3-3 "MISAPPROPRIATION" OF A TRADE SECRET UNDER TUTSA

• Jurisdiction: United States

3-3 "Misappropriation" of a Trade Secret Under TUTSA

One of the goals of TUTSA was to set clear boundaries on the definition of misappropriation. The Legislature, in enacting TUTSA, explained that its aim was to clarify those business practices that would not constitute misappropriation and to "eliminate uncertainties and inconsistencies" over "the elements of misappropriation."²⁰ As a result, the TUTSA definition is drafted mechanically, requiring the plaintiff to show either (1) the defendant knowingly acquired the trade secret through improper means; or (2) the defendant disclosed or used an improperly acquired trade secret without consent.

More specifically, the following multi-tiered analysis shows the six distinct ways a plaintiff can prove the element of "misappropriation" under TUTSA:

• the plaintiff could establish that the defendant acquired the plaintiff's trade secret and knew (or had reason to know) that the trade secret was acquired by "improper means"; or
• the plaintiff could establish that the defendant used or disclosed the trade secret without consent by someone who:

• acquired knowledge of the trade secret through "improper means"; or
• knew (or had reason to know) that the trade secret was:

• derived from a person who used "improper means" to acquire the trade secret; or
• acquired under circumstances where t here was a duty to maintain the secrecy of or limit the use of the trade secret; or
• derived from a person who owed a duty to the plaintiff to maintain the secrecy or limit its use; or
• before a material change of the position of the person, knew (or had reason to know) that the trade secret was a trade secret and that knowledge of the trade secret had been acquired by accident or mistake.²¹

Notably, TUTSA's statutory "construction indicates that there are multiple, equal paths to liability under the statute."²² With this in mind, one Texas federal court explained that "in light of the numbering of the paragraphs and the placement of the 'ors' and semi-colons, . . . t here are actually six alternative paths to liability under TUTSA."²³ Thus, TUTSA extends misappropriation beyond its common law roots by allowing the plaintiff to prove misappropriation even where the trade secret has merely been acquired or disclosed without consent. TUTSA also requires that the plaintiff prove the defendant's state of mind, something that was not explicit in the Texas common law definition of "misappropriation." Under TUTSA, to meet the definition of misappropriation, the defendant must (1) have knowledge; (2) have reason to know; or (3) be the one who acquired the trade secret through "improper means" in the first place. This might excuse, for example, an employer who unknowingly uses a trade secret by mistake or accident through the hiring of a new employee.

3-3:1 "Improper Means"

All but one of these six ways to establish misappropriation hinges on whether the defendant carried out the allegedly wrongful act through "improper means."²⁴ It is, therefore, worth pausing here to examine both how TUTSA defines "improper means" and how courts have applied this definition in their decisions. Although "[a] complete catalogue of improper means is not possible,"²⁵ as a general matter, "improper means" constitute "means which fall below the generally accepted standards of commercial morality and reasonable conduct."²⁶ Still, TUTSA sought to synthesize and clarify the common law definition by listing specific categories of acts that qualify as "improper means." These three categories are "[(1)] theft, bribery, misrepresentation, [(2)] breach or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret, or [(3)] espionage through electronic or other means."²⁷ Each of these categories is discussed in turn below.

3-3:1.1 Theft/Bribery/Misrepresentation

In discussing this category, the Restatement gives several examples, including a defendant who obtains a trade secret by burglarizing the offices of a competitor or by "employing fraudulent representations to induce the owner to disclose the trade secret."²⁸ Along similar lines, the Fifth Circuit found "improper means" where the plaintiff (in a legitimate transaction) sold a computer system to a third-party department store, while the defendant paid that store's employee to steal the computer system for the defendant's own use.²⁹ Another Texas case within this category involved a defendant who copied the plaintiff's operating system software by making misleading statements to an employee of the plaintiff who was "particularly susceptible of being hoodwinked." The employee, who worked for one the defendant's customers, was informed that the defendant needed to "test" a microprocessor card, but was never told that the defendant planned on copying and removing the plaintiff's software for the defendant's own use.³⁰

3-3:1.2 Breach of Duty/Contract to Maintain Secrecy

The next category of "improper means" is the defendant's breach of fiduciary or contractual duties to maintain the secrecy of the plaintiff's confidential information. This type of "improper means" often arises in the employment context. Although in Texas "an employee does not owe an absolute duty of loyalty to his or her employer,"³¹ limited duties do exist between employers and employees. For example, at-will employees in Texas owe a fiduciary duty to their employers to maintain the secrecy of confidential information obtained in the course and scope of employment. "Although this duty does not bar the use of general knowledge, skill, and experience, it prevents the former employee's use of confidential information or trade secrets acquired during the course of employment."³²

Such duties can and do arise between an employer and employee apart from any written contract.³³ As the Texas Supreme Court held, "[i]n the area of confidential relationships between partners, employers and employees, licensors and licensees, and the like, the injured party is not required to rely upon an express agreement to hold the trade secret in confidence. . . ."³⁴ In one Dallas Court of Appeals case, no contract between the employer and employee existed, and yet the court upheld a temporary injunction protecting the plaintiff's information as a trade secret because its former executive used the contacts he made at his prior employer to gather and share information with the defendant while he was still employed with the plaintiff.³⁵ A recent Court of Appeals decision discussed this same idea in the context of a supplier/ distributor relationship, holding that "a 'confidential' relationship may exist when the disclosing party reveals a trade secret to allow the recipient of the information to assess a proposed business arrangement or transaction, and the recipient either (a) expressly promises to keep the information confidential; or (b) receives the information under circumstances that justify a conclusion that the recipient knows or has reason to know that the disclosure is intended to be in confidence, and the disclosing party reasonably infers that the recipient has consented to keep the information con-fidential."³⁶

This same analysis applies to breaches of express contractual duties. In one example, the Fifth Circuit found a defendant had used "improper means" when it breached six marketing agreements with the plaintiff—each including confidentiality provisions—and then subsequently accessed the plaintiff's trade secrets through an online portal to which the defendant was originally provided access through those marketing agreements...