What Counts as a Trade Secret in Texas?

The definition in plain words

Texas uses the definition in the Texas Uniform Trade Secrets Act, section 134A.002(6) of the Civil Practice and Remedies Code. Stripped of the statutory list, it says a trade secret is information that satisfies two conditions at the same time:

1. the owner has taken reasonable measures under the circumstances to keep the information secret; and
2. 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 could obtain economic value from its disclosure or use.

Both conditions must hold. Information can be valuable and still fail because the company never guarded it. Information can be guarded and still fail because any competitor could work it out from public sources in an afternoon.

Texas aligned this wording with the federal definition in 2017, so the state and federal tests now read nearly the same. The federal version is in 18 U.S.C. § 1839(3).

What kinds of information can qualify?

The statute casts a wide net on purpose. It names, as examples, a formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, and a list of actual or potential customers or suppliers. It adds that the form does not matter: tangible or intangible, written, electronic, graphic, photographic or kept in memory.

In practice, the categories that come up most often in Dallas business disputes are these:

• Customer and supplier information beyond names: contacts, pricing, margins, order history, renewal dates. Lists are treated in can an employee take my customer list.
• Pricing and bid models: how a company arrives at its quote, its cost structure, its discount thresholds.
• Technical know-how: source code, formulations, manufacturing settings, test data, the negative knowledge of what did not work.
• Business plans and strategy: expansion targets, acquisition pipelines, marketing data that has not been released.
• Compilations: a collection of individually public facts can be a trade secret when the selection and arrangement took effort and gives an edge.

A patent, by contrast, is public by design. Once an invention is published in a patent application, the published parts stop being a trade secret.

Condition one: reasonable measures to keep it secret

Reasonable does not mean perfect. The statute asks what was reasonable under the circumstances, which lets a small company with ordinary IT meet the test if it treated the information as secret in a consistent way. Courts look at facts such as:

• whether access was limited to people who needed it, by permissions, passwords or physical control;
• whether employees and vendors signed confidentiality agreements, and whether the information was marked;
• whether the company told departing employees to return or delete it;
• whether the same information was disclosed to customers, in marketing, or in filings without any restriction.

The company's own conduct is the evidence here. If the pricing model was emailed to every distributor without a confidentiality term, no later label will make it secret. What a company should do before anyone leaves is covered in reasonable measures to protect trade secrets.

Condition two: value from not being known

The information must be worth something precisely because others do not have it. The statute frames this two ways: it is not generally known in the trade, and it is not readily ascertainable through proper means.

Proper means is a defined term. Section 134A.002(4) says it includes discovery by independent development, reverse engineering unless prohibited, or any other means that is not improper. So a competitor who buys your product and takes it apart has not misappropriated anything, and the parts of your design a buyer can see are not secret. A competitor who bribes your engineer for the drawings has used improper means, which the statute defines to include theft, bribery, misrepresentation, breach of a duty to keep information secret, and espionage through electronic or other means.

Value can be actual or potential. A formula that is not yet in production can still be a trade secret if it would help a competitor who got hold of it.

Example

Suppose a Fort Worth landscaping company has, over eight years, built a spreadsheet of commercial property managers in Tarrant County showing each one's contract renewal month, the incumbent vendor, the last accepted bid and notes on what each manager complains about. The names of the property managers are public. The renewal months and bid history are not. The spreadsheet lives in a shared folder that only the owner and two estimators can open, and both estimators signed a confidentiality agreement when hired.

That spreadsheet is likely a trade secret. The public names do not defeat it, because the compilation as a whole is what competitors cannot readily assemble, and the access controls and agreements are reasonable measures for a company of that size. If the owner had also handed the sheet to a marketing vendor with no confidentiality term, the second condition would be met but the first would be in doubt.

What is not a trade secret

Four categories fall outside the definition no matter how the company labels them.

• General knowledge, skill and experience. What an employee learned about how to do the job belongs to the employee. Section 134A.003 says an injunction may not bar a person from using it.
• Public information. Anything in a published patent, on a website, in a trade directory or in a regulatory filing without a confidentiality request.
• Information disclosed without restriction. A demo given to prospects with no NDA, a price list posted to a customer portal anyone can join.
• Readily ascertainable information. Facts a competitor could gather by calling customers or reading the product label, even if your company happened to gather them first.

A company can still protect some of this by contract. A confidentiality agreement can cover information that is not a trade secret, and a breach of that agreement is a contract claim. It is not a misappropriation claim, and the statutory remedies in the Texas Uniform Trade Secrets Act do not attach to it.

Trade secret, confidential information, patent: the differences

Who has to prove it, and how

The company claiming the trade secret carries the burden. It must identify what the secret is with enough particularity that the court and the defendant know what is being protected, then prove both conditions with evidence: the secrecy measures, the development effort, the value, and the fact that competitors do not have it.

That proof has a built-in tension, because describing the secret in open court can destroy it. Section 134A.006 answers this. It directs the court to preserve the secrecy of an alleged trade secret by reasonable means, and it creates a presumption in favor of granting protective orders, with tools that include sealing the record, holding hearings in camera and limiting who may see the information. How the court decides whether a party itself can be excluded from part of a hearing is a separate set of factors in the same section.

Whether information is a trade secret is generally a question of fact. That means it is often decided by a jury at trial, but the first real test comes much earlier, at the temporary injunction hearing, where the judge decides whether the company has shown a probable right to relief.

Why the definition matters before any dispute

Most trade secret cases are lost on condition one, and condition one is entirely within the company's control. A company that can show access logs, signed agreements, marked documents and an exit checklist walks into the hearing with the hardest element already proved. A company that cannot is arguing about what it meant to do.

Tina Wysk represents Dallas businesses on both sides of trade secret disputes in state and federal court. Her trade secret litigation practice includes the early question of whether the information at issue will qualify at all.