What Qualifies as a Trade Secret in Texas?
Aug. 29, 2022
When we hear the term ‘trade secret,” visions of a vault in Coca-Cola headquarters in Atlanta, Georgia, might come to mind. The formula for Coca-Cola is said to be locked away with access limited to only two people.
Of course, Coca-Cola has no monopoly on trade secrets. Companies across the nation rely on trade secrets to give them a competitive edge and propel their sales and profits. And the stakes can be high. In March 2021, a Texas jury awarded $152 million to a software company whose trade secret had been misappropriated.
A trade secret can take many forms, and it is protected by both federal and Texas statutes. Under both laws, just declaring something a trade secret does not bestow legal protection. There must be “reasonable efforts” to safeguard the trade secret from falling into the hands of others, who can use it to their advantage without being licensed or obtaining it legally.
If your business in or around Stafford, Texas, suspects someone of misappropriating a trade secret of yours, you must contact The Parzivand Law Firm, PLLC, immediately. We can assess your situation and advise you of the best legal options going forward to preserve and protect what is rightfully yours. Our business and commercial litigation attorney also proudly serves clients in Sugar Land and Fort Bend County, Texas.
As mentioned, the federal government and Texas have statutes on the books, so sometimes a trade secret owner must choose under which statute to seek recovery.
The federal Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016, has one distinct difference from the Texas statute – it covers only those trade secrets that are involved in interstate or global commerce. Generally, a trade secret violation and claim must be brought to federal court under federal standards.
The Texas Uniform Trade Secrets Act (TUTSA)
The Texas Uniform Trade Secrets Act (TUTSA) defines a trade secret as “all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing….”
However, it adds two qualifications:
The owner of the trade secret has taken “reasonable measures” to keep the information secret, and
The trade secret is not generally known or readily ascertainable through proper means and represents actual or potential economic value to the owner.
Reasonable measures would certainly include Coca-Cola’s use of value and limited access, but other measures in this digital and cyber era are also reasonable. For instance, if the trade secret is kept in digital format, access must be limited, even password-protected. Only those with a need to know should be given access.
And those with that need to know should also be required to sign a nondisclosure agreement (NDA). Even with a signed NDA, a further reasonable measure is to conduct an exit interview with departing employees to ensure compliance.
Likewise, if the information is kept in a filing cabinet, the cabinet must be locked with limited access, and the same NDA and existing interview protocols put into place.
Misappropriation of a Trade Secret
The TUTSA protects the holder of a trade secret from having It acquired through “improper means,” which include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret, or espionage through electronic or other means.”
The term “misappropriation” further applies to someone who obtains the trade secret through the efforts of others who use improper means or who ignore an NDA. The standard here is that the recipient of the trade secret “knew or should have known” that the trade secret had been acquired by “accident or mistake.”
The Inevitable Disclosure Doctrine
The inevitable disclosure doctrine is a legal principle holding that a departing employee, with knowledge of their former employer’s trade secret, will invariably disclose confidential and proprietary information if they accept a job with similar duties and responsibilities. This means that a former employee, even one who did not sign an NDA, can still violate the Texas Uniform Trade Secrets Act through inevitable disclosure.
The TUTSA states that actual or “threatened misappropriation may be enjoined” so long as it does not prevent a person from “using general knowledge, skill, and experience that person acquired during employment.”
If a trade secret owner prevails in court, the misappropriating company will be issued an injunction against further use of the trade secret. In addition, damages may be awarded for lost revenue, or a royalty levied on the misappropriator’s profits. For willful and malicious misappropriation, attorney’s fees may also be recovered.
Experienced Guidance When You Need It Most
If your trade secret is enriching someone else, who obtained the information through improper means or misappropriation, you need to act quickly. The longer your secret is out of your hands, the more damage you can suffer.
If you suspect a trade secret of yours has been misappropriated in or around Stafford, Texas, contact The Parzivand Law Firm, PLLC immediately. Let’s take the legal steps necessary to protect your privileged information and your business’s livelihood.