A trade secret is valuable business information that derives economic value from not being generally known or readily ascertainable and that is subject to reasonable efforts to maintain its secrecy. For Texas businesses, trade secrets can include proprietary processes, formulas, customer information, pricing strategies, software, technical information, and other confidential business assets. Protecting this information can be important because unauthorized disclosure or use may give competitors access to information that took years of investment, research, and business development to create.
What Qualifies as a Trade Secret?
Not every piece of confidential business information automatically qualifies as a trade secret.
Under the Texas Uniform Trade Secrets Act (TUTSA), Chapter 134A of the Texas Civil Practice and Remedies Code, information may qualify as a trade secret when it derives economic value from not being generally known or readily ascertainable and the owner takes reasonable measures to maintain its secrecy.
This means businesses should consider both the value of the information and the steps taken to protect it.
Information that may potentially qualify as a trade secret includes:
- Proprietary formulas or recipes
- Manufacturing processes
- Software and source code
- Customer and vendor information
- Pricing and cost information
- Business strategies
- Marketing plans
- Technical designs
- Research and development information
- Internal processes and methods
The specific facts surrounding the information matter when determining whether legal protection applies.
Trade Secrets vs. Confidential Information
Trade secrets and confidential information are related concepts, but they are not necessarily the same.
Confidential information can include business information that a company does not want disclosed to competitors or the public. However, not all confidential information meets the legal requirements for trade-secret protection.
A trade secret generally requires both:
- 1. Economic value from the information not being generally known or readily ascertainable; and
- 2. Reasonable efforts by the owner to maintain its secrecy.
For example, a company may have an internal business plan that is confidential. Whether that information qualifies as a trade secret depends on its characteristics, economic value, accessibility, and the steps the company takes to protect it.
Common Examples of Trade Secrets
Trade secrets can exist across many industries and are not limited to highly technical businesses.
Customer Lists
A business's customer information may have trade-secret value when it provides a competitive advantage and is not readily available to competitors.
Pricing and Cost Information
Internal pricing structures, profit margins, supplier costs, and bidding strategies may contain commercially valuable information.
Proprietary Processes
Businesses may develop unique methods for manufacturing, delivering services, managing operations, or solving technical problems.
Software and Technical Information
Source code, algorithms, technical specifications, and other proprietary technology may qualify for trade-secret protection when the legal requirements are met.
Formulas and Recipes
A proprietary formula or process can be particularly valuable when competitors cannot easily determine how it was developed.
Business Strategies
Marketing strategies, expansion plans, product development plans, and other non-public business strategies may contain valuable competitive information.
Trade Secrets vs. Patents, Copyrights, and Trademarks
Businesses sometimes confuse trade-secret protection with other forms of intellectual property protection. The main difference is how the information or asset is protected.
Trade Secrets
Trade-secret protection depends on keeping qualifying information secret. Once valuable information becomes generally known, trade-secret protection may be affected.
Patents
Patents can protect qualifying inventions and discoveries. Unlike trade secrets, patent protection involves disclosure of the invention through the patent system.
Copyrights
Copyright generally protects original creative works, such as written content, photographs, artwork, music, and certain software.
Trademarks
Trademarks protect names, logos, phrases, and other identifiers that distinguish goods or services in the marketplace.
A business may use more than one form of protection for different aspects of the same product or operation. For example, a company might use patent protection for an invention while treating certain manufacturing processes as trade secrets.
How Do Businesses Protect Trade Secrets?
Trade-secret protection does not happen automatically.
Businesses should take reasonable steps to maintain the confidentiality of information they consider valuable and proprietary.
Depending on the circumstances, those measures may include:
- Limiting access to sensitive information
- Using confidentiality and non-disclosure agreements
- Restricting access based on an employee's role
- Protecting digital files and systems
- Implementing appropriate cybersecurity controls
- Marking sensitive documents as confidential
- Establishing written confidentiality policies
- Training employees about information security
- Conducting exit procedures when employees leave
- Monitoring access to sensitive information
The appropriate safeguards depend on the nature of the business and the information involved. A business should also periodically review whether its existing safeguards are still appropriate. As employees change roles, systems are updated, and business relationships evolve, access to sensitive information can expand without adequate controls.
What Happens When an Employee Leaves?
Employee departures can create particular risks for businesses that rely on confidential information.
Before an employee leaves, a company may want to identify what sensitive information the employee could access and take appropriate steps to protect it.
