Competitive Advantage: Trade Secret Overview

To succeed, most businesses require a competitive advantage of some kind. One category of competitive advantage includes trade secret. In Texas, trade secret was governed by case law until 2013. In 2013, Texas adopted the Texas Uniform Trade Secrets Act (TUTSA). TUTSA is based on UTSA which was originally published in 1979, amended in 1985, and has been adopted by 47 U.S. states, D.C., Puerto Rico, and the U.S. Virgin Islands as of 2013.

TUTSA defines “trade secret” very broadly. TUTSA’s definition includes:

information, including business, scientific, technical, economic, or engineering information, and any [a] 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, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

1) the information is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy; and
2) the information 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.

The definition provides the guidance on what must done to identify and maintain a legally protectable trade secret. First, the information that provides the competitive advantage must be a secret. Second, the owner of the secret information must maintain the secret information. The secrecy requirement is that there must be some value to the trade secret because of the fact that it is unknown and not readily ascertainable to others via proper means, such as Coca Cola’s recipe. Reverse engineering, by itself, is not considered an improper method of ascertaining a competitor’s trade secret. The maintenance requirement is that secrecy is not enough—the owner must maintain the secrecy through reasonable efforts. The question of what constitutes reasonable efforts depends on the situation and in a trade secret misappropriation lawsuit will most likely be decided by the jury. Some steps that may be considered in the analysis could include labeling trade secret information as confidential, requiring signed nondisclosure agreements prior to viewing the trade secret information, and implementing access controls limiting who can access the trade secret information. This list of potential steps to protect the trade secret will not be required for all situations and some situations may require every example in this list and more.

To put itself in the best position to legally protect its trade secrets a business should consider the following three steps:

    • First, identifying each trade secret it thinks it has (i.e., making a comprehensive list)
    • Second, brainstorming every step that could possibly be taken to protect the secrecy of each item on the list
    • Third, conferring with its attorney to discuss whether each item on the list may qualify as a trade secret, and whether the steps to protect it will likely be considered as satisfying the reasonable steps requirement.

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