Trade Secret Misappropriation in Texas

Article excerpt

Many companies doing business in Texas often choose to protect certain business information as trade secrets rather than use other forms of intellectual property protection. Unfortunately, these companies must be constantly vigilant to ensure their trade secrets are not stolen. Surprisingly though, the greatest threat of theft appears to be from a company's own business relations and employees.

If the company's trade secrets are stolen, the business owner can file a legal claim for misappropriation of trade secrets under Texas law. However, the business owner should be aware that Texas law concerning misappropriation of trade secrets is currently in transition. Until recently Texas followed the common law approach through the Restatement of Torts to address trade secret misappropriation even though most states had adopted the Uniform Trade Secrets Act for this purpose. However, on September 1, 2013, a modified version of the Uniform Trade Secrets Act became effective in Texas.* 1 Unfortunately, with this enactment the Legislature specified that all acts of trade secret misappropriation that occurred before the effective date of the statute, as well as any continuing acts that arose before the date of the statute, will still follow the common law Restatement of Torts approach.2 Therefore, until the statute of limitations runs on all of these prior claims the business owner should be aware of both the old Restatement of Torts law and the new Texas Uniform Trade Secrets Act (TUTSA) in order to effectively protect his or her trade secret interests.3

Quite a number of articles have been written about what constitutes misappropriation of trade secrets under the Uniform Trade Secrets Act and related state statutes, which can be helpful to the business owner for new acts of misappropriation committed after the effective date of the TUTSA at least until Texas case law is developed in this area.4 But very little has been written about what constitutes misappropriation of trade secrets under Texas common law. Therefore, this article looks at how Texas defines misappropriation of trade secrets under the common law Restatement of Torts approach. It is anticipated that this will help the business owner understand the requirements for a misappropriation claim in those instances where pre-TUTSA misappropriation may have occurred, but also provide guidance as to how Texas courts might interpret the TUTS A where it maintains similarities with the common law. Both Texas cases and federal cases applying Texas law are reviewed.

I. INTRODUCTION

Texas courts first recognized the Restatement of Torts's definition of trade secret misappropriation in 1958 with the Texas Supreme Court's decision in Hyde Corp. v. Huffmes.5 The Hyde Corp. case arose from Huffmes's development of a garbage compression device.6 Huffmes subsequently entered into a licensing agreement with Hyde Corp for the device's manufacture in January 1954.7 As a result of the agreement between the parties, Hyde Corp. obtained full knowledge of Huffmes's device from its confidential pending patent application, scale models, blue prints, and actual construction.8 In May 1955, Hyde Corp. notified Huffmes that it wanted to cancel the contract.9 However after canceling the contract, Hyde Corp. did not stop manufacturing the device.10

Huffmes sought an injunction against Hyde Corp. restraining Hyde Corp. from manufacturing or selling any device made substantially in accordance with any feature of the garbage compressor, along with damages and attorney's fees.11 Huffmes was granted relief at the trial court level which was partially affirmed on appeal.12 Hyde Corp. petitioned to the Texas Supreme Court arguing, in part, that there was no support for Huffmes's claim that the company violated their confidential relationship and misappropriated his trade secrets.13

It was as to this issue that the Court introduced the Restatement of Torts's requirement for liability from Section 757 that "one who discloses or uses another's trade secrets, without a privilege to do so, is liable to the other if (a) he discovers the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him. …