Senate Bill 953: Will Texas Finally Adopt the Uniform Trade Secrets Act?
Senator John Carona of Dallas has introduced Senate Bill 953 in the Texas legislature. SB 953 would adopt the Uniform Trade Secrets Act, which is a standard set of state laws governing trade secrets. At present, Texas is one of only four states that has not adopted the UTSA.
The UTSA is not significantly different from existing Texas law on trade secrets. In fact, the UTSA is not terribly long. Here is the full text:
CHAPTER 134A. TRADE SECRETS
Sec. 134A.001. SHORT TITLE. This chapter may be cited as the Texas Uniform Trade Secrets Act.
Sec. 134A.002. DEFINITIONS. In this chapter:
(1) "Claimant" means a party seeking to recover damages under this chapter, including a plaintiff, counterclaimant, cross-claimant, or third-party plaintiff. In an action in which a party seeks recovery of damages under this chapter on behalf of another person, "claimant" includes both that other person and the party seeking recovery of damages.
(2) "Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret, or espionage through electronic or other means.
(3) "Misappropriation" means:
(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(B) disclosure or use of a trade secret of another without express or implied consent by a person who:
(i) used improper means to acquire knowledge of the trade secret;
(ii) at the time of disclosure or use, knew or had reason to know that the person's knowledge of the trade secret was:
(a) derived from or through a person who had utilized improper means to acquire it;
(b) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(c) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(iii) before a material change of the person's position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
(4) "Proper means" means discovery by independent development, reverse engineering unless prohibited, or any other means that is not improper.
(5) "Reverse engineering" means the process of studying, analyzing, or disassembling a product or device to discover its design, structure, construction, or source code provided that the product or device was acquired lawfully or from a person having the legal right to convey it.
(6) "Trade secret" means 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.
Sec. 134A.003. INJUNCTIVE RELIEF. (a) Actual or threatened misappropriation may be enjoined. On application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.
(b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include a material and prejudicial change of position before acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.
(c) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.
Sec. 134A.004. DAMAGES. (a) In addition to or in lieu of injunctive relief, a claimant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret.
(b) If wilful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under Subsection (a).
Sec. 134A.005. ATTORNEY'S FEES. The court may award reasonable attorney's fees to the prevailing party if:
(1) a claim of misappropriation is made in bad faith;
(2) a motion to terminate an injunction is made or resisted in bad faith; or
(3) wilful and malicious misappropriation exists.
Sec. 134A.006. PRESERVATION OF SECRECY. In an action under this chapter, a court shall preserve the secrecy of an alleged trade secret by reasonable means. There is a presumption in favor of granting protective orders to preserve the secrecy of trade secrets. Protective orders may include provisions limiting access to confidential information to only the attorneys and their experts, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.
Sec. 134A.007. EFFECT ON OTHER LAW. (a) Except as provided by Subsection (b), this chapter displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.
(b) This chapter does not affect:
(1) contractual remedies, whether or not based upon misappropriation of a trade secret;
(2) other civil remedies that are not based upon misappropriation of a trade secret; or
(3) criminal remedies, whether or not based upon misappropriation of a trade secret.
(c) To the extent that this chapter conflicts with the Texas Rules of Civil Procedure, this chapter controls. Notwithstanding Section 22.004, Government Code, the supreme court may not amend or adopt rules in conflict with this chapter.
Sec. 134A.008. UNIFORMITY OF APPLICATION AND CONSTRUCTION. This chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it.
The statute proposed by Senator Carona would also remove theft of trade secrets from the scope of the Texas Theft Liability Act. It should also be noted that the UTSA contains extensive comments that are not part of the Act itself. If Texas adopts the UTSA, those comments may become persuasive authority in Texas courts.
SB 953 has been referred to committee. Will it pass? We shall see.
David C. Holmes is a Houston employment lawyer with The Law Offices of David C. Holmes