What Is a Trade Secret in Texas?

 A former employee took our customer list, our pricing, and some internal process documents to a competitor. Is that information a “trade secret” under Texas law?

This is the question every trade-secret case starts with, and it’s the one this blog first addressed in 2013. The law has changed since then — Texas adopted a trade-secret statute later that year and expanded it in 2017 — so this post replaces the earlier one.

The statute. Since September 1, 2013, trade secrets in Texas have been governed by the Texas Uniform Trade Secrets Act, found in Chapter 134A of the Civil Practice and Remedies Code. Before that, the rules came from court decisions. The statute largely tracks those decisions but puts the definition in one place.

As amended in 2017, the Act defines a trade secret as “all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers,” regardless of how it is stored, provided two things are true:

• the owner “has taken reasonable measures under the circumstances to keep the information secret,” and
• the information “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”

Tex. Civ. Prac. & Rem. Code § 134A.002(6).

Breaking that down. The definition is broad on what kind of information qualifies — business and financial information count, not just technical formulas — and the 2017 amendment made that explicit by adding “business, scientific, technical, economic, or engineering information” and the phrase “list of actual or potential customers or suppliers.” What narrows it are the two conditions.

Reasonable secrecy measures. The owner has to have treated the information as secret. Courts look at things like whether access was limited, whether employees and vendors signed confidentiality agreements, whether documents were marked, and whether the information was kept off public channels. Absolute secrecy isn’t required; the standard is reasonableness “under the circumstances.” A company that posts its pricing on its website, or emails its customer list to anyone who asks, is unlikely to meet it.

Independent economic value from secrecy. The information has to be valuable because competitors don’t have it and can’t easily get it through legitimate means. Information that a competitor could assemble from public sources, or figure out by reverse-engineering a product that is sold on the open market, generally won’t qualify.

The six factors. Before the statute, Texas courts weighed six factors to decide whether information was a trade secret: how widely the information was known outside the business; how widely it was known inside the business; what measures were taken to guard it; its value to the business and to competitors; the effort or money spent developing it; and how easily it could be properly acquired or duplicated by others. In re Bass, 113 S.W.3d 735, 739 (Tex. 2003). The statute doesn’t list those factors, but courts applying it continue to consult them, and they map fairly closely onto the two statutory conditions.

Some examples. Information that Texas courts have treated as a trade secret, depending on the facts, includes customer lists that were compiled with effort and kept confidential; pricing and margin data; manufacturing processes; formulas; software source code; and compilations of otherwise-public information arranged in a way that isn’t public. Information that generally does not qualify includes anything already public, an employee’s general knowledge and skill, and information the company itself didn’t bother to protect. A unique combination of known components can be a trade secret even if each piece is public on its own.

What the statute does with a trade secret. The Act defines “misappropriation” — acquiring a trade secret by improper means, or using or disclosing it when you knew or should have known it was obtained improperly or under a duty of confidence — and “improper means,” which include theft, bribery, misrepresentation, breach of a confidentiality duty, and espionage. § 134A.002(2)–(3). It provides for injunctions, damages, and in some cases attorney’s fees, and it includes a presumption in favor of protective orders during litigation. §§ 134A.003–.006. One limit worth noting: an injunction under the Act may not prohibit a person from using the “general knowledge, skill, and experience” acquired during employment. § 134A.003(a).

The federal overlay. Since 2016 there has also been a federal statute, the Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq., with a definition that closely resembles the Texas one. It gives trade-secret owners the option of suing in federal court and, in narrow circumstances, obtaining an order for seizure of the misappropriated material. The two statutes coexist; many Texas trade-secret cases are filed under both.

A note on the 2013 post. The original version of this post described the common-law six-factor test as the governing standard. That was accurate when written. The statute now controls, and the earlier post has been retired in favor of this one.

For related topics, see our earlier posts on customer lists as trade secrets, remedies for misappropriation, the statute of limitations, and unique combinations of known components.