Texas Puts its Lone-Star Spin on Trade Secret Protection

by Bracewell LLP

Effective on September 1, 2013, trade secret owners in Texas will have a statutory framework for litigation in an actual or threatened misappropriation of trade secrets.1 Texas recently joined the other forty-seven states2 in implementing a version of the Uniform Trade Secrets Act (UTSA). The Texas Senate passed the bill unanimously, and the House approved the bill almost unanimously: with only one nay vote. 

Texas, however, did not adopt the UTSA in whole cloth, but instead put its Lone Star brand on the Act, providing, for example, a broader list of protectable information. The Texas Uniform Trade Secret Act (TUTSA) changes existing common law governing trade secrets in Texas in several significant ways. An examination of the TUTSA against the backdrop of the current common-law framework highlights some of this Texas spin. 

Trade Secrets Defined Texas Style
Under the current Texas common law, a trade secret constitutes any formula, pattern, device or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it.3 Texas courts also utilize a six-factor test to analyze whether the information qualifies as a trade secret.4 The Texas criminal theft statute defines a trade secret as the "whole or any part of any valuable scientific or technical information, design, process, procedure, formula, or improvement," and which an owner takes measures to prevent such information from becoming available to unauthorized others.5

The new definition of trade secrets under the TUTSA covers:

"information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers, that: (A) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."6

TUTSA expands the UTSA definition to include financial data and lists of actual or potential customers or suppliers, which is not protected by trade secrets statutes in several states, like California and Florida. This statutory protection will be appreciated by many knowledge-based businesses, whose value rests significantly on business information like customer profiles, customer and supplier lists, and sales and distribution strategies.

TUTSA also eliminates the common-law requirement for the information to be in continuous use to qualify as a trade secret.7 Thus, trade secrets that have been abandoned or are not actively used or are developed for future use may enjoy TUTSA protection, provided that they meet the remaining statutory requirements. This also strengthens the common-law protections in Texas for "negative know-how," which is the proprietary knowledge about what does not work or has failed, and is information usually not "used" by the business.8

Status Quo for the Statute of Limitations
Under the current Texas law, a person must bring a suit for misappropriation of trade secrets no later than three years after the misappropriation is discovered, or by the exercise of reasonable diligence should have been discovered.9 A misappropriation of trade secrets that continues over time is a single cause of action and the limitations period begins running without regard to whether the misappropriation is a single or continuing act. TUTSA provides no independent provision for the statute of limitations.  Moreover, TUTSA applies only to misappropriation of a trade secret made on or after the effective date of September 1, 2013. 

Texas Expands Definition of "Improper Means"
In addition to breaches of the duty to maintain secrecy, TUTSA has expanded the definition of improper means to include "breach or inducement of a breach of a duty to limit use, or to prohibit discovery of a trade secret." Owners of trade secrets should take the time to revise confidentiality policies, employees’ duties and responsibilities, and non-disclosure agreements to add these duties in addition to the duty to maintain the secrecy of the trade secrets. Employers should take affirmative actions, like training employees and monitoring employees’ activities, to ensure that any third party trade secret information is used to the limited purpose and adequate measures are taken to prohibit the discovery of such information.

Securing Trade Secrets by "Proper Means"
The best defense to a trade secret misappropriation claim is the securing of information by proper means.  TUTSA defines proper means as "discovery of the information by independent development, reverse engineering unless prohibited, or any other proper means." This is similar to current common law defenses. Businesses that engage in these proper means would be well-advised to document any reverse engineering processes, so that their processes and practices continue to fall within the "proper means" of acquiring a trade secret. Trade secret owners should proceed judiciously with agreements such as non-disclosure agreements and end-user licenses to prevent unauthorized reverse engineering.

Texas Offers Strong Economic Remedies
Under Texas common law, the basis of a trade secret claim affected the proof required and the remedies available.  Usually the common law causes of action may be based on several theories, including breach of a confidential relationship, breach of an express or implied contract, and/or unfair competition or conspiracy. Plaintiffs received both money damages and injunctive relief, but did not usually recover attorney fees. A separate cause of action for recovery under the Texas Theft Liability Act provided for attorney fees and actual damages, but capped the additional damages to no greater than $1000. 

The remedies available under TUTSA are the exclusive civil remedies available for trade secret owners, because TUTSA has a preemption provision that displaces conflicting tort, restitutionary, and other civil remedies for trade secret misappropriation.10 TUTSA also removes any liability for theft of trade secrets under the Texas Theft Liability Act.11 But TUTSA does not affect any of the other contractual or criminal remedies. TUTSA is also silent on the proof required for a trade secret misappropriation claim but provides a broad range of possible remedies. As to economic remedies, TUTSA provides for both actual loss and the unjust enrichment caused by the misappropriation, and provides for exemplary damages not exceeding twice any such damage award. 

