© 2014 The Texas Lawbook.
By Jeff Bounds
Staff Writer for The Texas Lawbook
On Sept. 1 of last year, a new law went into effect that is expected to give Texas businesses a more predictable avenue for pursuing anybody who might have swiped their trade secrets.
But while a much-ballyhooed surge in litigation apparently hasn’t happened just yet, the Texas Uniform Trade Secret Act has made significant changes to this area of intellectual property law.
For one thing, corporate in-house lawyers are more likely to choose to sue under this state statute rather than the previous one, according to David Harper, the Dallas-based head of the intellectual property litigation group at Haynes and Boone.
“I wouldn’t classify it as a sea change,” Harper says. “But it’s an important development.
Doug Kubehl, who runs the IP department in Dallas for Baker Botts, says the Texas statute is becoming another tool plaintiffs can use in disputes over patents.
The Leahy-Smith America Invents Act, which President Obama signed into law in September 2011, switched the patent system in this country to a “first to file” approach, meaning that whoever filed the patent first was the winner.
Previously, the U.S. had a “first to invent” system, which said whoever could show they had the invention first would ultimately get the patent protection.
The new Texas trade secrets law “makes it more appealing to take a look at using trade secrets, rather than just relying on patent” claims, Kubehl says.
That, he said, is because the first-to-file patent system provides inventors less comfort in their ability to get patent protection. In the previous system, “even if you weren’t the first to file, you could prove you were the first to invent.”
With the change in the Texas law, inventors can have more comfort in using the trade secret law as a source of legal protection of their inventions, Kubehl said.
“If you’re not the first to file, you may rely on trade secret protection for the source of your protection,” he said. “Given the change in the trade secret law, making it arguably easier to prove trade secrets and to align the recovery mechanisms in patent law, that’s another factor that makes it more desirable to rely on trade secret protection.”
In addition, he added: “Under the trade secret act, you’ve got the availability of a compulsory running royalty.”
The law in action
A recent court victory that Kane Russell Coleman & Logan landed gives a glimpse into how the new trade secret statute is changing the landscape.
Led by Robert Rickman, a director in Kane Russell’s Dallas office, the firm recently secured one of the first permanent injunctions and final judgments in the state under the new law. Kane Russell also secured attorneys’ fees from Dallas-based Vodastra Solutions Inc. on behalf of Addison’s Prevail IT Resources LLC.
Prevail, which does business as F2 Onsite, claimed a former employee, Ronald Wilson, downloaded proprietary customer and employee information from a company-issued laptop computer before he left last October for a job at Vodastra, court records say.
Vodastra contested F2’s allegations in a bench trial before Judge Jill Willis in the 429th District Court in McKinney. A Vodastra official, Lord Baah, represented the firm at trial. Baah said in interviews that he and the company did nothing wrong and vowed to appeal the decision. Wilson also denied wrongdoing during a brief interview.
The broader lesson of the F2-Vodastra case is that even when employers lack a non-compete agreement, the new law enables them to secure court-ordered bans on improper behavior by competitors and former employees, Rickman said.
“It’s indicative of new remedies that are now available to other businesses throughout the state,” Rickman said. “What is enlightening and reassuring for employers is they have a statute that codifies the misappropriation of trade secrets law. It gives employers who have had information taken from them additional relief, and the ability to right that wrong.”
In addition, the new Texas law enables aggrieved employers the ability to get attorneys fees in lawsuits over the theft of trade secrets, according to Rickman.
“Prior to the statute, an employer under a misappropriation claim could not recover attorneys’ fees,” Rickman said. “You’d have to assert a breach of contract claim, which provides for attorneys’ fees. But you would need a contract, typically a non-compete agreement. We didn’t have a non-compete in this case.”
There is an additional way to get attorneys’ fees under the Texas Theft Liability Act, which has been in place over 20 years, Rickman said.
The issue with suing under that law is if a plaintiff loses the case, that party can be forced to pay the defense’s attorneys’ fees, Rickman said.
What else has changed
Harper, who was on the special committee that drafted the new law that was presented to the state legislature, says Texas previously was one of three states that didn’t have a version of the statute on its books, Harper says. The other two are New York and Massachusetts, which still don’t have any versions of the uniform trade secrets statute on their books.
Previously, Texas’ trade secret law was “cobbled together,” Harper says. “A number of businesses weren’t happy with the unpredictability of it.”
For instance, Harper says, the old law seemed to require that whatever the trade secret was, it had to be in continuous use. That meant a product that, say, was in development or had been shelved might not be protected under the law.
Now, Texas protects products in those stages of use or lack thereof. For instance, the Texas Uniform act protects what Harper calls “negative know-how.”
“If you figured out that something doesn’t work, that’s important to know to compete with somebody,” he says. “You’d know not to run down that trail.”
Another change involves getting the statute’s authorization of courts granting injunctions for actual or threatened theft of trade secrets, according to Harper.
“This brings into play what’s called the inevitable disclosure doctrine,” he said. That means a former employee “knows so much about the trade secrets that it’s inevitable they will disclose it. That doctrine was floating around in other states, but the statute makes it more clear that this doctrine applies.”
What is a trade secret?
Yet another change comes in how Texas’ law defines a trade secret, according to Greg Carr, managing partner of CARR LLP, a boutique IP firm with offices in Dallas and Frisco.
Previously, there were two legal avenues for demonstrating that something is a trade secret: Texas common law, and a statute, the Texas Theft Liability Act, which is still on the books for cases filed before Sept. 1, 2013.
The new law actually has a higher standard of proof for what a trade secret is compared to the Theft Liability Act, Carr said.
The Theft Liability Act “qualifies information as a trade secret if any measures were taken to protect it, regardless if they were sufficiently reasonable.”
The Uniform Trade Secrets Act, on the other hand, essentially requires the plaintiff to show that the trade secret:
• Has value;
• Is not generally known;
• Has been the subject of reasonable efforts to maintain its secrecy.
The new law’s definition “is in some ways broader and makes it easier to prove a trade secret than previously,” Carr said.
“This is unlikely to discourage filing suits under the (Texas Uniform law),” he added. “In fact, because the definition encompasses information having ‘potential’ economic value, claims will arise without the trade secret owner having to make as strong a showing that the alleged trade secret has value – or that it’s even being used.”
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