Trade Secrets
A Guide to Texas Trade Secret Laws
Mar 31, 20214 min read
Given the primacy of technology to the operation of the global economy, it should come as no surprise that jury awards in trade secret disputes are trending well into the nine-figure range. As recently as March 18 of 2021, a Texas jury awarded $152 million to a software company in a trade secret dispute. Stout Risius Ross, a global investment bank and advisory firm recently reported that the total amount awarded by juries in trade secret lawsuits exceeded $3 billion from 1990 to 2017. And GE’s recent $1 billion lawsuit against Siemens Energy for theft of trade secrets relating to rig contract bids elucidates the upward trajectory of damages sought in trade secret litigation.
This article will provide an overview of two laws: the Texas Uniform Trade Secret Act (TUTSA) and the recently enacted Defend Trade Secrets Act of 2016 (DTSA). Specifically, we will analyze key aspects of each law, particularly where they diverge. This article focuses on a spate of recent decisions from the Texas federal courts to show how the two laws can impact a trade secret dispute and how a party in litigation can maneuver them towards a favorable resolution.
The architecture of TUTSA and DTSA statutes is generally the same. Both define “trade secrets” broadly and both provide remedies for theft or misappropriation through injunctive relief, monetary damages, or both.
TUTSA defines trade secrets as “all forms and types of information, including business, scientific, technical, economic, or engineering information” as well as any “formula, design, prototype, pattern, plan,” or similar item. To qualify as a trade secret, TUTSA requires secrecy: the owner must have taken “reasonable measures under the circumstances to keep the information secret.” DTSA similarly provides a broad definition of “trade secret.”
TUTSA and DTSA’s definitions of misappropriation are almost exactly the same. TUTSA provides relief to those aggrieved by the misappropriation of their trade secrets. However, the federal statute does provide one requirement for actionable misappropriation not present in its Texas analogue: DTSA requires that the trade secret be “related to a product or service used in, or intended for use in, interstate or foreign commerce.”
Should a trade secret be misappropriated, both statutes provide both injunctive and monetary relief. Both also provide for an award of exemplary or punitive damages should a plaintiff show willful and malicious misappropriation. Furthermore, both statutes provide for awards of attorneys’ fees for misappropriation claims made in bad faith.
DTSA is a federal statute that expressly provides federal court jurisdiction. Federal law follows a plausibility standard of pleading that requires a complaint to state a claim to relief that is plausible on its face. Texas law follows a fair notice standard of pleading, which looks to whether the opposing party can ascertain from the pleading the nature and basic issues of the controversy.
Claims asserted under DTSA may create federal jurisdiction while a plaintiff opting to assert TUTSA claims may avoid the federal courts. With federal jurisdiction comes federal pleading standards and thus more detailed, plausible averments and not simple fair notice. As one recent federal court decision noted, “while federal courts applying Texas law have discussed the similarity of terms like ‘trade secret,’ such similar elements and overlapping definitions are irrelevant if they are not pleaded properly under the appropriate standard.”
TUTSA preempts “conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.” Critically, there is no preemption under DTSA.
TUTSA preemption encompasses all claims based on the alleged improper taking of confidential business information and can be used to seek dismissal of commonly pled claims for misappropriation of confidential information, breach of fiduciary duty, violations of the Texas Theft Liability Act, common law conversion, and violations of the Texas Harmful Access by Computer Act.
There is currently a split amongst the Texas federal courts on the extent of TUTSA preemption. The state courts and Western, Northern, and Eastern Districts apply TUTSA’s preemption provisions broadly, while the Southern District holdings allow a plaintiff to plead alternative theories under separate causes of action.
The most obvious difference is DTSA’s provision of a civil seizure remedy, allowing an aggrieved party to apply for a court to seize property necessary to prevent the propagation or dissemination of the trade secret. TUTSA has no analogue.
DTSA and TUTSA also have differences in their provisions for injunctive relief. DTSA’s language is specific to an “employment relationship,” while TUTSA’s is broader, requiring only that the individual be allowed to use his or her “general knowledge, skill, and experience,” whether in an employment relationship or acting independently.
TUTSA requires a showing of willful and malicious misappropriation by “clear and convincing evidence.” DTSA provides no express burden of proof. It is therefore an open question as to whether a party proceeding under DTSA needs to prove willful and malicious misappropriation by clear and convincing evidence, or whether the lower evidentiary standard of a preponderance of the evidence applies.
While the variations between TUTSA and DTSA discussed above may seem acute, the consequences of these differences can significantly impact the course of a trade secret dispute. Therefore, they should be accounted for as early as possible in any trade secret dispute.
A party may believe the risks of TUTSA preemption outweigh the dangers of a heightened federal pleading standard and decide to proceed in a federal forum with DTSA claims. Conversely, a party confident in its trade secret claim may wish to avoid federal pleading standards by filing TUTSA claims in state court. These determinations should be made on a case-by-case basis as early as possible—ideally, prior to the issue of litigation arising in the first place.