1-3 LEGAL BASES FOR TRADE SECRET CLAIMS

• Jurisdiction: United States

1-3 Legal Bases for Trade Secret Claims

In 2013, the Texas Legislature adopted the Texas Uniform Trade Secrets Act and amended the act in 2017. TUTSA is codified in Chapter 134A of the Texas Civil Practice and Remedies Code. By its own terms, TUTSA "displaces conflicting tort, restitution, and other law of this state providing civil remedies for misappropriation of a trade secret."⁵ But because TUTSA only took effect in 2013 and only applies to claims involving misappropriation that occurred after September 1, 2013, the legal framework governing trade secret claims remains in flux. To add to the confusion, before TUTSA took effect, trade secret plaintiffs had more than one option for bringing a trade secret lawsuit: they could allege a claim under the common law, they could bring a statutory claim under the Texas Theft Liability Act (TTLA), or they could do both. This latter statutory cause of action piggybacks off the criminal provisions of the Texas Penal Code governing trade secret theft, which the TTLA adopted and morphed into a distinct civil cause of action.⁶

Each of t hese avenues for bringing trade secret claims (common law, TTLA, and TUTSA) were mutually exclusive. Although the common law or the TTLA still govern cases where an alleged misappropriation occurred prior to September 1, 2013, TUTSA applies exclusively to misappropriations that occurred after that date.⁷ TUTSA also expressly removes the TTLA as a viable means for bringing a statutory trade secret claim by intentionally erasing the trade secret provision from the Texas Theft Liability Act.⁸

1-3:1 Common Law Trade Secret Claims

Trade secret litigation in Texas dates back over a century to 1917 when the concept of a trade secret sprouted up in a case involving noncompetition agreements.⁹ However, the first significant trade secret case addressed by a Texas Court of Appeals was Brown & Root, Inc. v. Jacques.¹⁰ In Jacques, the plaintiff had invented a "portable horizontal circular saw" used to clear timber and underbrush from undeveloped land. The defendant, Brown & Root—a contractor interested in buying the saw to clear a reservoir basin—met with the plaintiff to see the saw in action.¹¹ After the meeting, Brown & Root decided against buying the saw from the plaintiff, instead modifying what it learned at the meeting to develop its own version of saw.¹² The plaintiff sued for trade secret misappropriation, and the trial court granted a temporary injunction, stopping Brown & Root from using its newly developed saw. The appellate court disagreed and reversed the injunction on the grounds that the very nature of the saw disclosed the alleged "trade secret" once it was placed in public's hands.¹³

Over the next hundred years, common law trade secret claims developed unevenly alongside the TTLA's statutory remedies. In fact, plaintiffs often fused TTLA trade secret claims with common law claims because the TTLA allowed for recovery of attorneys' fees.¹⁴ But it was not just plaintiffs who fomented confusion on this front. Even courts struggled to keep the differing standards and requirements straight. For example, in SP Midtown, Ltd. v. Urban Storage, L.P., the plaintiff brought a TTLA claim along with a separate common law claim. The court, however, in its summary judgment opinion bounced confusingly between addressing the TTLA standard and the common law standard, never quite fully addressing either version of the claim.¹⁵ What's more, under the common law, the six-factor balancing test adopted by the Restatement of Torts—which Texas courts also quickly adopted and which is discussed in detail in Chapter 2—was hardly a model of clarity that would enable businesses to identify and protect its own trade secret information from its other internal, confidential business information.

1-3:2 Uniform Trade Secrets Act

The uncertainty and confusion surrounding trade secret claims in Texas and elsewhere arose in a period of increasing technological complexity within the U.S. economy. Because businesses began to rely more on trade secret claims to protect their intellectual property, it became ever more pressing to clarify the dark corners of the common law as well as the Frankenstein statutory claims that courts and plaintiffs had cobbled together over time. In the late 1970s, the U.S. Supreme Court bolstered the need for increased clarity surrounding t hese claims by issuing two opinions upholding the continued viability of state law-based trade secret claims. In Kewanee Oil Co. v. Bicron Corp., the Court rejected a challenge to state trade secret protection on constitutional and federal preemption grounds.¹⁶ Then, in 1979, the U.S. Supreme Court in Aronson v. Quick Point Pencil Co. extended Kewanee, holding that federal patent law did not preempt contracts for payments of royalties in exchange for trade secret disclosure.¹⁷

In response, the American Bar Association undertook to provide more certainty to the business community by adopting the Uniform Trade Secrets Act (UTSA) in 1979. According to the UTSA's prefatory note, this model statute resulted from years of work and analysis by the ABA's Special Committee on the Uniform Trade Secrets Act. Its purpose was to "codif[y] the basic principles of common law trade secret protection, preserving its essential distinctions from patent law."¹⁸ This group viewed the UTSA's central contribution as offering succinct and "unitary" definitions of the terms "trade secret" and "misappropriation."¹⁹ The UTSA also refashioned the procedural landscape by imposing a single statute of limitations, thus displacing the tangle of time limits that applied to various state law permutations of trade secret claims including quasi-contractual claims, breach of fiduciary duty and other common law torts.²⁰ Finally, the UTSA adopted a single, consistent approach to the types of damages available in trade secret cases.²¹

1-3:3 Texas Uniform Trade Secrets Act

Texas was the 48th state to adopt the UTSA—with Massachusetts adopting its version of the statute in 2018 and New York remaining as the lone holdout. As mentioned above, TUTSA went into effect on September 1, 2013, via Senate Bill 953, creating the desperately needed uniform statutory framework to govern trade secret claims in Texas. In enacting this law, the Texas Legislature focused on the need to remedy the confusion created by the common law/TTLA trade secret regime, noting that "[p]rotection by current law is unclear and difficult to understand."²² It further explained that "[a]doption of the UTSA...