Patrick Keating

Texas Trade Secrets

Preemption: It’s Not Just for the Feds

Attorneys representing plaintiffs in theft of trade secrets lawsuits frequently use the “kitchen sink” approach when selecting the legal causes of action to assert on behalf of their clients.  In addition to a theft of trade secrets claim arising under the Texas Uniform Trade Secrets Act (“TUTSA”), lawyers tend to also assert alternative claims based upon the alleged theft of the trade secrets.  Examples of alternative claims are conversion, unjust enrichment and unfair competition.

As the saying goes, the fact that everyone does it does not make it right.

Section 134A.007 of TUTSA states that – with few exceptions —  the statute replaces other Texas law providing a remedy for misappropriation of a trade secret.  This is known as preemption.  You might expect defendants in TUTSA lawsuits to frequently raise preemption as a basis for dismissing some of the claims asserted against them.  Yet if they are, the issue is not making it into the case law.

I was only able to find one case considering the extent to which TUTSA preempts other legal claims.  In March 2016, United States District Judge Sam Sparks issued an opinion holding that TUTSA preempts a plaintiff’s alternative legal claims unless the plaintiff can show that the alternative claim is based on facts unrelated to the misappropriation of the trade secret.  That opinion is 360 Mortgage Group, LLC v. Homebridge Financial Services, Inc., No. A-14-CA-00847-SS, 2016 WL 900577 (March 2, 2016 W.D. Tex.).

Judge Sparks also addressed the thorny issue of how TUTSA preemption applies when a plaintiff claims that the business information stolen by the defendant includes both (i) trade secrets and (ii) other business information that does not qualify as a trade secret.  Does TUTSA preempt alternative legal claims based upon the theft of the non-trade secret information?  Judge Sparks says the answer is yes.

photo credit: One Way Stop Only via photopin (license)

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An Important Conflict in Case Decisions

Conflicting Texas federal district court opinions have been issued on one aspect of the Texas Uniform Trade Secrets Act (“TUTSA”).  The issue in dispute is whether (1) a plaintiff must establish that the defendant originally used improper means to gain access to the trade secret or (2) it is sufficient for the plaintiff to show that the defendant used or disclosed the trade secret in violation of an obligation not to do so.

This is significant when you consider a common fact pattern in trade secret lawsuits.  The plaintiff claims that it voluntarily disclosed its trade secrets to the defendant either because the defendant was the plaintiff’s employee or because the defendant first signed a non-disclosure agreement.  If voluntary disclosure of trade secrets under these circumstances is fatal to the plaintiff’s claim, then much of TUTSA’s bite disappears.  The statute would be left to cover situations of overt theft – such as breaking into a company office to steal a trade secret or bribing an employee to disclose the trade secret.

Although three of the cases discussed below held that the plaintiff must prove that the defendant acquired the trade secret through improper means, those decisions conflict with the text of TUTSA.  Recent opinions reaching the opposite conclusion are also discussed below. Continue reading

May a Defendant be Excluded From the Courtroom?

A recurring procedural dispute arises in theft of trade secrets lawsuits.  How should a trial judge resolve a Plaintiff’s request to exclude a Defendant from the courtroom during the time the plaintiff discloses its trade secrets to the court?  Continue reading

Get Ready for Federal Trade Secret Lawsuits

In a post last Fall, I expressed my view that the United States does not need a federal statute providing civil remedies for theft of trade secrets.  That debate is over.  Whether we need it or not, Congress enacted the Defend Trade Secrets Act (“DTSA”) on April 27, 2016.  I anticipate that President Obama will sign the bill.

Update: President Obama signed the DTSA into law on May 11, 2016.

Continue reading

A Better Encryption Mousetrap?

Some businesses object to the use of cloud storage of electronic data because of a fear that employees of the storage provider (or others) could access the businesses’ data stored in the cloud.  Even if the data is encrypted, this fear can still exist if the cloud storage service holds the key necessary to decrypt the data.  Continue reading

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