Recently Texas has passed a law regarding trade secrets titled the “Texas Uniform Trade Secrets Act” (the Act).  This law applies to the theft of trade secrets occurring on or after September 1, 2013.  Importantly, this law provides more protection for companies and expands legal remedies to address actual and anticipated harms.

The Act Defines Trade Secrets 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 persons who can obtain economic value from its disclosure or use; and

(B) is subject to efforts that are reasonable under the circumstances to maintain its secrecy.

Business owners will appreciate that the Act now includes a company’s financial information, as well as lists of prospective and current customers and suppliers. This may be critical because these additional components are often the center of misappropriation disputes, and previously not deemed worthy of protection.

One should note that the Act does not include any language of “continuous use.”  The Act suggests that trade secrets, whether continuously used or not, are entitled to safeguards under the Act.

Reverse Engineering

Excluding from the Act’s definition of a “trade secret” is any information learned through the “reverse engineering” of a competitor’s product.

Classic example

A former employee whose mere employment with a direct competitor poses a risk of trade secret misuse.  Here the Act broadens the right to injunctive relief.  In these situations, a company will request a court to issue a temporary injunction to…for a short while…stop the alleged offender from using a company’s trade secrets.  Good news.  The Act provides a remedy for former employers that find themselves in a situation by authorizing injunctive relief upon proof that a misappropriation of trade secrets is threatened, even if it has not already occurred.

Under certain circumstances, a court may award the former employer-company exemplary damages in an amount not to exceed twice the economic damages if the plaintiff-company establishes by clear and convincing evidence that the misappropriation was willful and malicious.

As a result of a new provision of the Act, I suggest that a business consider specifying Texas law as controlling in their written confidentiality agreements.

Overall, the Texas legislature has further opened the door for Texas businesses to protect themselves.  Now it is up to those businesses to take advantage of this new law.  I hope they do.