To maintain its protection under Texas law, how do you keep a trade secret, secret?
Under §134A of the Texas Civil Practice and Remedies Code, also known as the Texas Uniform Trade Secrets Act or TUTSA, a trade secret is:
“Information [that] 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.”
To protect a trade secret, TUTSA also specifies that the owner must take reasonable measures to keep the information hidden from others.
What Are “Reasonable Measures” to Maintain a Trade Secret?
“Business owners have a duty to protect their trade secrets," explains Hendershot Cowart's Managing Partner Trey Hendershot. "If an owner doesn’t take steps to protect the information, it’s not a trade secret.”
Here are some examples of reasonable measures to protect and maintain your trade secrets:
- Ask employees, customers, independent contractors, and vendors with access to confidential information to sign a confidentiality or non-disclosure agreement (NDA).
- Use non-compete or non-solicitation agreements. The law allows for restrictions on employees or former employees who had access to trade secrets, client lists, or other propriety information unique and useful to your company. But to be legally enforceable under the Texas Business and Commercial Code, covenants not to compete have to be crafted carefully and be reasonable in duration, scope, and geographic focus.
- Train employees on how to handle trade secrets – specifically addressing the handling and confidentiality of trade secrets in the employee handbook
- Take care with transmitting or sharing information electronically. If you use Zoom or other web conferencing applications, require passwords for participants and take other precautions.
- Conduct closing interviews to remind employees of their legal obligations to protect trade secrets
- Make sure departing employees return information and company-owned devices, and delete sensitive information from personal devices
- Label information as “proprietary and confidential”. Review your company’s internal resources and documents – are any of them vital to your operations? Would you lose anything if they fell into a competitor’s hands? As you review your documents, gather and label all your most vital resources, whatever they are: customer lists, data, methods, procedures, suppliers, etc. Even a simple labeling system could lend credence to your case if someone attempts to use your IP unlawfully.
- Store physical information securely, i.e., requiring security badges to access file rooms
- Store digital information securely, i.e., saving to a password-protected server
- Limit access to information on a “need-to-know basis”
- Track and keep records of which employees have access to a trade secret
- Establish trademarks and copyrights. Protecting your ideas and inventions through trademarks and copyrights is essential, especially in the internet age. When these safety measures are in place, your business is in a better position to enforce and defend copyrights and trademarks in matters of infringement.
- Consider work-for-hire agreements. When an employee or a contracted party creates an intellectual work as part of his or her job, issues may arise as to whether the resulting work belongs to the employer. Employers need to protect themselves with a strong agreement that uses the work-for-hire doctrine to protect their intellectual property and address possible areas of concern, including the scope of the work. This can include work done in an employee's spare time, by freelance workers, and other situations.
To maintain a trade secret, you must keep the secret with as few people as possible and take steps to protect it in both physical and digital spheres.
Which Actions May Invalidate Consideration of Information as a Trade Secret?
Something as simple as revealing information in the wrong place at the wrong time could invalidate its consideration as a trade secret. If you publicly disclose the information (unintentionally or on purpose), it is no longer a trade secret, and Texas courts look down on carelessness.
Consider these examples; some taken directly from previous court cases:
- If others can “reverse engineer” your trade secret or discover the secret through research, it can be disqualified as a trade secret.
- If an employee refuses to sign a confidentiality agreement and you share the information anyway, the court may find your measures were not reasonable.
- If neither your employee handbook, employee training, nor employment agreements address the protection of confidential information, it may be a challenge to convince the courts that you made reasonable efforts to protect it.
TUTSA only allows plaintiffs to file lawsuits when trade secrets were acquired through improper means, used or disclosed without consent, or otherwise misappropriated.
Can You Sue Over a Trade Secret?
Yes. You can ask the courts to issue an order (called an injunction) to stop a former employee, vendor, or customer from using your confidential information, and you can sue for damages. First, you must prove that the information in question was a trade secret – and that you took steps to protect it.
In Texas, courts usually consider the following questions when determining whether information constitutes a trade secret:
- How extensively is the information known outside of the business?
- How extensively is the information known within the business (among employees and others involved in the business)?
- What measures did the business take to guard the secrecy of the information?
- How valuable is the information to the business and its competitors?
- How difficult or expensive was developing the information?
- How easy was it for others to acquire or duplicate the information?
What Are Some Examples of Trade Secrets?
Common trade secrets include:
- Client lists
- Financial data
- Scientific, technical, or engineering information
If someone misuses your valuable, well-protected trade secret, you can ask the courts for injunctive relief and sue for damages. Of course, you will not only have to prove that your information was a trade secret, but you will also have to prove the misappropriation of that secret.
Hendershot Cowart P.C. can help. We have over 100 collective years of quality legal representation, and our business attorneys help Texas business owners, executives, and compliance officers maintain and protect trade secrets.
Your success is a priority to our team, and we want to be your law firm for life. As such, we take the time to build relationships, create custom case strategies, and keep you informed – every step of the way.