The Texas legislature recently enacted an amendment to the Texas Uniform Trade Secrets Act, which becomes effective on September 1, 2017. The substantive changes to the statute fall into three categories.
New and Revised Definitions
The amendment adds definitions to clarify the following terms that are used in TUTSA:
1. the level of proof required to establish “clear and convincing” evidence and “willful and malicious misappropriation,” which both must be established to obtain exemplary damages; and
2. who qualifies as an “owner” of a trade secret.
The amendment also adds to the definition of “trade secret” multiple examples of types of trade secrets and the manner in which a trade secret may be stored. This change makes it clearer that “trade secrets” can exist in “all forms and types of information” regardless of how the information is stored.
Threatened Misappropriation Injunctions
The original text of TUTSA authorized courts to issue an injunction to prevent both actual and threatened misappropriation of a trade secret. The amendment limits that relief to situations in which “the order does not prohibit a person from using general knowledge, skill, and experience that person acquired during employment.”
Excluding a Party of Its Representatives From the Courtroom
In May 2016, I wrote a blog post discussing the Texas Supreme Court’s decision that month in In re M-I LLC. The Supreme Court set out a due-process balancing test for Texas courts to apply when deciding whether a defendant may be excluded from the courtroom during portions of proceedings at which a plaintiff’s trade secrets will be discussed. The reason for excluding the defendant from the courtroom would be to prevent disclosure of the plaintiff’s trade secrets to another party who is typically a competitor.
The TUTSA amendment that will become effective later this year provides a statutorily defined method for resolving this situation in place of the In re M-I LLC opinion. First, the amended version of TUTSA states that a presumption exists that a party will be allowed to participate and assist counsel in the presentation of the party’s case. Next, the amendment sets forth seven factors that the court must consider and balance when determining whether that presumption is overcome such that a party or its representatives (a) will be excluded from the courtroom or (b) have their access to the alleged trade secret of the opponent limited. The seven factors a court must consider are:
1. the value of an owner ’s alleged trade secret;
2. the degree of competitive harm an owner would suffer from the dissemination of the owner ’s alleged trade secret to the other party;
3. whether the owner is alleging that the other party is already in possession of the alleged trade secret;
4. whether a party ’s representative acts as a competitive decision maker;
5. the degree to which a party ’s defense would be impaired by limiting that party ’s access to the alleged trade secret;
6. whether a party or a party ’s representative possesses specialized expertise that would not be available to a party ’s outside expert; and
7. the stage of the action.
photo credit: Thomas Hawk Speak Until the Dust Settles in the Same Specific Place via photopin (license)