Texas Trade Secrets and the Inevitable Disclosure Doctrine

Every business has some confidential information they want to keep from their competitors. It can be something as simple as a client list or as complex as a special formula for manufacturing a product.

Texas law recognizes the importance of protecting these trade secrets from disclosure, including cases where a former employee might leave your company to join a rival.

The Texas Uniform Trade Secrets Act

In 2013, Texas adopted its own version of the Uniform Trade Secrets Act, a model law enforced in all but a few states. While some proprietary trade information, like patents, are protected by federal law, trade secrets have long been dealt with at the state level. Trade secret protection is actually much broader with patents, which expire after a certain number of years and require public disclosure of the subject matter.

A trade secret, as the name suggests, refers to information that you need to keep secret for competitive reasons. The Texas Uniform Trade Secrets Act includes under the banner of trade secrets any “information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers” that derives some “independent economic value” from the fact that it remains a secret.

You must take “reasonable” efforts to maintain trade secret protection under the law. In other words, if you disclose your customer list on your website, it is no longer a trade secret.

Misappropriation of Trade Secrets

“Misappropriation” refers to the improper acquisition, disclosure, or use of a trade secret. A common misappropriation scenario is an employee a company and then disclosing its trade secrets to her new employer. The Uniform Trade Secrets Act allows a company to seek an injunction to prevent any such “actual or threatened misappropriation.” This is especially helpful to prevent blackmail–i.e., an employee cannot threaten to disclose your confidential information unless you pay them a severance package or agree not to fire them.

Many Texas companies also protect their trade secrets through a nondisclosure agreement. This is a written contract between an employer and employee that sets out specific penalties in the event the employee discloses a trade secret without authorization. Such agreements remain binding even if the employee changes jobs or goes to work for a direct competitor.

Texas Courts Skeptical of “Inevitable Disclosure” Injunctions

A controversial subject in Texas employment law circles is the applicability of the “inevitable disclosure” doctrine in trade secret cases. The basic idea behind this doctrine is that a person with intimate knowledge of a former employer’s trade secrets will “inevitably disclose” them to a new employer in the same field.

Therefore in states that adhere to the inevitable disclosure rule, the former employer can seek an injunction without having to first prove it would suffer an irreparable injury–i.e., an imminent disclosure of its trade secrets.

Texas courts have never expressly adopted the doctrine, despite many cases inviting them to do so. For example, in December 2016, a state appeals court in Houston denied a company’s request for a temporary injunction against a former employee based on inevitable disclosure. The employee previously signed a nondisclosure and noncompete agreement, by which he agreed not to disclose certain trade secrets.

More than three years into his employment, the employee left for a rival company. The former employer then sued, alleging trade secret misappropriation under Texas law. Before the trial court, the employer could not produce any proof of probable or imminent harm arising from the former employee’s actions. Rather, the employer argued the ex-employee’s nondisclosure agreement and “inevitable disclosure” relieved it of any duty to produce such proof before obtaining an injunction.

Both the trial court and the appeals court disagreed. The appeals court noted that “recent Texas law has rejected the notion of a categorical rule of inevitable disclosure with regard to all nondisclosure provisions.” A Texas court is therefore not required to issue an injunction absent concrete evidence of misappropriation. The “fear of possible injury” is insufficient.

Do You Need Help With a Trade Secret Matter?

Protecting your trade secrets is important. Both employers and employees need to be aware of the legal responsibilities and potential liability for trade secret misappropriation. Even if you do not have a written nondisclosure or noncompete agreement there may still be legal issues when an employee changes jobs.

An experienced Texas noncompete lawyer can help. At Lindquist Wood Edwards LLP, our attorneys have represented both employers and employees. We can advise you on how trade secret law affects your interests. Call us today at 469-754-2812 if you have a trade secret or employment law matter you need to discuss with a qualified attorney.

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