Trade Secret Protection in Texas: TUTSA and DTSA Presented by Elizabeth A. Voss

Texas Uniform Trade Secrets Act Uniform Trade Secrets Act originally published in 1979, amended in 1985 Goal of uniformity for companies doing business in multiple states Texas enacted TUTSA in 2013 Civ. Prac. & Rem. Code Ch. 134A 48th state to adopt some version of UTSA TUTSA was amended in 2017

TUTSA Replaces common law trade secret misappropriation for claims arising on or after September 1, 2013 TUTSA does not apply to misappropriation commencing before September 1, 2013, and continuing after this date TUTSA claims are brought instead of claims under conflicting law that provided civil remedies for misappropriation of trade secrets (Texas Theft Liability Act, conversion)

Original TUTSA Definition of Trade Secret “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.

“Trade Secret” Under TUTSA as of September 1, 2017 “Trade Secret” means all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if: A. the owner of the trade secret has taken reasonable measures under the circumstances to keep the 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.

Proper Means vs. Improper Means “Proper means” means discovery by independent development, reverse engineering unless prohibited, or any other means that is not improper means. “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.

“Misappropriation” Acquisition by improper means; or Disclosure or use without express or implied consent by a person who: Acquired the trade secret by improper means. At the time of disclosure or use, knew that the trade secret was acquired by improper means; was acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret; or was derived from a person who owed a duty to maintain secrecy. Before a material change in position, knew trade secret was acquired through accident or mistake.

Remedies Under TUTSA Injunctive relief Inevitable disclosure Applies to both actual and threatened misappropriation If requested, an injunction can continue for a reasonable amount of time after the trade secret has ceased to exist “to eliminate commercial advantage” Inevitable disclosure Texas has not adopted the inevitable disclosure doctrine, but courts have sometimes implicitly applied the doctrine to find irreparable harm DGM Servs. v. Figueroa, 2016 Tex. App. LEXIS 13808 (Tex. App.—Houston [1st Dist.] Dec. 29, 2016)

Remedies Under TUTSA In addition to or in lieu of injunctive relief: Actual loss caused by the misappropriation Unjust enrichment caused by the misappropriation that is not taken into account in computing actual loss Reasonable royalty Exemplary damages for willful and malicious misappropriation proved by clear and convincing evidence Attorneys’ fees under certain circumstances

Remedies in Addition to TUTSA Contractual remedies (non-disclosure or non-compete agreements) Civil remedies that are not based upon misappropriation of a trade secret (conspiracy or aiding and abetting claims) Criminal remedies

TUTSA Procedural Protections During Litigation Presumption in favor of Protective Orders Possible exclusion of a party representative when trade secrets disclosed In re M-1 L.L.C., 505 S.W.3d 569 (Tex. 2016) finding trial court should conduct a balancing test to determine whether party representative should be excluded from hearing where trade secrets of opposing party would be disclosed Texas Civil Practice and Remedies Code Sec. 134A.006(b) applies to actions commencing after September 1, 2017

Federal Law: Defend Trade Secrets Act Enacted May 11, 2017 Commission on Theft of American Intellectual Property found that intellectual property theft cost $300 billion per year Broad bipartisan and industry support Amended Economic Espionage Act to add a private, federal civil cause of action

DTSA Basics Largely mirrors the Uniform Trade Secrets Act Federal jurisdiction of trade secret theft in interstate or international commerce No state law preemption

DTSA Advantages Consistent substantive and procedural law nationwide UTSA creates opportunities for state law distinctions in trade secret protection (burden of proof, threatened misappropriation, innocent acquisitions of information, scope of information protectable, what constitutes “reasonable” measures to protect information) Only a small impact on substantive law to date Private party access to federal courts for trade secret protection Legislative perception: more sophisticated judiciary with regard to intellectual property protection and less crowded docket

DTSA Advantages Availability of ex parte civil seizure power to prevent the further disclosure of a trade secret Partial extraterritoriality If the offender is a U.S. citizen or corporation or If “an act in furtherance of the offense was committed in the United States” Potentially favorable for limitations periods – the timing of misappropriation does not matter so long as misappropriation is continuous

