Trade secrets can be highly valuable assets. Broadly speaking, any information that provides an economic edge by not
being generally known is protectable as a trade
secret, provided the owner takes reasonable measures to keep it secret.
When a trade secret is improperly acquired, disclosed, or used, the owner may
sue for trade secret misappropriation. Our trial lawyers defend and enforce trade secret misappropriation
claims in state and federal court. Contact us to learn how we can help.
What is a Trade Secret?
A trade secret is confidential, commercially valuable
information that provides a competitive advantage. Common trade
secrets are customer lists, marketing strategies, pricing information, product plans,
and chemical formulas; however, trade secrets can include all forms and types
of financial, business, scientific, technical, economic, or engineering
information. Whether information is a trade secret is a fact-intensive inquiry
that generally focuses on the type of information, the extent to which the
information is known by others, the measures taken by the trade secret owner to
keep the information confidential, and the information's value to its owner and
its owner's competitors. Unlike other forms of intellectual property, trade
secret protection may extend indefinitely, lasting as long as the trade secret
is kept confidential and has economic value. Google's search engine algorithm,
Coca-Cola's formula, and Kentucky Fried Chicken's recipe are examples of
well-known trade secrets.
Where are Trade Secret Cases Litigated?
Until recently, civil trade secret claims arose under state law. But in May 2016, the federal Defend Trade Secrets Act ("DTSA") was enacted, which armed businesses with a federal cause of action for trade secret misappropriation. Even so, because the DTSA does not preempt state trade secret law, companies may pursue trade secret claims under state law, federal law, or both. The facts of each case guide this decision.
Depending on when the misappropriation occurred, claims brought solely under Texas law are governed by either Texas common law or the Texas Uniform Trade Secrets Act ("TUTSA"). Either way, if the parties are not subject to diversity jurisdiction, suits brought under Texas law may be filed in the county where the defendant resides or has its principal office, or in the county where a substantial part of the acts giving rise to the claim occurred. Claims brought under the DTSA must be filed in federal court, and (generally speaking) may only seek to remedy misappropriation that occurred on or after May 11, 2016—the date the DTSA was enacted.
What is Trade Secret Misappropriation?
Misappropriation of a trade secret may occur in many ways. One form of misappropriation occurs when a person acquires another's trade secret through improper means, such
as theft, bribery, misrepresentation, espionage, or breach of a duty to maintain the secrecy of a trade secret. Misappropriation also occurs when a
person uses or discloses a trade secret he acquired by improper means. A common
example of this form of misappropriation is when a departing employee discloses
trade secret information of his former employer to his new employer. A trade secret can also be misappropriated when a person uses or discloses it while knowing
it was acquired by improper means. A person who uses trade secret
information he knows was stolen by another may be liable for misappropriation,
What are Some Defenses to Trade Secret Misappropriation?
Although every case is unique, common defenses include showing
the information claimed to be misappropriated was developed independently, proving
the information is not eligible for trade secret protection, or establishing
the information was not adequately kept secret. Independent development is
generally the most advantageous defense given if information was independently
developed, it does not matter how the trade secret is defined because
independent development is a complete defense to trade secret misappropriation.
To prove the information claimed to be trade secret is not eligible for
protection, however, the trade secret must be defined and the type of
information, whether it is known in the industry, and whether it has commercial
value because it is not known, must all be considered. The third common
defense—showing the information was not adequately kept secret—not only depends
on how the trade secret is defined, but also on the facts surrounding its
protection, such as whether it is the subject of confidentiality agreements,
password protection, or the focus of other precautions.
What Remedies are Available for Trade Secret Misappropriation?
The damages available for trade secret litigants vary depending on whether their claims are brought under state or federal law, but generally trade secret owners may recover their actual damages, reasonable royalty damages, or unjust enrichment damages. Actual damages in trade secret cases may include the trade secret owner's lost profits, which are typically calculated as net lost profits, but may also be determined by the trade secret thief's own profits. This is known as disgorgement. Other theories of actual damages consider the affects felt by the trade secret owner, such as price erosion due to the trade secret no longer being secret. A reasonable royalty damage model considers a hypothetical license of the trade secret, and what that license would cost. And unjust enrichment damages seek to return the benefit received by the trade secret thief to the trade secret owner. In some circumstances, enhanced damages and attorneys' fees may be warranted.
Aside from monetary damages, trade secret owners may also halt misappropriation before the lawsuit has concluded by seeking an injunction. The limitations on injunctions vary between state and federal law, with the DTSA prohibiting injunctions that prevent a person from entering employment, place conditions on a person's employment (unless based on evidence of threatened misappropriation), or conflict with state law prohibiting restraint on practicing lawful business, while the TUTSA contains no such limitations. Another avenue for immediate relief is the ex parte seizure provisions under the DTSA, which allow a federal court to seize property and prohibit the dissemination of the trade secret without notice to the accused trade secret thief. This procedure is only available in extraordinary circumstances, and if the seizure proves to be excessive or wrongful, the trade secret owner may be liable to the accused misappropriator for damages.
Can We Help You?
Trade secret misappropriation claims can be complex and technical. But our attorneys can help. We are experienced in both defending and
prosecuting claims for trade secret misappropriation in Texas state court and
in federal courts throughout the country. We invite you to contact us and learn