Protecting Trade Secrets in Texas: How to Identify and Protect a Trade Secret? | Hendershot Cowart PC

To maintain your protection under Texas law, how do you keep a trade secret a secret?

According to §134A of the Texas Code of Civil Practice and Remedies, also known as the Texas Uniform Trade Secrets Act or TUTSA, a trade secret is:

“Information [that] derives independent economic value, actual or potential, from not being generally known and not readily ascertainable through appropriate means by another person who may derive economic value from the disclosure or use of the information.”

To protect a trade secret, TUTSA also specifies that the owner must take reasonable measures to keep information hidden from others.

What are “reasonable measures” to preserve a trade secret?

“Business owners have an obligation to protect their trade secrets,” explains Trey Hendershot, managing partner of Hendershot Cowart. “If the owner does not take steps to protect the information, it is not a trade secret.”

Here are some examples of reasonable measures to protect and maintain your trade secrets:

• Require employees, customers and suppliers with access to confidential information to sign a confidentiality or non-disclosure agreement (NDA)
• Training employees how to handle trade secrets; specifically addressing the handling and confidentiality of trade secrets in the employee handbook
• Be careful when transmitting or sharing information electronically. If you use Zoom or other web conferencing applications, require passwords for participants and take other precautions.
• Conduct closing interviews to remind employees of their legal obligations to protect trade secrets
• Ensure departing employees return company-owned information and devices, and delete confidential information from personal devices
• Labeling information as “proprietary and confidential”
• Secure storage of physical information, ie. requiring security badges to access file rooms
• Secure storage of digital information, i.e. save to a password protected server
• Limiting access to information on a need-to-know basis
• Track and record which employees have access to a trade secret

To keep a trade secret, you should keep it with as few people as possible and take steps to protect it both physically and digitally.

What actions can invalidate information as a trade secret?

Something as simple as disclosing information in the wrong place at the wrong time can invalidate its treatment as a trade secret. If you disclose the information publicly (inadvertently or intentionally), it is no longer a trade secret, and Texas courts look with disdain on negligence.

Consider these examples; some taken directly from previous court cases:

• If others can “reverse engineer” your trade secret or discover the secret through research, it may be disqualified as a trade secret.
• If an employee refuses to sign a confidentiality agreement and you share the information anyway, a court may find your measures unreasonable.
• If neither your employee handbook, employee training, nor employment contracts address the protection of confidential information, it can be a challenge to convince the courts that you have made reasonable efforts to protect it.

TUTSA allows plaintiffs to bring lawsuits only when trade secrets were acquired through improper means, used or disclosed without consent, or otherwise misappropriated.

Can you sue for a trade secret?

yes You can ask the courts for an injunction (called an injunction) to prevent a former employee, vendor or customer from using your confidential information, and you can sue for damages. First, you must prove that the information in question is a trade secret and that you have taken steps to protect it.

In Texas, courts typically consider the following questions when determining whether information constitutes a trade secret:

• To what extent is the information known outside the business?
• To what extent is the information known within the business (among employees and others involved in the business)?
• What measures has the business taken to protect the confidentiality of the information?
• How valuable is the information to the business and its competitors?
• How difficult or expensive was it to develop the information?
• How easy was it for others to acquire or duplicate the information?

What are some examples of trade secrets?

Common trade secrets include:

• Customer lists
• Finance data
• Patents
• Prototypes
• Patterns
• Codes
• Methods
• Techniques
• Formulas
• Scientific, technical or engineering information

If someone misappropriates your valuable, well-protected trade secret, you can ask the court for an injunction and file a claim for damages. Of course, you will not only have to prove that your information was a trade secret, but you will also have to prove misappropriation of that secret.