Texas has joined 47 other states and the District of Columbia in adopting the Uniform Trade Secrets Act. The new law, Texas Senate Bill 953, which will go into effect on September 1, 2014, provides a number of protections for trade secrets in Texas. New Jersey most recently enacted a law to protect trade secrets in 2012. (See New Jersey Adopts Trade Secret Law.) Now, only Massachusetts and New York have yet to pass some form of the Uniform Trade Secret Act, with Massachusetts providing statutory protection in a different form and New York recognizing common law protection of trade secrets.
“Trade Secrets” under the Texas statute are defined as business information, including “a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers” that is: (a) valuable; (b) not generally known to, and not readily ascertainable by proper means by, others (e.g., competitors); and (c) subject to reasonable efforts to maintain its secrecy.
Highlights of the statute include:
- The availability of injunctive relief to prevent the actual or threatened improper use or disclosure of trade secrets.
- The ability of courts to condition future use of a misappropriated trade secret on paying a royalty.
- The ability of courts to assess damages based on actual loss caused by misappropriation and the unjust enrichment caused by misappropriation.
- The availability of double damages in cases of willful or malicious misappropriation.
- The availability of attorneys’ fees to prevailing plaintiffs, and to successful defendants in the case of claims brought in bad faith.
- The presumption of secrecy in trade secret litigation, including instructions to courts to preserve secrecy through attorneys’ eyes only orders, in camera hearings, and sealing records.
With respect to the contractual, rather than statutory, protection of business information, Texas courts have viewed non-compete agreements with increasing favor in recent years. See Marsh USA v. Cook, 354 S.W.3d 764 (Tex. 2011) (enforcing a non-compete signed by a current employee in consideration for stock options); Mann Frankford Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009) (Texas requirement of ancillary agreement, usually the promise to provide employee with confidential information, in exchange for non-compete, could be inferred); and Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Texas 2006) (non-competes enforceable against at-will employees). For more analysis, see our articles Texas Supreme Court Upholds Non-Compete Agreement Made by Existing Employee and Texas Employers Get Another Favorable Opinion on Non-Competes.
Even with the increasing acceptance of non-competes in Texas, the new trade secret statute is important because of the added protections and remedies it provides, and because some employers still do not use non-competes. In order to increase the chances their business information will be given trade secret protection, Texas employers are well advised to take steps to demonstrate their efforts to maintain the secrecy of such information, including updating or implementing employee non-disclosure agreements.