Texas Insiders Say Businesses Champing at the Bit for New Trade Secrets Law to Take Effect

For decades, Texas was the wild west of trade secrets law, governed by the state’s outdated common law with no trade secrets statute on the books.  That changed May 3 when Governor Rick Perry signed legislation making Texas the 48th state to adopt the Uniform Trade Secrets Act.  The lawyers who helped push the legislation across the goal line are now eagerly focused on September 1, when the new law takes effect.

The common law, or the accumulated body of Texas court decisions on trade secrets, just wasn’t up to the task any more, said Joseph F. Cleveland, Jr., an attorney at the firm Brackett & Ellis, P.C.  Cleveland and a handful of other attorneys on the State Bar of Texas Trade Secret Committee testified before legislative committees as the bill worked its way through the Texas Statehouse.The old law “was simply not designed for the technological developments of the modern era,” said Cleveland, who also met personally with lawmakers on the issue.  “As a result, Texas businesses and those businesses looking to expand to Texas were left to guess as to what proprietary information Texas law will and will not protect.”

Texas lawyers tell Trade Secrets Watch the new statute will make trade secret law both broader and clearer.

“Companies will be able to claim trade secret protection in products that are still under development and have not been put into use,” said Irene Kosturakis, chief IP counsel at BMC Software, Inc. and another committee member who pressed lawmakers to pass the trade secrets bill.

Kosturakis recalled negotiating transactions in which the party on the other side of the table resisted writing Texas law into contracts because of the state’s woeful trade secrets law.  Nor was New York an option, she said; that state is one of two holdouts that still have yet to adopt the UTSA.  Many of her contracts ended up governed by law in Delaware, which has passed the uniform act, she said.

Another feature of the new law welcomed by businesses is its requirement of willfulness before a court can award attorneys’ fees, said Greg Porter, an attorney at the firm Andrews Kurth LLP who testified before both Texas House and Senate committees in March.  “This will give litigants a lot more certainty when they assess their cases,” Porter said.   The new law also permits injunctions for threatened misappropriation, he said.

After nearly 30 years of inaction, the bill sailed from the drafting table to the governor’s desk in less than four months, said Alan Ratliff, an attorney, forensic accountant, and damages expert at the StoneTurn Group LLP.

“I think the new legislation provides greater specificity about what trade secrets are, and broader overall protection of trade secrets, than what existed under Texas common law,” Ratliff said. “Overall, there should be more consistency and clarity in Texas trade secret law and protections.”