New Theories in Trade Secret Misappropriation Cases?

November 13, 2006 / By Robert Wood

The elements for misappropriation of trade secrets under Texas law are well known. A plaintiff must establish that: (a) a trade secret existed; (b) the trade secret was acquired through a breach of a confidential relationship or was discovered by improper means; (c) the defendant used the trade secret without the plaintiff’s authorization; and (d) the plaintiff suffered damages as a result.

Now, suppose a homeless man discovers in a public trash can Microsoft’s plans for its next piece of software, and then, having no use for the plans, hands them to the first man on the street he sees (who happens to work for Cisco). Let’s further assume that the homeless man is a genius, and that he immediately understood the significance of the Microsoft plans he found.

Based on these facts, has the homeless man committed the tort of misappropriation of trade secrets? Probably not, because the second prong above can’t be met.

In a recent case decided by the Austin Court of Appeals, the court questioned whether Texas courts have adopted the Restatement (Third) of Unfair Competition, which makes the second and third prongs above independent torts. If it has, the man in the hypothetical above could be guilty of tortious conduct even though the way he acquired Microsoft’s trade secrets was innocent. The court noted that the Texas Supreme Court previously approved of other sections of the Restatement (Third) of Unfair Competition. See In re Bass, 113 S.W.3d 735, 739-42 (Tex. 2003). However, the supreme court did not adopt this part of the Restatement in its entirety.

It will be interesting to see whether other Texas courts agree with the Restatement that the second and third prongs above should be independent causes of action. In appropriate cases, plaintiffs in trade secret cases should encourage them to do so.

Parker Barber & Beauty Supply, Inc. v. The Wella Corp., No. 03-0400623-CV, 2006 WL 2918571 (Tex. App.—Austin, no pet. h.).

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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