by Tiffany L. Cox, Esq., Ogletree Deakins, San Antonio
It is 4 p.m. on a Friday afternoon. You’ve just learned that your top-performing salesman is quitting to take a job with a direct competitor.
You quickly locate the salesman’s personnel file to determine whether he signed a noncompete or similar restrictive covenant agreement. Much to your dismay, you see that he didn’t sign.
Now you don’t know whether the salesman took any company documents with him when he abruptly left the office. Of course, he doesn’t need any documents to recall your company’s confidential information. He knows your significant customers, the cost you pay for your materials and your company’s pricing strategy.
The salesman has yet to solicit any of your customers—but you know he will. It’s inevitable, given his new sales position working for your biggest competitor. You know that you must take immediate legal action to prevent substantial financial harm to your company. You call your employment-law attorney to frantically explain the situation and authorize her to pursue injunctive relief.
Statutory help on the way
For those of you who have experienced this relatively common situation, you may not have been satisfied with your attorney’s response: That there is no immediate legal recourse under Texas law to prevent the anticipated harm.
Even assuming the salesman took customer lists or other financial information belonging to the company, the determination of whether such information constitutes “trade secrets” is uncertain under existing Texas case law. More important, the harm had not yet occurred.
Come September, you won’t be so out of luck.
Under the newly enacted Texas Uniform Trade Secrets Act, you will have more recourse when someone misappropriates your intellectual property. Starting Sept. 1, this new statute provides companies with greater protection for their trade secrets and expands the available legal remedies to address actual and anticipated harm.
The first of many significant changes is the act’s broad definition of “trade secret” to include a company’s financial information, as well as lists of prospective and current clients and suppliers. Previously, the determination of whether such information constituted a trade secret turned on the specific facts of the case.
More security in court
The act also addresses the common scenario described above, authorizing the remedy of injunctive relief for actual and threatened misappropriation of trade secrets.
As a result, an employer may be able to take legal action against a former employee who is not subject to a valid restrictive covenant, but whose mere employment with a direct competitor presents a high risk that confidential information will be misappropriated.
In addition, the act will make it easier for employers to secure protective orders during litigation to regulate access to and disclosure of the trade secret information that forms the basis of the dispute.
The act authorizes Texas courts to limit the disclosure of trade secrets to the parties’ attorneys and expert witnesses, seal court records and hold in camera hearings (in the judge’s chambers rather than in open court) when trade secret information is discussed.
Another significant change is the act’s allowance for the recovery of attorneys’ fees. A court may award reasonable attorneys’ fees to a business that proves its trade secrets were stolen willfully or maliciously. (Courts may also award reasonable attorneys’ fees to a defendant who proves the plaintiff filed suit in bad faith.)
Finally, a court may award exemplary damages in an amount not to exceed twice the economic damages awarded when the plaintiff establishes willful or malicious misappropriation by clear and convincing evidence.
In short, the new statute provides Texas companies with heightened legal protection for their trade secrets and additional legal remedies in instances of actual or threatened misappropriation.
Note: The act excludes from the definition of “trade secret” any information learned through the “reverse engineering” of a competitor’s product, which the act defines as “the process of studying, analyzing, or disassembling a product or device to discover its design, structure, construction, or source code.” Thus, assuming the product was lawfully acquired, a company remains without legal recourse against a competitor that learns of research and development processes through reverse engineering.
Tiffany L. Cox is an associate in the San Antonio office of Ogletree Deakins.
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