Trade Secret Protection: New Law, Practical Issues

The Texas Uniform Trade Secrets Act (TUTSA) became effective on September 1, 2013.  Texas was the 48th state to adopt a version of the model Uniform Trade Secrets Act.

Texas businesses should welcome the consistency offered by TUTSA, since it brings our law in line with that of most other states (the exceptions are New York and Massachusetts).

The statute defines “trade secret” as: “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.”

Tex. Civ. Prac. & Rem. Code §134A.002(6).

Instead of waiting for a legal dispute, businesses should proactively review the items that they consider as trade secrets.  The point of the review is to make sure that reasonable efforts have been made to maintain secrecy.

For example, the above definition includes a “list of actual or potential customers or suppliers” as a possible trade secret. But consider  the following scenarios:

• A customer list is kept on the company’s network, and is not password-protected;
• The list is password-protected, but employees have been known to share passwords; or
• Employees can access customer contact information on their personal smartphones, and a departing employee saved customer contact information in his personal contacts folder.

In these scenarios, arguably the company failed to make reasonable efforts to maintain secrecy.  That will be a problem if the business tries to claim trade secret protection for the customer list.

Businesses should review their policies and training regarding trade secrets, and make sure that as a practical matter, valuable confidential information is indeed kept confidential to the maximum extent possible.  Businesses should use password protections, access limitations, and other proactive strategies to help avoid trade secret misappropriation.