Businesses that get caught up in trade secret disputes and litigation often have to disclose some aspect of their trade secrets in order to prove or disprove allegations and claims. This potentially causes much risk in pursuing or defending against trade secret-stealing former employees, competitors, and other thieves. Now that Texas has enacted the TUTSA, hopefully many of the protections built in the law will help positively address these ongoing concerns and encourage trade secret owners to protect their proprietary information in a proactive way.
Pursuant to TUTSA, actual and threatened misappropriation may be enjoined or stopped by a court order. Texas courts have traditionally been reluctant to expressly recognize the idea of “threatened misappropriation,” which is often linked to the “inevitable disclosure” doctrine, or the idea that the information will eventually become public knowledge and thus no longer secret. The inclusion of the “threatened misappropriation” language in TUTSA should be particularly useful for a company seeking to enjoin the activities of a former employee who joins a competitor or starts a competing business because the injunction may be applied before any trade secret information has been used to the company’s detriment. Moreover, TUTSA allows the continuation of an injunction for additional time to eliminate any commercial advantage derived from misappropriation, rather than termination of the injunction once the protected information is no longer secret. TUTSA also gives courts the power to compel “affirmative acts to protect a trade secret” under appropriate circumstances. This provision is great news for trade secret owners who can now stop the spread of their information before it starts with the help of the courts under TUTSA.
- Provision for Attorneys’ Fees and Monetary Damages
The ability to recover attorneys’ fees is a new form of relief available under TUTSA. Texas courts will now have discretion to award the prevailing party its reasonable attorneys’ fees where willful and malicious misappropriation is shown. Trade secret owners will be much more likely to pursue these claims because the threat of mounting legal fees will no longer be a deterrent. Further, attorneys’ fees may be awarded for misappropriation claims made in bad faith. Previously, any claim for attorneys’ fees relied on a separate cause of action such as breach of a confidentiality agreement or recovery under the Texas Theft Liability Act (“TTLA”).Caution must be exercised here, however, because claims brought in bad faith (or without merit) will require the trade mark owner to pay the attorneys’ fees of the other party if the owner loses.
With respect to monetary damages, TUTSA provides for the actual loss caused by the misappropriation, as well as any unjust enrichment not included in the actual loss computation. Unjust enrichment could include a defendant’s increased revenues and resulting profits, reduced production costs and resulting profits, and the avoided cost of development. Furthermore, a court has the power, in exceptional circumstances, to condition future use of the trade secrets upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Alternatively, damages may be calculated by a reasonable royalty for the unauthorized use or disclosure of a trade secret. TUTSA also makes exemplary damages available for willful and malicious misappropriation proven by clear and convincing evidence. However, such an exemplary damages award is limited by TUTSA to no more than twice the amount of actual damages.
2. Enhanced Protection for Trade Secrets during Litigation
In addition to the trade secret protections discussed above, TUTSA tasks courts with preserving the secrecy of an alleged trade secret, and it provides “a presumption in favor of granting protective orders to preserve the secrecy of trade secrets.” Among the means of protecting trade secrets through protective orders, TUTSA specifically includes “provisions limiting access to confidential information to only the attorneys and their experts” and ordering parties not to disclose alleged trade secrets during litigation.
3. Reverse Engineering Not Inherently Improper
Although TUTSA generally expands a company’s ability to protect its trade secrets, there are statutory limits. Excluded from the Act’s definition of trade secret is any information learned through the “reverse engineering” of a competitor’s product, which is defined as “the process of studying, analyzing, or disassembling a product or device to discover its design, structure, construction, or source code.” Thus, assuming the product was lawfully acquired, a company remains without legal recourse against a competitor that learns how it is made through reverse engineering.
TUTSA also provides examples of activities that are not considered improper means of acquiring a trade secret. However, TUTSA stipulates that a trade secret acquired or learned by “proper means” is not a source of liability for the learner. “Proper means” includes independent development and reverse engineering, unless prohibited. Therefore, a license agreement which prohibits the reverse engineering of a licensed product will indeed protect the trade secrets of that product since any reverse engineering would therefore fall under the “unless prohibited” language.
What TUTSA Has Not Changed
The three-year statute of limitations on misappropriation of trade secrets remains unchanged. Also note that TUTSA does not apply, however, to any trade secret misappropriation or continuing misappropriations that occurred prior to September 1, 2013.
For more information about how to further protect your business ideas and trade secrets, please call us today at (713) 574-8626.
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