DTSA Cases Thus Far 42 DTSA cases filed in 2016 In February, March, and April of 2017, 83 DTSA cases were filed 1 jury verdict awarding damages - $500,000 for misappropriation of a fig spread recipe Dalmatia Import Group, Inc. v. FoodMatch, Inc.,16-cv-02767 (E.D. Pa. Feb. 24, 2017). N.D. Illinois, D. Utah, N.D. California, E.D. Virginia, D. Colorado, and E.D. Pennsylvania lead filings, but cases have been brought in N.D. Texas, E.D. California, M.D. Florida, S.D. Florida, W.D. New York, D. Oregon, W.D. Washington, E.D. Missouri (and in other courts)

DTSA Jurisdiction “An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

“Trade Secret” Under DTSA (3) the term “trade secret” means 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.

Trade Secret – DTSA vs. TUTSA The owner thereof has taken reasonable measures to keep such information secret TUTSA: Subject of efforts that are reasonable under the circumstances to maintain its secrecy *2017 Amendment simply requires that the owner has taken “reasonable measures under the circumstances to keep the information secret”

“Misappropriation” Under DTSA Acquisition by a person who knew or has reason to know that the trade secret was acquired by improper means; or Disclosure or use without consent by a person who: Used improper means to acquire the trade secret; Knew or had reason to know that knowledge of the trade secret: was derived from improper means; was acquired under circumstances giving rise to duty to maintain the trade secret; or was derived from a person who owed a duty to maintain the trade secret Knew or had reason to know it was a trade secret and had been acquired by accident or mistake

Misappropriation – DTSA vs. TUTSA Definitions are substantially identical, but “improper means” is more expansive under TUTSA DTSA – “includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means” TUTSA – “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” Under TUTSA, parties may prohibit reverse engineering by contract

Remedies Under DTSA Injunctive relief Protective order Monetary damages: Actual loss caused by the misappropriation; and Unjust enrichment caused by the misappropriation that is not addressed in computing actual loss; or Reasonable royalty for the defendant’s future use of trade secret; Exemplary damages for willful and malicious misappropriation (no more than double the above economic damages) Attorneys’ fees under certain circumstances

Ex Parte Seizure Under DTSA “Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only 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.” Seizure is performed by federal law enforcement Targets may seek damages for wrongful or excessive seizure

Requirements for Ex Parte Seizure Equitable relief would be inadequate “because the party to which the order would be issued would evade, avoid, or otherwise not comply” Immediate and irreparable injury Harm in denying the seizure outweighs harm in granting and substantially outweighs harm to any third parties in granting Likelihood of success Target has actual possession of the trade secret and property to be seized Application describes with reasonable particularity the matter to be seized and the location Target would “destroy, move, [or] hide” the matter if provided notice Applicant has not publicized the requested seizure 

Whistleblower Immunity Under DTSA A disclosing party is protected from civil and criminal liability if: “made in confidence to a Federal, State, or local government official, . . . or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of law; or” filed under seal if the disclosure is made in a complaint or other document filed in a lawsuit or other proceeding

Whistleblower Immunity Under DTSA In a retaliation lawsuit, the individual may disclose the trade secret to his/her attorney and use the trade secret if: any document containing the trade secret is filed under seal the individual does not disclose it, except pursuant to court order Notice of immunity must be included in employment agreements or in a policy document provided to the employee If not provided, employer forfeits attorneys’ fees and exemplary damages

Statute of Limitations – DTSA vs. TUTSA Three years after the date on which the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered DTSA and TUTSA Under DTSA, a continuing misappropriation constitutes a single claim of misappropriation for limitations purposes

Questions? Elizabeth A. Voss Dykema Cox Smith 1717 Main Street, Suite 4200 Dallas, Texas 75201 Telephone: 214.698.7820 Fax: 855.246.1836 Email: evoss@dykema.com www.dykema.com

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