Texas Uniform Trade Secrets Act

Last Modified: 
2013-05-31

On May 2, 2013, Texas officially signed the Texas Uniform Trade Secret Act (“TUTSA”) into law. The act will replace Texas common law, effective September 1, 2013, and apply to all trade secret misappropriation claims filed thereafter.

The Texas legislature amended Section 1, Title 6 of Texas’ Civil Practice and Remedies code by adding Chapter 134A - Trade Secrets. The relevant portions of the act are included below:

CHAPTER 134A. TRADE SECRETS

Sec. 134A.001. SHORT TITLE. This chapter may be cited as
the Texas Uniform Trade Secrets Act.

Sec. 134A.002. DEFINITIONS. In this chapter:

(1) "Claimant" means a party seeking to recover damages under this chapter, including a plaintiff, counterclaimant, cross-claimant, or third-party plaintiff. In an action in which a party seeks recovery of damages under this chapter on behalf of another person, "claimant" includes both that other person and the party seeking recovery of damages.

(2) "Improper means" includes 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.

(3) "Misappropriation" means:
(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(B) disclosure or use of a trade secret of another without express or implied consent by a person who:
(i) used improper means to acquire knowledge of the trade secret;
(ii) at the time of disclosure or use, knew or had reason to know that the person's knowledge of the trade secret was:
(a) derived from or through a person who had utilized improper means to acquire it;
(b) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(c) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(iii) before a material change of the person's position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or
mistake.

(4) "Proper means" means discovery by independent development, reverse engineering unless prohibited, or any other means that is not improper.

(5) "Reverse engineering" means the process of studying, analyzing, or disassembling a product or device to discover its design, structure, construction, or source code
provided that the product or device was acquired lawfully or from a person having the legal right to convey it.

(6) "Trade secret" means 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.

Sec. 134A.003. INJUNCTIVE RELIEF.

(a) Actual or threatened misappropriation may be enjoined. On application to the
court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

(b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been
prohibited. Exceptional circumstances include a material and prejudicial change of position before acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.

(c) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

Sec. 134A.004. DAMAGES.

(a) In addition to or in lieu of injunctive relief, a claimant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret.

(b) If wilful and malicious misappropriation is proven by clear and convincing evidence, the fact finder may award exemplary damages in an amount not exceeding twice any award made under Subsection (a).

Sec. 134A.005. ATTORNEY'S FEES. The court may award reasonable attorney's fees to the prevailing party if:
(1) a claim of misappropriation is made in bad faith;
(2) a motion to terminate an injunction is made or resisted in bad faith; or
(3) wilful and malicious misappropriation exists.

Sec. 134A.006. PRESERVATION OF SECRECY. In an action under this chapter, a court shall preserve the secrecy of an alleged trade secret by reasonable means. There is a presumption in favor of granting protective orders to preserve the secrecy of trade secrets. Protective orders may include provisions limiting access to confidential information to only the attorneys and their experts, holding in camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.

Sec. 134A.007. EFFECT ON OTHER LAW.

(a) Except as provided by Subsection (b), this chapter displaces conflicting
tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.

(b) This chapter does not affect:
(1) contractual remedies, whether or not based upon misappropriation of a trade secret;
(2) other civil remedies that are not based upon misappropriation of a trade secret; or
(3) criminal remedies, whether or not based upon misappropriation of a trade secret.

(c) To the extent that this chapter conflicts with the Texas Rules of Civil Procedure, this chapter controls. Notwithstanding Section 22.004, Government Code, the supreme court may not amend or adopt rules in conflict with this chapter.

(d) This chapter does not affect the disclosure of public information by a governmental body under Chapter 552, Government Code.

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The law also includes a section to ensure its uniform application and construction, which defines the term "theft" (as used in Sec. 134A.002 as an example of "improper means") to mean "unlawfully appropriating property or unlawfully obtaining services as described by Section 31.03, 31.04, 31.06, 31.07, 31.11, 31.12, 31.13, or 31.14, Penal Code."

Texas became the 48th state to adopt some form of the Uniform Trade Secrets Act, leaving New York and Massachusetts as the only remaining holdouts. Prior to Texas' adoption of the TUTSA, the state applied First Restatement of Torts §757 to trade secret misappropriation claims. Texas courts will continue to apply the Restatement to misappropriation claims made either before September 1, 2013, or afterwards if the claim alleges a "continuing misappropriation" that began before the TUTSA's effective date. §757 of the First Restatement of Torts reads as follows:

§ 757. Liability For Disclosure Or Use Of Another's Trade Secret—General Principle

One who discloses or uses another's trade secret, without a privilege to do so, is liable to the other if

(a) he discovered the secret by improper means, or
(b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or
(c) he learned the secret from a third person with notice of the facts that it was a secret and that
the third person discovered it by improper means or that the third person's disclosure of it was otherwise a breach of his duty to the other, or
(d) he learned the secret with notice of the facts that it was a secret and that its disclosure was made to him by mistake.

See Tewari De-Ox Sys., Inc. v. Mountain States/Rosen, LLC, 637 F.3d 604 (5th Cir. 2011), footnote 2.

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Additionally, Texas had previously passed legislature imposing a statute of limitations for trade secrets claims. The TUTSA does not appear to explicitly override, nor conflict with, the statute (included below). Barring additional guidance from either the Texas legislature or courts, the statue should still be good law:

Tex. Civ. Prac. & Rem. Code § 16.010

§ 16.010.  Misappropriation of Trade Secrets

(a) A person must bring suit for misappropriation of trade secrets not later than three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.

(b) A misappropriation of trade secrets that continues over time is a single cause of action and the limitations period described by Subsection (a) begins running without regard to whether the misappropriation is a single or continuing act.