Texas May Become 48th State to Adopt the Uniform Trade Secrets Act

Since being approved in 1979, the Uniform Trade Secrets Act has been adopted, in some form or fashion, by 47 states. At least one Texas lawmaker hopes to make Texas the 48th to do so. With S.B. 953, a Dallas lawmaker seeks to codify existing Texas common law relating to misappropriation of trade secrets and expand available remedies to a “claimant” seeking to stop and remedy a misappropriation. If enacted, the Texas Uniform Trade Secrets Act would go into effect on September 1, 2013.

Of note, the proposed legislation includes a definition of “trade secret,” which should provide some uniformity over the existing common law. Of particular benefit to those in the pharmaceutical, staffing, financial services, and insurance industries, the legislation’s definition of “trade secret” includes a business’s list of actual or potential customers or suppliers. Other encouraging aspects of the bill are express statutory authority for courts to enjoin actual or threatened misappropriation, a court’s ability to order the payment of a reasonable royalty in “exceptional circumstances,” and a mandate that a court hearing any claim for misappropriation of trade secrets issue protective orders and take other “reasonable means” to preserve the secrecy of the alleged trade secret. The proposed legislation also provides for stiff damages, which can include both the actual damages and unjust enrichment resulting from the misappropriation. Upon a finding of willful and malicious misappropriation, a court would also be empowered to award exemplary damages in an amount not exceeding twice the award of damages, and attorneys’ fees in certain circumstances. However, the bill also expressly provides for the payment of attorneys’ fees to a defendant where a claim for misappropriation is made in bad faith.

With a stated general purpose “to make uniform the law” with respect to the misappropriation of trade secrets, the bill would displace existing common law on the subject, to include any law of the state providing for civil remedies for misappropriation of a trade secret, but would not affect contractual remedies, other civil remedies not based upon a misappropriation of trade secrets, or any criminal remedies aimed at addressing misappropriation of trade secrets.

S.B. 953’s impact on related theories of legal relief in Texas (like the inevitable disclosure doctrine) and on burdens of proof (such as the level of specificity required in pleadings that describe the trade secret) remains unclear. Thus, the proposed legislation should be watched closely because if it is enacted it could create significant changes in how an employer’s trade secret protections are applied and litigated in Texas.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.