Texas Governor Greg Abbott recently signed House Bill 1995, which amends the four-year old Texas Uniform Trade Secrets Act ("TUTSA"). House Bill 1995's amendments align the state statute with its federal equivalent — the Defend Trade Secrets Act ("DTSA") —and codify the 2016 Texas Supreme Court decision addressing when a party to a lawsuit can be denied access to trade secrets during trial.

House Bill 1995, which will go into effect on September 1, 2017, eliminates the difference between the TUTSA's and DTSA's definitions of "trade secrets," reducing the confusion and removing an incentive to forum shop. Additionally, the statute now emphasizes that in order for information to qualify as a trade secret, the owner must take reasonable "measures," and not just "efforts," to protect it. House Bill 1995 also introduces the following new definitions:

  • "Owner" means, with respect to a trade secret, the person or entity in whom or in which rightful, legal, or equitable title to, or the right to enforce rights in, the trade secret is reposed.
  • "Willful and malicious misappropriation," means intentional misappropriation resulting from the conscious disregard of the rights of the owner of the trade secret.
  • "Clear and convincing evidence" required to establish willful and malicious misappropriation is defined as the "measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established."

In addition to the new definitions, amended TUTSA now codifies the balancing test articulated by the Texas Supreme Court in In re M-I, L.L.C., 505 S.W.3d 569 (Tex. 2016), which Texas courts must apply in determining whether a party involved in a trade secrets lawsuit can be denied access to documents or testimony about its competitor's trade secrets. The TUTSA codifies this balancing test as follows:

a presumption exists that a party is allowed to participate and assist counsel in the presentation of the party's case. At any stage of the action, the court may exclude a party and the party's representative or limit a party's access to the alleged trade secret of another party if other countervailing interests overcome the presumption. In making this determination, the court must conduct a balancing test that considers:

  • the value of an owner's alleged trade secret;
  • the degree of competitive harm an owner would suffer from the dissemination of the owner's alleged trade secret to the other party;
  • whether the owner is alleging that the other party is already in possession of the alleged trade secret;
  • whether a party's representative acts as a competitive decision maker;
  • the degree to which a party's defense would be impaired by limiting that party's access to the alleged trade secret;
  • whether a party or a party's representative possesses specialized expertise that would not be available to a party's outside expert; and
  • the stage of the action.

Further, updated TUTSA expressly incorporates the well-known common law rule that a court's order may not prohibit a person from using "general knowledge, skill, and experience that person acquired during employment."

TUTSA has become the most up-to-date and thorough trade secrets statute in the nation. Being on the cutting edge of legislation in this area means companies will face increased uncertainty in trade secrets disputes and will have an opportunity to shape the law as courts apply the new TUTSA to trade secret misappropriation claims all over Texas.

In summary, in light of the new TUTSA balancing test, companies embroiled in trade secret disputes should not forget to take the precautions to protect their trade secrets from being disclosed during litigation. Such measures should include protective orders, securing key findings from magistrate and district judges, preserving proper objections in discovery responses, depositions and at hearings, and a thorough understanding through discovery or otherwise who on the other side will be given access to the information revealed during the lawsuit. The parties will also need to focus on securing evidence necessary to recover attorney's fees in trade secrets disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.