Depending on the circumstances, a business may review:
- Company laptops and devices
- Email accounts
- Cloud storage
- Shared drives
- Customer databases
- Source code
- Confidential documents
- Passwords and system access
- Confidentiality agreements
Businesses should also have a consistent process for terminating access when employees leave. If a former employee is suspected of taking or using confidential information, the company should preserve potentially relevant evidence and seek legal guidance before taking further action.
Why Non-Disclosure Agreements Matter
A non-disclosure agreement (NDA) can help establish clear expectations about how confidential information may be used and shared.
Businesses may use NDAs with:
- Employees
- Independent contractors
- Vendors
- Business partners
- Consultants
- Potential investors
- Potential buyers
An NDA does not automatically make information a trade secret. However, a well-drafted agreement can be an important part of a broader strategy for protecting confidential business information. Businesses should also avoid relying on an NDA alone. Access controls, internal policies, employee training, and other safeguards may also be necessary.
What Is Trade Secret Misappropriation?
Trade secret misappropriation generally involves the improper acquisition, disclosure, or use of a trade secret without the owner's consent under circumstances prohibited by law.
Under the Texas Uniform Trade Secrets Act, misappropriation can include acquiring a trade secret through improper means or using or disclosing it without consent under circumstances specified by the statute.
Misappropriation can potentially occur through:
- Unauthorized acquisition of confidential information
- Improper disclosure to another person or company
- Use of a trade secret without authorization
- Taking confidential information when leaving a company
- Sharing proprietary information with a competitor
For example, a former employee might leave a company and provide proprietary customer information, source code, pricing data, or business processes to a competitor. The specific legal requirements depend on the facts and applicable law.
What Should a Business Do If a Trade Secret Has Been Misappropriated?
Businesses that suspect trade-secret misappropriation should act carefully and promptly.
Preserve Evidence
Identify and preserve relevant emails, documents, access records, contracts, computer files, and other evidence.
Limit Further Access
Where appropriate, businesses should take steps to prevent continued unauthorized access to sensitive information.
Review Agreements
Examine employment agreements, NDAs, confidentiality provisions, and other contracts that may apply.
Investigate the Circumstances
Determine what information may have been accessed, copied, disclosed, or used and who may have had access to it.
Seek Legal Guidance
An attorney can help evaluate whether the information may qualify for trade-secret protection and what legal remedies may be available.
Businesses should avoid destroying, altering, or improperly accessing information while investigating a suspected misappropriation.
What Legal Remedies Are Available for Trade Secret Misappropriation?
Depending on the circumstances, businesses may have several potential remedies when trade-secret misappropriation occurs.
These may include:
- Injunctive relief
- Monetary damages
- Recovery of certain losses
- Damages for unjust enrichment in appropriate circumstances
- In certain cases, exemplary damages
- Recovery of attorney's fees where permitted
The Texas Uniform Trade Secrets Act provides a statutory framework for remedies involving trade-secret misappropriation. The available relief depends on the circumstances and applicable legal requirements. Federal protection may also be available under the Defend Trade Secrets Act (DTSA) when the requirements for a federal claim are satisfied. Because the available remedies and requirements can vary, businesses should evaluate the facts before deciding how to proceed.
Texas and Federal Trade Secret Protection
Trade-secret disputes may involve both Texas law and federal law.
The Texas Uniform Trade Secrets Act, Chapter 134A of the Texas Civil Practice and Remedies Code, provides Texas's statutory framework for trade-secret protection and misappropriation claims.
The federal Defend Trade Secrets Act also provides a federal cause of action for qualifying trade-secret misappropriation.
The availability and application of these laws depend on the circumstances of the dispute. Businesses should evaluate the facts carefully before deciding which legal remedies may be appropriate.
When Should a Business Contact a Trade Secret Attorney?
Businesses should consider seeking legal advice when sensitive information may have been improperly accessed, disclosed, taken, or used.
Early legal guidance can help a company:
- Assess whether information may qualify as a trade secret
- Identify potential sources of misappropriation
- Preserve important evidence
- Review confidentiality agreements
- Evaluate available remedies
- Determine whether emergency legal relief may be appropriate
Sparks Law's practice includes commercial litigation matters involving trade secrets, customer lists, intellectual property, and other business disputes. The firm's experience also includes arbitration and complex commercial matters. For businesses in Frisco, McKinney, Allen, and the greater Dallas–Fort Worth area, addressing suspected trade-secret misappropriation promptly may help reduce further competitive and financial harm.
