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Misappropriation of Trade Secrets Explained

Misappropriation of Trade Secrets Explained
Hendershot, Cannon & Hisey, P.C.

Trade secrets are vital to a business’ success, which is why it becomes critical to protect information, customer lists, contract terms, designs, processes, and formulas that have value for competitors who do not know or use them. It is also important to protect trade secrets in the event that they are wrongfully obtained and used, or misappropriated.

Because there are laws protecting commercial privacy, businesses that develop useful information which gives them a competitive advantage have available remedies should anyone obtain or disclose them. In Texas, trade secrets are governed and protected by the Texas Uniform Trade Secrets Act (TUTSA). In addition to defining trade secrets, TUTSA also creates injunctive relief (court orders that stop specific acts) and civil liability when trade secrets have been misappropriated.

At Hendershot, Cannon & Hisey, P.C. our Houston business lawyers help businesses create and enforce trade secret protection. Because we draw from over two centuries of combined experience, we have the ability and expertise to handle a range of issues involving trade secrets, including pro-actively protecting trade secrets through enforceable agreements and trade secret litigation.

Pro-Actively Protecting Trade Secrets

Because plaintiffs in trade secret misappropriation cases must demonstrate that they took “reasonable measures” to maintain secrecy, protecting against misappropriation of trade secrets begins with crating safeguards. These safeguards commonly include steps to inform contractors, vendors, employees, and others involved in a business about confidential information, and notification of a contractual agreements that prohibit disclosure. Safeguards for doing so can include:

Clarity of confidentiality provisions is crucial, and it must be ensured that guidelines are clearly defined. This consists of establishing why information is considered confidential, as well as how that information should be treated. Businesses can also take further reasonable measures to protect trade secrets, including:

  • Labeling confidential documents or materials
  • Restricting access to physical or digital files
  • Securing a premises and creating procedures for visitors
  • Issuing employee identification badges
  • Including trade secret policies in employee handbooks
  • Classifying applicants and employees according to their access for protected information

Theft of Trade Secrets

Even when reasonable measures are taken to protect trade secrets, theft and misappropriation can still occur. Fortunately, Texas law provides remedies to businesses that can help them take civil legal action. Additionally, Texas enforces laws which subject misappropriators to criminal penalties, should they obtain trade secrets through dishonest or wrongful means, or conspire with or bribe others to provide them when secret information.

As criminal proceedings only concern whether a defendant is guilty of a crime, businesses will need to pursue action in the civil justice system. Our attorneys are adept in helping clients navigate misappropriation of trade secret torts, breach of contract and, when necessary, litigating their case aggressively through trial or arbitration. In order to bring a valid claim under TUTSA, trade secrets must provide a competitive advantage and businesses must have taken reasonable measures to protect them. TUTSA allows plaintiffs to bring action when misappropriation actually occurs, or when it has been threatened, provided that:

  • Improper means were used to acquire the trade secret
  • A trade secret was used or disclosed without consent

Typically, a trade secret misappropriation case will consist of three general phases:

  • Filing of a lawsuit and application for a temporary restraining order
  • Temporary injunction that stops the defendant from a specific act
  • Litigation for the recovery of damages

In addition to injunctive relief, businesses are also entitled to a recovery of any damages resulting from misappropriation. This includes actual losses and unjust enrichment, or royalties for the unauthorized use or disclosure of a trade secret. In cases where misappropriation was willful and malicious, exemplary damages may also be awarded against the defendant.

If you have questions about misappropriation of trade secrets, intellectual property assets, or any other business law matter, Hendershot, Cannon & Hisey, P.C.. is readily available to help. Call (713) 909-7323 to schedule a consultation.