Moreover, TUTSA has created a basis for recovery of attorney’s fees for the prevailing party in bad faith or willful and malicious circumstances. This makes it easier for plaintiffs to bring a lawsuit against defendants in instances where the actual damages are low or the only remedy is an injunction. Prevailing defendants may have an opportunity to recover attorney fees, which is not possible under the current law. 

Texas Offers Strong Protection of Trade Secrets During Litigation
Usually parties in litigation are subject to discovery relating to their trade secrets and confidential conformation. Parties may agree to protective orders where there is a duty of nondisclosure or limited disclosure to protect such information. Under Texas common law, a trial court may grant a protective order or seal court documents related to trade secrets, but the presumption is that court records are to be open to the general public. TUTSA embraces the UTSA mandate that courts preserve "the secrecy of an alleged trade secret by reasonable means." More importantly, TUTSA provides a presumption in favor of granting protective orders to maintain the secrecy of trade secrets in any action under this statute. This should reduce any disputes regarding the availability of protective orders for trade secrets during litigation. 

Bottom Line: Texas Continues to be Friendly for Business
TUTSA contains a "uniformity of application and construction" clause that directs courts and attorneys to look at how other states have addressed particular issues. Considering that Texas is one of the last states to adopt the model rules, it will be interesting to see the extent Texas courts adopt constructions from other states or rely on Texas precedent in construing particular provisions of the statute.  Greater uniformity in the law across the states may provide trade secrets a rather equal footing as patents, copyrights, and trademarks.  This relative standardization of the law will help businesses set standard trade secret and employment policies, and also provide greater certainty in valuation of trade secrets. Choosing Texas as the governing law in your agreements and for business locations can be extremely beneficial. Comporting with the meaning of its name,12 the Lone Star State has adopted a business-friendly trade secret statute.

For a comparison of provisions under the UTSA, TUTSA and the Texas Common Law, click here.


1 Act of May 2, 2013, 83rd Leg., R.S., Ch. 10, § 1, 2013 Tex. Sess. Law. Serv. 1 (Vernon) (to be codified at Tex. Civ. Prac & Rem. Code § 134A).

2 Only New York and Massachusetts have yet to adopt a version of the UTSA. 

3 See Computer Associates Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996) and Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d 763, 776 (Tex. 1958) (quoting Restatement of Torts § 757 (1939)).

4 In re Bass, 113 S.W.3d 735, 739 (Tex. 2003)(holding that a party claiming a trade secret need not satisfy all six factors).

5 Tex. Penal Code Ann. § 31.05(a)(4) (2011).

6 Information emphasized in italics indicates the categories of trade secrets not protected under the UTSA. 

7 Texas courts have not consistently applied the continuous use requirement.   See, e.g., Elcor Chemical Corp. v. Agri–Sul, Inc., 494 S.W.2d 204, 213 (Tex.Civ.App.-Dallas 1973, writ ref'd n.r.e.)(affirming judgment enjoining use of trade secrets despite evidence that Elcor had ceased to produce product and had financial issues) and CQ Inc. v. TXU Mining Co., 565 F.3d 268, 274 (5th Cir. 2009) (finding that CQ’s proposed strategy was not a trade secret under Texas law because it was not a "process or device for continuous use.")

8 See, e.g., Metallurgical Industries Inc. v. Fourtek, Inc., 790 F.2d 1195, 1202-03(5th Cir. 1986) ("Knowing what not to do often leads automatically to knowing what to do.") and T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 22-23 (Tex.App.—Houston [1st Dist.] 1998; pet. dism’d) (acknowledging the value of knowing "which components work and which do not.") 

9 Tex. Civ. Prac & Rem. Code § 16.010.

10 Act of May 2, 2013, 83rd Leg., R.S., Ch. 10, § 1, 2013 Tex. Sess. Law. Serv. 1 (Vernon) (to be codified at Tex. Civ. Prac & Rem. Code § 134A).

11 Act of May 2, 2013, 83rd Leg., R.S., Ch. 10, § 2, 2013 Tex. Sess. Law. Serv. 1, 4 (Vernon). 

12 The name Texas is derived from the Caddo Indian word "teyshas" (meaning "friends" or "allies") and the state motto is "friendship."


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bracewell LLP | Attorney Advertising

Written by:

Bracewell LLP

Bracewell LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.