In May 2017, Texas Governor Greg Abbot signed House Bill 1995 (HB 1995), legislation that amends the four-year old Texas Uniform Trade Secrets Act (TUTSA) and more closely aligns it with its federal equivalent, the Defend Trade Secrets Act (DTSA). It also codifies a 2016 Texas Supreme Court decision regarding when parties in a trade secret misappropriation lawsuit can be denied access to trade secrets during litigation. HB 1994 takes effect on September 1, 2017.
TUTSA Updates: Definitions
The Uniform Trade Secrets Act (TUTSA) is statutory law that protects and governs trade secrets in the state of Texas. In addition to creating injunctive relief, or court orders that stop certain acts, and civil liability when trade secrets have been misappropriated, TUTSA also defines trade secrets.
By passing HB 1995, Texas lawmakers eliminate discrepancies between what TUTSA and DTSA constitutes as a trade secret – defined under TUTSA as “all forms and types of information” that:
- Derives independent economic value (actual or potential) because it is not generally known to others who can obtain economic value from its disclosure or use; and
- Is the subject of measures, which are reasonable under the circumstances, to maintain its secrecy.
With the amendment to TUTSA, Texas’ definition of a trade secret was expanded to more closely match the DTSA definition, and to specify any business, scientific, technical, economic, or engineering information. Notably, TUTSA now requires owners to take reasonable “measures,” rather than “efforts,” to protect trade secrets in order to bring legal action under the statute. TUTSA, unlike DTSA, also includes customer and supplier lists (potential or actual) as trade secrets, and does not require trade secrets to be related to services or products used in commerce.
By harmonizing definitions in TUTSA with those in DTSA, HB 1995 is intended to eliminate the possibility of different outcomes that could result under either statute in certain cases. Alignment will help promote uniform application and discourage parties from “forum shopping” between state and federal courts in order to obtain a more favorable outcome. The amendment also introduces additional new definitions to “owner,” “willful and malicious misappropriation,” and “clear and convincing evidence.”
TUTSA Balancing Test
In addition to aligning legal definitions under TUTSA with those under federal law, HB 1995 requires Texas courts to apply a balancing test – set out by the Texas Supreme Court holding in In re M-I L.L.C., when determining whether access to documents or testimony about a competitor’s trade secrets will be denied in a lawsuit.
Courts will be able to exclude parties or limit their access to an alleged trade secret during trial by considering a number of factors under the balancing test, including:
- The value of the alleged trade secret;
- How access to the alleged trade secret would harm the owner;
- Whether the owner is alleging the other party already wrongfully possesses the trade secret;
- Whether a representative for either party acts as a competitive decision maker;
- How limiting access to the alleged trade secret would have a party’s defense;
- Whether a party / representative has specialized expertized otherwise unavailable to an outside expert; and
- The stage of the action.
What the Amendment Means for Businesses
The amended Texas Uniform Trade Secrets Act reshapes how businesses looking to enforce and protect trade secrets craft strategies for proving their claims and defenses. It will also reshape how companies should go about protecting their trade secrets pre-litigation in order to ensure they meet the definition of a trade secret and satisfy the requisite legal elements when they wish to take action after trade secrets are obtained or disclosed through dishonest or wrongful means.
For example, businesses will be required to protect their trade secrets using “reasonable measures” in order to have a valid cause for action. This means taking steps to proactively protect critical information that provides an industry edge or advantage over competitors who do not have the information. Reasonable measures would include carefully crafted agreements and safeguards such as:
- Nondisclosure agreements
- Non-compete agreements
- Work for hire agreements
- Non-solicitation agreements
- Confidentiality agreements
Taking the right steps to craft proper and enforceable agreements is critical to protecting trade secrets, as well as a company itself, and it can be done effectively with the help of our experienced business law attorneys at Hendershot Cowart P.C.
By focusing on customized strategies and leveraging decades of combined experience, our legal team works to not only establish deterrents that protect your company, but also tools that provide relief and remedies in the event of trade secret violations involving theft, misuse, or misappropriation.
Our Houston business lawyers have cultivated a reputation for results and integrity in high-stakes cases, and are prepared to assist business throughout the Texas in all matters relating to trade secrets, contracts, and litigation. To speak learn more about our comprehensive services, call (713) 909-7323.