What is a Trade Secret?

downloadWhat are trade secrets and how they are regulated depends largely on what state your business is operating in.  Currently, each state has it own statute and/or body of law that defines what is a “trade secret” and what legal remedies the owner of a trade secret may pursue if such trade secrets are taken or misappropriated from him or her.

In Texas, trade secrets are governed by the Texas Uniform Trade Secrets Act (TUTSA), which came into effect on September 1, 2013.

TUTSA defines “trade secrets” as “information,” that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use” AND “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”  Thus, any information that has economic value – either actual or potential – and that the owner has reasonably attempted to keep secret, could constitute a “trade secret” under TUTSA.

Furthermore, TUTSA specifically provides that “trade secrets” may include the following types of information:

  1. formula
  2. pattern
  3. compilation
  4. program
  5. device
  6. method
  7. technique
  8. process
  9. financial data
  10. list of actual or potential customers or suppliers

Moreover, as defined by the statute, “trade secrets” may include information that its owner has not yet had an opportunity to use or information that the owner is no longer using (as long as it still has actual or potential economic value).

“Trade secrets” also include information that has commercial value from a negative viewpoint, such as the results of lengthy and expensive research which proves that a certain process will not work. See UTSA § 1 cmt.

Whether the information is considered “secret” is determined by whether a party undertook “reasonable efforts to maintain the secrecy of such information,” rather than the difficulty with which such information could be acquired.  The standard allows a fact finder to consider the nature of the trade secret and the facts and circumstances surrounding the efforts to maintain its secrecy in order to determine whether these efforts were reasonable under the circumstances.

To learn more about other provisions of TUTSA, see my previous post here.

If you are facing a trade secret misappropriation claim or are suspecting that a theft of trade secrets occurred at your company, contact Leiza Dolghih at Leiza.Dolghih@GodwinLewis.com.

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