Texas aligns trade-secret law with federal Defend Trade Secrets Act
Effective September 1, 2017, changes are coming to Texas's trade-secret law.
On May 19, 2017, Governor Abbott signed HB 1995 into law. It makes some important changes to Texas's trade-secrets law to bring it in line with the new federal trade-secret act and incorporate Texas Supreme Court case law.
The new law makes it clear that the following additional categories of information can be trade secrets: "business, scientific, technical, economic, or engineering information, and any . . . design, prototype, . . . plan, . . . program device, . . . code, . . . [and] procedure." It also provides that the information does not have to be tangible or written down to be protected.
What is necessary is that the trade-secret owner has "taken reasonable measures under the circumstances to keep the information secret." Previously, the information had to be "the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
The amendments also provide further clarity as to who is a trade-secret owner: "the person or entity in whom or in which rightful, legal, or equitable title to, or the right to enforce rights in, the trade secret is reposed."
The law also provides a framework for deciding when a court should allow a party to assist counsel in the preparation of a trade-secret case. The framework is based on the balancing test developed by the Texas Supreme Court in In re M-I L.L.C. d/b/a M-I Swaco, 505 S.W.3d 569 (Tex., May 20, 2016). Under that approach, there is a presumption that a party can assist counsel.
The changes also provide definitions for "Willful and malicious misappropriation" and the burden for establishing willful and malicious appropriation—clear and convincing evidence—to get exemplary damages.
The amendments also require that any injunction to prevent the use of a trade secret cannot "prohibit a person from using general knowledge, skill, and experience that person acquired during employment."
In light of the change from "efforts" to "measures," businesses should review their policies with the help of an attorney to make sure that concrete measures are being taken to protect their trade secrets. They should also work with an attorney to determine if all potential trade secrets are being protected now that there has been an express expansion of what constitutes a trade secret. Agreements with employees and third-parties should be reviewed to make sure chain of title in the trade secrets are secured.
Finally, litigators should be ready to explain why any requested injunction will not prevent the alleged misappropriator from using his or her general knowledge. And they should be ready to defend any proposed protective order that seeks to prevent the opposing party from viewing discovery materials in light of the presumption in favor of party assistance.