One of the largest concerns for companies today is keeping their trade secrets safe. In Texas, companies are protected from the misappropriation or theft of them under the Texas Uniform Trade Secrets Act (“TUTSA”). Essentially, TUTSA provides the framework on what companies need to know to protect their trade secrets in Texas. Trade secrets throughout the US are protected under the Defend Trade Secrets Act (“DTSA”). While this post does not cover the DTSA, Texas employers should be aware of it when their trade secrets are misappropriated.
What is a Trade Secret Anyway?
In Texas, trade secret is defined under the TUTSA (TEX. CIV. PRAC. & REM. CODE ANN. § 134A.002(6)) as “all forms and types of information, including business, scientific, technical, economic, or engineering information,” and any of the following items regardless of how they are stored or kept:
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.
There are two remaining requirements that set the limits on what a trade secret is and what it is not. The two additional requirements are:
(A) the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.
Let’s look at these two points in more detail.
Additional Requirement #1: Reasonable Measures to Protect a Trade Secret
Basically, you need to take reasonable steps to protect the trade secret. This is a fact specific inquiry that a court will undertake, and there is not a hard and fast rule of what a company needs to do to meet these requirements. However, a bare minimum to meet these requirements may mean doing some combination of the following actions:
- advising employees about the existence of the trade secret;
- limiting access of the trade secret to those employees that need to know it;
- marking the protected information as confidential; and
- tracking which employees or contractors have access to the information.
If the company discloses the trade secret to the public or is careless with the information, then it may no longer be protected. Information that an outside party can discover or is known through proper means (as stated in the second bullet above) is not a trade secret. Proper means under the statute includes “discovery by independent development, reverse engineering unless prohibited, or any other means that is not improper means.” Improper means includes discovering information through “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.”
Additional Requirement #2: Independent Economic Value from Being Not Generally Known
What does it mean for a trade secret to have independent economic value just because people don’t generally know the information? Essentially it means that the company makes money off of it not being public (like Google’s algorithm or the secret sauce to the Big Mac). A trade secret could also be knowledge that a certain process (that the company invested significant time and money into researching) does not work. One example of this may be the research leading up to WD-40 which got its name from being the 40th attempt by the company to create a degreaser. https://www.forbes.com/sites/sujanpatel/2015/01/16/8-successful-products-that-only-exist-because-of-failure/?sh=53ad8e441c8c). The knowledge of how not to make the product could also be valuable because any company that knew the components of the other 39 attempts has a head start in knowing what does not work.
How to Protect Trade Secrets
It is always better to be proactive and do everything you can to protect your trade secret. When a trade secret is misappropriated, the loss of confidentiality can quickly drop its value and the damages can be hard to measure. So how can businesses be proactive in an effort to keep their trade secrets and their value intact?
There are a number of ways to do this:
- Have employees sign an employment agreement detailing that they will be provided with confidential information and are required to keep the confidential information safe even after their employment ends (i.e. have employees sign a non-disclosure agreement or agreement with a non-disclosure provision).
- Require employees to sign a non-compete and/or a non-solicitation agreement with their employment agreement.
- Limit the number of people that have access to a trade secret to the number of people that truly need access to it.
- Beware of how you send confidential information. If you are sharing confidential information via Zoom or other web conferencing software, then make sure that you know who is on the call, require passwords for participants, use a waiting room to approve people to enter the call, and take other precautions.
- Have a detailed cyber security plan and ensure that you have controls to protect information including:
- Password protected or limited access folders for only the employees that need them.
- Training supervisors and employees to avoid phishing emails and other forms of cyber security breaches.
- Maintain a way to remove information remotely from devices if a device is lost (e.g. an employee loses their computer).
- Make sure employees acknowledge that they are required to return information and devices once employment ends
- Send a letter to employees at the end of their employment reminding them of their obligation to return information to the company and that they have duties to keep information confidential.
- Mark information as confidential on your system or by hand if the documents have physical copies
- Track who has access to trade secret information (i.e. know which employees have access to them)
- Monitor who is accessing the trade secrets and when they are accessing them (this is most important when an employee is leaving and is downloading customer lists and other confidential information right before their employment ends)
- Conduct regular training to ensure that employees are keeping information safe
- Create a response team that can address suspected breaches of trade secret information quickly
When Protecting Your Trade Secrets Fails: TUTSA Violations
A person violates TUTSA when they misappropriate trade secrets. There are a few ways to misappropriate a trade secret under TUTSA:
- You can acquire a trade secret of someone else when you know or have reason to know “that the trade secret was acquired by improper means”; or
- “disclosure or use of a trade secret of another without express or implied consent by a person who:”
- Used improper means to obtain knowledge of the trade secret;
- At the time that they disclosed or used the trade secret they knew or had reason to know that the person’s knowledge of the trade secret was:
- Obtained from or through another person that had a duty to a person that is seeking relief to maintain the secrecy of their trade secret or to limit its use; or
- “before a material change of the position of the person, knew or had reason to know that the trade secret was a trade secret and that knowledge of the trade secret had been acquired by accident or mistake.”
Basically, misappropriation means that a person acquired a trade secret that they knew (or had reason to know) did not belong to them, or used or disclosed it without permission that they knew (or had reason to know) was obtained through someone that should have known did not belong to them. The key takeaway here is to avoid taking, using, or disclosing any information that does not belong to you or that you do not have permission to use or disclose.
Conclusion
Trade secrets are incredibly important for businesses to maintain their profitably. All businesses must take action to ensure that they are protected. If someone misappropriated a trade secret, then the company needs to act quickly to protect them.
The information provided in this blog is for educational purposes only and is not legal advice. If you need legal advice, then you should speak with a lawyer about your specific issues. Every legal issue is unique. A lawyer can help you with your situation. Reading the blog, contacting me through the site, emailing me or commenting on a post does not create an attorney-client relationship between any reader and me.
The information provided is my own and does not reflect the opinion of my firm or anyone else.