The Texas Uniform Trade Secrets Act (TUTSA) is an important law that helps businesses protect their trade secrets from unauthorized use. However, understanding what qualifies as “misappropriation” of a trade secret, especially when distinguishing between improper and proper actions, can be complex. This blog explains when misappropriation occurs under TUTSA and highlights the difference between improper and proper actions, with a focus on reverse engineering.
When Misappropriation Occurs Under TUTSA
Under TUTSA, misappropriation happens when a trade secret is obtained through improper means or when it is used or disclosed without the owner’s consent, especially if there is a duty to keep it confidential. Improper means, as defined by TUTSA, include actions like theft, bribery, misrepresentation, breach of duty, or any form of espionage, whether electronic or physical.
For example, if an employee improperly shares a company’s proprietary formulas with a competitor or if a competitor hacks into a company’s server to steal data, these would be considered misappropriation under TUTSA. The key point is that the acquisition, use, or disclosure must involve a breach of trust or unethical conduct.
Proper Actions That Do Not Constitute Misappropriation
On the other hand, TUTSA recognizes that not every action leading to the acquisition of a trade secret is improper. Proper methods include independent development and reverse engineering—two legitimate ways to access and use information that might initially be protected as a trade secret.
Reverse Engineering as a Proper Action
One of the most commonly discussed proper methods under TUTSA is reverse engineering. Reverse engineering involves dismantling and analyzing a product to understand how it works or to discover its trade secrets. According to TUTSA, reverse engineering is a legitimate way to discover information, as long as the product was obtained lawfully.
For instance, if a company purchases a competitor’s product that is available on the market, it has the right to take it apart and analyze its components to understand its functionality. This process fosters innovation and encourages healthy competition, as companies can use existing technologies as a foundation to create improved versions or new innovations.
Limitations on Reverse Engineering
However, reverse engineering is only proper if the product was obtained legally. If the product was acquired through fraudulent means or in violation of a confidentiality agreement, then reverse engineering would be considered improper and would qualify as misappropriation under TUTSA.
For example, if a company acquires a device under a contract that explicitly prohibits reverse engineering, such as a non-disclosure agreement (NDA) in a joint venture, employment relationship, or other business relationship that specifies the use of the protected information (and restricts any dissemination or reverse engineering) attempting to reverse-engineer the device would be a breach of that contract and therefore improper. In such cases, TUTSA would view reverse engineering as an improper means of acquiring trade secrets.
Independent Development
Another proper way to acquire a trade secret is through independent development. If a company develops a similar product or process without relying on someone else’s trade secrets—using their own research and development—it does not count as misappropriation. This emphasizes the importance of keeping good records to demonstrate that development was completely independent.
Policy Encouraging Innovation and Competition
The distinction between improper and proper means under TUTSA—particularly allowing reverse engineering—is crucial for fostering fair competition and innovation. By permitting reverse engineering, TUTSA strikes a balance between protecting companies’ confidential information and encouraging competitors to innovate by analyzing existing products.
Conclusion
In summary, under the Texas Uniform Trade Secrets Act, misappropriation occurs when a trade secret is obtained, used, or disclosed through improper means, such as theft or breach of a confidentiality obligation. However, reverse engineering, as long as the product was lawfully acquired, is considered a proper and legal action under TUTSA, supporting innovation and competition without fear of legal repercussions. Understanding these differences helps businesses protect their valuable trade secrets while engaging in competitive and lawful practices.
If your business faces a potential theft of trade secrets claim, or wishes to protect its trade secrets, contact us. Because at the Vethan Law Firm, PC
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