Trade secret protection under state vs. federal law
Parties in Texas long had to look to the common law when litigating to protect their trade secrets. That has all changed.
In 2013, Texas joined the vast majority of states and enacted the Uniform Trade Secrets Act (UTSA), found at Section 134A.001, et. seq. of the Texas Civil Practice & Remedies Code. The UTSA went into effect on September 1, 2013 and displaces all other laws in the state providing civil remedies for misappropriation of trade secrets.
Then, on May 11, 2016, the federal Defend Trade Secrets Act (DTSA) was signed into law and took effect immediately. The DTSA creates, for the first time, a federal civil cause of action for misappropriation of trade secrets.
The DTSA was modeled after the UTSA, adopted in some form by almost every state, so the statutes are similar in many respects. For example, the definition of “misappropriation” is virtually identical in both statutes; essentially, the acquisition, disclosure or use of a trade secret belonging to someone else without his or her consent will constitute misappropriation. Tex. Civ. Prac. & Rem. Code §§ 134A.002(3); 18 U.S.C. § 1839(5).
Moreover, both the UTSA and the DTSA allow for the recovery of actual damages, as well as attorney’s fees and exemplary damages of 2 times damages in the event the misappropriation was willful and malicious. Tex. Civ. Prac. & Rem. Code §§ 134A.004(a)-(b) and 134A.005(3); 18 U.S.C. §§ 1836(b)(3)(B)(i)(I), 18 U.S.C. §§ 1836(b)(3)(C), 18 U.S.C. §§ 1836(b)(3)(D). And, both the UTSA and the DTSA provide courts with broad latitude to enter protective orders, or take other necessary actions, to protect the secrecy or confidentiality of trade secrets during litigation. Tex. Civ. Prac. & Rem. Code § 134A.006; 18 U.S.C. § 1835(a).
However, there are differences between the UTSA and the DTSA. One such difference – although not a major one – is the definition of what constitutes a “trade secret.”
UTSA definition of “trade secret” – Tex. Civ. Prac. & Rem. Code § 134A.002(6):
“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.”
DTSA definition of “trade secret” – 18 U.S.C. § 1839(3):
“all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if – (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”
Both the UTSA and the DTSA provide for injunctive relief to enjoin misappropriation, either actual or threatened. Tex. Civ. Prac. & Rem. Code § 134A.003; 18 U.S.C. § 1836(b)(3)(A)(i). However, the DTSA specifically prohibits an injunction that prevents a person from entering into an employment relationship. 18 U.S.C. § 1836(b)(3)(A)(i)(I). Conversely, there is no such prohibition in the UTSA. In fact, it is not uncommon for employers in Texas to try to obtain such injunctions against former employees – who are subject to non-competition agreements – where there is an allegation that the employee has shared or disclosed the former employer’s trade secrets with the new employer.
Another important distinction between the UTSA and the DTSA relates to the applicability of the inevitable disclosure doctrine, which allows employers to seek injunctive relief against former employees on the grounds that it is inevitable the employee will use or disclose the employer’s trade secrets. The UTSA recognizes the inevitable disclosure doctrine, at least implicitly. Tex. Civ. Prac. & Rem. Code § 134A.003. However, the DTSA rejects the doctrine, in that it specifically holds that injunctive relief is not available to an employer based solely on information the former employee knows. 18 U.S.C. § 1836(b)(3)(A)(i)(I).
But perhaps the biggest distinction between the UTSA and the DTSA is a unique provision in the DTSA that provides for the ex-parte seizure of misappropriated trade secrets. 18 U.S.C. § 1836(b)(2)(A). This is an entirely new procedure as it relates to trade secrets, and nothing similar is found in the UTSA.
Under the DTSA, the court may, upon ex-parte application in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action. 18 U.S.C. § 1836(b)(2)(A)(i). There are specific statutory requirements that must be met before an order may issue. 18 U.S.C. § 1836(b)(2)(A)(ii). And, the order must spell out, among other things, the specific manner in which the seizure must be executed. 18 U.S.C. § 1836(b)(2)(B). Finally, the court must hold a hearing within seven days of issuing the order, and at such hearing, the party who obtained it must prove the findings of fact and conclusions of law necessary to support the order, or the order shall be dissolved or modified. 18 U.S.C. § 1836(b)(2)(F)(i)-(ii). A person who suffers damage as a result of a wrongful or excessive seizure has a cause of action against the party who requested and obtained the seizure. 18 U.S.C. § 1836(b)(2)(G).
Therefore, importantly, parties who believe they have been the victim of trade secret misappropriation in Texas now have two statutory avenues by which they can pursue tortfeasors, and they have the option of doing so in state or federal court.
© Eric C. Wood, 2016