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Use TUTSA to Win in Trade Secret Litigation
Articles / Texas Lawyer

June 2014
The Texas Uniform Trade Secrets Act (TUTSA), found in Texas Civil Practice & Remedies
Code 134A, offers business clients a number of specific protections, plus consistency for
multi state operations. Last year Texas became the 48th state to adopt a version of the model
Uniform Trade Secrets Act. Instead of waiting for a legal dispute, attorneys should help their
business clients review the items considered to be trade secrets.


Part of that review includes auditing whether the clients have taken reasonable efforts to
maintain secrecy. For example, TUTSA classifies a list of actual or potential customers or
suppliers as a possible trade secret. Once a dispute arises, clients often want court protection
for that list.


But consider the following common scenarios. A customer list resides on the company's
network, and it's not password protected. Perhaps the company password protects the list, but
some employees share passwords. Or, employees use their personal smart phones to access
customer contact information, and a departing employee saved customer contact information
in his personal contacts folder.


In these scenarios, the company arguably failed to make reasonable efforts to maintain
secrecy. It's better to realize that now than when a problem arises. Business clients should
review their policies, practices and training regarding proprietary information. Best practices
include using password protections, access limitations and preventive strategies to avoid trade
secret misappropriation.


Injunctions: TUTSA provides for injunctive relief to enjoin actual or threatened
misappropriation of a trade secret. The inclusion of the term "threatened misappropriation"
implies that the doctrine of inevitable disclosure may be more viable than it has been in the
past in Texas.


For example, let's say that Jack, an employee with deep knowledge of the company's trade
secrets, leaves to work in a similar capacity for a competitor. Even in the absence of a
non competition agreement, the company might have grounds to seek an injunction under
TUTSA if the circumstances are right.


TUTSA states that judges can order "affirmative acts" to protect a trade secret and can, in
"exceptional circumstances," issue an injunction that conditions future use of the trade secrets
upon a reasonable royalty payment


The judge might be reluctant to put Jack out of a job by completely enjoining him from
working for the competitor. But a lawyer might persuade the judge to enjoin Jack from
performing specific duties that risk disclosing company trade secrets. Also, the judge might
order forensic examinations of Jack's computers and smart phones to ascertain that he hasn't
misappropriated company trade secrets. TUTSA specifically contemplates these kinds of
affirmative acts.


Protective orders: TUTSA also reflects the realities of modern litigation and the prevalence
of protective orders in trade secret cases. The law provides a presumption in favor of
protective orders to preserve the secrecy of trade secrets.

 

These protective orders can limit access to confidential information to lawyers and experts,
require in camera hearings, seal records and ban people involved in the litigation from
disclosing an alleged trade secret without advance permission from the court.


There is a tendency to make protective orders overly broad and include numerous types of
information deemed confidential because someone stamped it as such. When resisting the
restrictions, lawyers should remember that the presumption of protection applies only to trade
secrets as TUTSA defines them.


Damages: Under TUTSA, a claimant can recover damages for actual loss caused by trade
secret misappropriation, plus unjust enrichment not included in the computation of actual
loss. If a lawyer can prove willful and malicious misappropriation by clear and convincing
evidence, the judge may award exemplary damages. However, those can't exceed twice the
amount of actual damages.


TUTSA raises the stakes in trade secret litigation by allowing for recovery of attorney fees if a
misappropriation claim is made in bad faith, if a motion to terminate an injunction is made
or resisted in bad faith, or if willful and malicious misappropriation occurred.


This is a significant change. Previously, parties could not recover attorney fees for the
common law tort of trade secret misappropriation. A case that might not have seemed worth
litigating under prior law, such as a case of willful misappropriation of limited value, becomes
more attractive when fees are a possibility.


Incidentally, TUTSA supersedes Texas common law regarding trade secret misappropriation,
but it does not affect contractual remedies, criminal remedies, or other civil remedies that are
not based on trade secret misappropriation.


TUTSA'S DEFINITION OF "TRADE SECRET"

"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 the subject of efforts that are reasonable under the circumstances to maintain its
secrecy."

 

 

 

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