follows:

[I]nformation, 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.

To determine if a trade secret exists, Texas courts consider:

(1) the extent to which the information is known outside of his business;

(2) the extent to which it is known by employees and others involved in his business;

(3) the extent of the measures taken by him to guard the secrecy of the information;

(4) the value of the information to him and to his competitors;

(5) the amount of effort or money expended by him in developing the information;

(6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

The type of information generally considered to be “trade secrets” are customer lists, pricing information, client information, customer preferences, buyer contacts, blueprints, market strategies, and drawings.

A recent decision of a federal district court in Texas addressed the specificity required in identifying a trade secret in a court case.  In the case, Defendants brought a counterclaim for misappropriation of trade secrets.  Plaintiffs filed a motion for summary judgment on Defendants’ misappropriation of trade secrets claim.  In their motion, Plaintiffs argued that Defendants did not specify the exact trade secrets misappropriated and that Defendants’ identification was too generic to support a trade secrets claim.

In Defendants’ response to Plaintiffs’ motion, Defendants identified a list of documents that contained these alleged trade secrets: a “written binder,” “[t]echnical information,” “excel document,” “customer contract,” etc.  Defendants further contended that “these documents contain trade secrets related to: customer information, including reports, historical performances, forecasts, pricing, contract terms and payment terms; financial data, including income, expense, profits, losses and forecasts; operational details, including installations and software; and marketing materials.”

Under Texas law, a trade secret must be sufficiently identified in order to sustain a trade secrets claim.  However, there is not a great deal of case law on what level of specificity is necessary.  The federal district court has provided some guidance as to what is required.

The court held that it was enough that “Defendants identif[ied] specific groupings of information that contain trade secrets, identif[ied] the types of trade secrets contained in the groupings, and explain[ed] how the alleged trade secrets were maintained and treated as trade secrets.”  The court limited this holding, however, by stating that the identification of each and every document is not needed in cases in which the entirety of the business’s customer files and business records are allegedly taken.

While this decision provides some needed guidance, it is still unclear how far this holding will reach.  We will continue to monitor developments in this area of the law.

If your trade secrets are in danger or are being used without your permission, contact us today.

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About the Author

Robert Wood has been a Texas trial lawyer since 1993. During that time, he has represented small, mid-sized, and Fortune 100 companies in business and employment litigation matters all over Texas and the United States. He has also advised and represented hundreds of individuals in employment litigation matters. Read more about Robert Wood