On May 3, 2013, Texas Gov. Rick Perry signed Senate Bill 953, making Texas the 48th state to adopt some version of the Uniform Trade Secrets Act. The Texas Uniform Trade Secrets Act (TUTSA) clarifies Texas law regarding trade secret protection and codifies specific remedies for businesses seeking to protect their confidential and proprietary information.

By clarifying the scope of trade secret protections under Texas law and defining the remedies available for misappropriation, TUTSA provides Texas attorneys with a single source of authority for protecting clients’ trade secrets, without having to resort to multiple, interrelated legal theories.

As a result, courts should provide better, more uniform protection for trade secrets across Texas, and attorneys should be able present misappropriation cases to the jury with a simple charge containing the statutory definitions and remedies.

The Uniform Trade Secrets Act

The Uniform Trade Secrets Act was published by the Uniform Law Commission in 1979 and was subsequently amended in 1985. The act was designed to provide a legal framework for improved trade secret protection and to harmonize the law between each state. Now that Texas has adopted a version of the act, only New York and Massachusetts remain as outliers.

Business owners know all too well that a company’s ability to compete effectively is often dependent on its confidential information and processes. Businesses invest considerable capital, both in terms of money and time, to develop information that gives them a competitive edge in the marketplace.

When an employee leaves a company and starts a competing business using his former employer’s trade secrets or when a competitor gains access to trade secret information for their own economic benefit, the value of that information is lost. The former employee or existing competitor who took the information gains a substantial benefit by not having to invest the time and money necessary to recreate the information.

The act is designed to protect the value of a company’s trade secret information by preventing such misappropriation. Because modern business in the era of interstate travel and the Internet is rarely limited to a single geographic area, the act creates uniform standards to alleviate uncertainty regarding the parameters of trade secret protection between states, thereby encouraging interstate commerce by standardizing protections across the country.

When Texas adopted the act, the legislature expressly provided that it “shall be applied and construed to effectuate its general purpose to make uniform the law ... among the states enacting it.”

The Texas Uniform Trade Secret Act

TUTSA broadly defines the term “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 person 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.”

Generally, a trade secret is misappropriated under TUTSA when a person acquires the information through “improper means” or discloses or uses the information in a manner that was unauthorized, such as when information is disclosed in violation of a nondisclosure agreement.

“Improper means” is defined to 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.”

TUTSA also protects trade secrets that were disclosed by accident or mistake, although proving misappropriation in these cases is more difficult, and the scope of remedies is more narrow. Because trade secret protection does not provide a monopoly on the use of information (like a patent), discovery by independent development or reverse engineering is not misappropriation.

Statutory Remedies

In a trade secrets lawsuit, the primary purpose of the litigation is to preserve the value of the information and the competitive advantage provided to the owner. This is accomplished through an injunction, a court order directing one or more of the parties to take, or refrain from taking, some course of action.

TUTSA expressly authorizes courts to enjoin “actual or threatened” misappropriation. The statute does not define the term “threatened,” but its inclusion suggests a statutory basis for seeking a court order preventing the disclosure of information, even in cases where disclosure has yet to occur.

Generally, courts use injunctions to freeze the parties’ current position while the dispute is resolved.

Thus, injunctions generally take the form of an order preventing a party from undertaking further actions, such as continuing to sell or market certain goods. In appropriate circumstances, however, TUTSA expressly permits trial courts to issue affirmative injunctions requiring parties to undertake specific acts to protect the secrecy of trade secret information.

TUTSA also permits parties asserting claims for misappropriation to recover damages, which can include both the actual loss caused by misappropriation, such as lost profits, and the unjust enrichment caused. Alternatively, in appropriate cases, a plaintiff may recover a reasonable royalty for any unauthorized disclosure or use of a trade secret. If clear and convincing evidence demonstrates that the misappropriation was willful and malicious, then a claimant may recover exemplary damages in an amount not exceeding twice any award of other permissible damages.

Significantly, in a major change to Texas law, TUTSA also permits the court to award reasonable attorneys' fees to the “prevailing party” if: a claim for misappropriation is made in bad faith; a motion to terminate an injunction is made or resisted in bad faith; or willful and malicious misappropriation exists.

This provision permits plaintiffs to recover attorneys’ fees in the most egregious cases of misappropriation, while also providing some protections for defendants against unfounded claims of misappropriation.

While the practical impact of this provision is yet to be determined in Texas, in theory, the ability for defendants to recover attorneys' fees may limit the common practice of some attorneys who name every party imaginable to a lawsuit if they have some tenuous relationship to the bad actor.

Impact on Other Aspects of Texas Law

TUTSA contains provisions establishing a presumption in favor of granting protective orders to preserve the secrecy of trade secret information, including provisions limiting access to information to attorneys and experts, holding hearings that are closed to the public, sealing records and issuing gag orders on the parties.

Moreover, TUTSA provides that its terms shall control over any conflicting provisions of the Texas Rules of Civil Procedure and prohibits the Texas Supreme Court from amending or adopting rules in conflicts with TUTSA. These provisions suggest that the burdensome (and costly) procedures under the existing rules for sealing court records and closing judicial proceedings to the public may not apply in cases brought under TUTSA.

TUTSA also “displaces conflicting tort, restitutionary, and other law of [Texas] providing civil remedies for misappropriation of a trade secret,” except for contractual remedies, civil remedies not based on misappropriation and criminal remedies. This provision will likely prevent claimants from asserting a multitude of claims premised on the misappropriation of trade secrets.

It is unclear, however, whether TUTSA will also prevent plaintiffs from relying on the provisions of Texas law that provide an exception to Texas’ caps on punitive damages. Specifically, in trade secret litigation, it is not uncommon for plaintiffs to plead several of these so-called “cap buster” exceptions, the most common being for felony theft, as a means of recovering significant punitive damages. If TUTSA is found to preempt these cap-buster provisions, then the remedies available to plaintiffs may actually be more limited.

Implications for Businesses

TUTSA becomes effective on Sept. 1, 2013, and applies to any act of misappropriation that occurs after that date. Acts of misappropriation that occurred, or started to occur, prior to that date are governed by current law.

TUTSA provides an exclusive means for asserting misappropriation claims, and the definitions in the statute incorporate concepts that are currently brought under several related causes of action, including conversion, breach of fiduciary duty, tortious interference, violation of the Texas Theft Liability Act and violation of the Texas Harmful Access by Computers Act.

TUTSA’s remedial provisions, including the ability to recover attorneys’ fees, renders many of these claims superfluous, thereby streamlining pleadings, proof and importantly, the jury charge. The result should be claims that are easier and less expensive to prosecute and easier for juries to understand.

The uniform nature of the statute should also improve predictability and allow parties to better assess the strength and weaknesses of their case.