Texas Adopts the Uniform Trade Secrets Act

by Randy Johnston

The 2013 Texas legislature adopted the Uniform Trade Secrets Act, effective September 1, 2013. Nearly every state and the District of Columbia has passed this statute. Texas now joins these states in implementing nationwide standards concerning what trade secrets are and how they can be protected.

What is a Trade Secret?

The Act defines a trade secret as information that is valuable and isn’t generally known or ascertainable. The owner of the information must make reasonable efforts to keep the information secret. “Information” is broadly defined to include “a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers.”

Misappropriating Trade Secrets

The Act protects trade secrets from misappropriation. A person misappropriates a trade secret when he wrongfully acquires it or when he discloses it or uses it without permission. In either event, the person must have acquired the trade secret by improper means or acquired it from someone else whom he knew, or had reason to know, acquired the trade secret by improper means. Finally, disclosure or use of a trade secret constitutes misappropriation when a person acquired the information by accident or mistake but knew, or had reason to know, that it was a trade secret.

Limits to Misappropriation

The Act does not forbid acquiring trade secrets by proper means. Proper means include discovering the information by independent development or, unless prohibited, by reverse engineering. The Act does not discuss when reverse engineering is prohibited. It does define reverse engineering to mean acquiring information by “studying, analyzing, or disassembling a product or device to discover its design, structure, construction, or source code,” so long as the person doing the reverse engineering lawfully acquired the product or device.

Remedies for Misappropriation

The Act protects against both actual and threatened misappropriation. When either occurs, a person may obtain an injunction against misappropriation of his trade secret. The injunction may remain in force until the trade secret ceases to exist, or for a longer period of time to eliminate any commercial advantage that the person who misappropriated the trade secret might have obtained because of the misappropriation. When a person who uses information without knowing or having reason to know that the information was a trade secret, the court can allow continued use of the trade secret but require the payment of royalties.

The Act also permits an award of monetary damages either in the amount the owner of the trade secret lost by the misappropriation or in the amount the other person earned by unlawfully using the trade secret. The Act further permits an award of punitive damages in the amount of up to twice as much as actual damages awarded. Finally the Act provides for the recovery of attorney’s fees for the prevailing party where there have been bad faith claims or upon a finding of willful and malicious misappropriation.