Monday, October 6, 2008

Trade Secrets under Texas Law

In many instances non-compete agreements are designed to protect trade secrets provided to employees during the course of their employment. The sensitive nature of some trade secrets are apparent, like the formula for Coke. But what about customer lists, sales techniques, or other items that are not a secret formula or chemical composition? Courts often look to Restatements of Law for authority and guidance. The Restatement (Third) of Unfair Competition states “It is not possible to state precise criteria for determining the existence of a trade secret.” Determination of whether something is a trade secret is left to a case by case analysis.

The Texas Supreme Court has held that a trade secret is “any formula, pattern, device or compilation of information which is used in one's business and presents an opportunity to obtain an advantage over competitors who do not know or use it.” Computer Assocs. Intern. v. Altai, 918 S.W.2d 453, 455, (Tex. 1994). To determine whether a trade secret exists, Texas courts apply the Restatement of Torts' six- factor test:

(1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of the measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

In upcoming entries we will address specific claims for trade secret protection and how Texas courts have ruled.