Tag Archives: business

Has a Former Employee Stolen your Ideas? Protect Your Trade Secrets Part 3

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.

  1. 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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Protecting Your Trade Secrets Part 2: TUTSA to the Rescue!

 

If you own a business that has proprietary information of any kind (secret recipes, customer lists, technical data, etc.), you will be glad to know that Texas has enacted a law just for you. The Texas Uniform Trade Secrets Act (“TUTSA”) was modeled after the Uniform Trade Secrets Act (“UTSA”) authored by the Uniform Law Commissioners of the National Conference of Commissioners on Uniform State Laws in 1979. States without UTSA depend on the common law to resolve disputes over misappropriation of trade secrets. This creates great uncertainty for industry, particularly for companies that conduct business in more than one state, since the courts in different jurisdictions have made conflicting decisions on trade secret issues. Additionally, some important issues have never been adequately addressed in the common law. Variations in state law have created confusion about which law should be applied, and encourage litigants to “forum shop” or file their lawsuits in the jurisdiction with the most favorable laws.

Under the common law, some fundamental concepts were disturbingly unclear, including the precise definition of a “trade secret,” and the question of rights and equitable relief for businesses whose secrets have been improperly obtained and used. In the past, only experts in trade secrets law have been able to interpret the existing law. The uniform act was written to clarify rights and remedies, making the law comprehensible to a far broader segment of the legal profession. As a result, private industry should find it easier, and ultimately less expensive, to obtain competent legal assistance in protecting trade secrets. With these goals in mind, Texas became the 48th state to adopt its version of the UTSA. The adoption of substantially similar language to the uniform statute will make Texas’s trade secrets law more consistent with the laws of other states.

The Texas Uniform Trade Secrets Act went into effect on September 1, 2013.1 Similar to UTSA, the focus of TUTSA is primarily to codify Texas’s current trade secret law, while strengthening trade secret protections and providing greater certainty to misappropriation claims. The new statute can be found in Texas Civil Practice & Remedies Code Chapter 134A.

What Is Misappropriation?

Misappropriation means acquiring a trade secret by “improper means” or from someone who has acquired it through “improper means.” Things like theft, bribery, and misrepresentation are “improper means.” Misappropriation also includes disclosure and use of a trade secret acquired through “improper means.” If there is a misappropriation, the injured person may be entitled to injunctive relief and damages. If there is willful and malicious misappropriation, the injured party may be entitled to exemplary damages.

If you believe a former employee or competitor has gotten your proprietary information without your knowledge or consent, call us today at (713) 574-8626.

How to Protect your Business’ Trade Secrets Part 1

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This blog is specifically for business owners. If you have formulas, special recipes, client lists, or any other information you wouldn’t want your competitors to have, pay close attention. There are a few steps you can take that will protect your trade secrets and the livelihood of your business. Texas passed a new law called the TUTSA that will be discussed in detail later that is a boon to small business owners because it provides increased protection and secrecy during trade secret litigation. Before you get to that point, however, take heed to the following:

  1. Identify Trade Secrets

Businesses should identify what information is considered a trade secret. A trade secret is information with commercial value that has not been publicly disclosed by its owner. It may encompass elements such as business methods, strategic plans, customer lists, formulas, or product designs. Many businesses are faced with employees having access to their confidential information and data that they do not want to see being shared with a competitor.

2. Take Precautions during Hiring

When hiring from the competition, a company can fall into the cross hairs of a trade-secret enforcement action. The best practice is to take reasonable measures to respect competitors’ trade secrets such as using orientation training to educate employees about common types of trade secrets in your industry, along with how to use the company’s trade secrets. Require new hires to agree in writing not to mix their jobs with a former employer’s trade secrets.

3. Confidentiality, Non-Compete, and Non-Disclosure Agreements

Given the increased certainty in the law, businesses should consider choosing Texas as the governing law for their agreements as well as modifying their current agreements to reflect the recent changes.  As the ultimate determination of whether information constitutes a trade secret will be case specific, businesses should be able to demonstrate measures taken to safeguard trade secret information and should clearly identify such information as “confidential.”

4. Send Prompt Cease-and-Desist Letters

Your in-house counsel or legal department should send a cease-and-desist letter immediately upon learning that an ex-employee has landed a job with a direct competitor before that competitor has an opportunity to launch a new product or business initiative using any misappropriated trade secrets. The letter should specifically notify the competitor regarding the types of trade secrets the employee may have. A vague cease and desist letter will not put your competitor on notice to stop using your ex-employee’s confidential information, so be as specific as possible.

Conclusion

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.

Small Business Owners: 3 Things Your Lawyer Needs to Know

Recently this office has been bombarded with questions from harried business owners. They range in topic and severity. “Can I finance the sale of my store?”  “Should I agree to this business proposal?” “What’s the best way to protect myself from a lawsuit if any employee gets injured?” These are all excellent questions to ask a lawyer, but they shouldn’t be the starting point for your discussion.

To effectively assist my business clients, a seasoned attorney needs essential information to get started. Before you schedule your initial consultation to address your business needs, consider these five factors and let your attorney into your world. The more we know, the more we can do to help you.

1. What kind of business are you?

Are you a small business with one employee? Do you run a goods or service based operation? The nature of your business is very important because it determines what areas of the law that may be applicable to you. Without knowing what exactly it is you do, I will have a much more difficult time getting the results you want, and that won’t be entirely my fault. Attorneys and clients have to establish a rapport, a real relationship, in order to be effective. The more comfortable you get with me and the more I find out about you, your business, and your goals, the better.

2. Who manages your business finances?

This is an important one. I’ve had business owners contact me in hopes that I’d negotiate or draft an agreement to buy or sell a business without telling me anything about their organizational structure. If you’re not the CFO, accountant, attorney-in-fact, or any kind of agent with the ability to act with authority, you should get me in touch that person and allow us to discuss the terms of your agreement. More often than not, the business owner is the person I should be talking to, but not always. To prevent problems later, I always ask. There’s nothing worse than executing an agreement and finding out that the person who signed it had no authority to do so. That’s what lawsuits are made of. Not good.

3. What Do You Want to Happen?

Sometimes people come to me seeking general advice or counsel on the direction of their business, which is fine. These dialogues are often very productive; however, if you don’t have a goal in mind, we have nowhere to start. The decision to expand, re-brand, franchise, or sell your business is your decision, not your lawyer’s. Remember that we work for you. You’re the captain of the ship, and we go where you send. So please take the time to fully develop your goals and the future direction of your business. Whatever your desired outcome is, share it with your lawyer, and we’ll discuss your options to making it happen.

For more information about what we can do for your business, call 713-574-8626.