Sometimes Court just do not understand business realities. This is an example of a troubling ruling concerning trade secrets—it ruled that there is no violation of the federal Defend Trade Secrets Act (DTSA) unless there is unauthorized use of the stolen trade secret. Put more bluntly, stealing the trade secret is not enough to create a claim.
This ruling fails to adhere to the language of the statute but this legal analysis is secondary to what scares businessowners—courts that fail to understand basic business principles. Here, the Court fails to recognize that some business harm (damages!) occurs solely because the trade secret was stolen. This post focuses on the Court’s failure to understand the theft itself is damaging to the victim of the theft.
Rhetorically, what value does a trade secret hold when it cannot be considered a secret from the trade? Loss of the exclusive use of the information creates real harm in a variety of situations:
- Competitors may decide to spend—or not to spend—millions of dollars to compete against the stolen product after learning of its underlying composition or a competitor’s sales strategy;
- Information may be disclosed during the M&A process whereby the misappropriator’s possession of the trade secret data causes a potential deal between the trade secret owner and a third party to be scuttled. The potential acquiror may not be interested in the deal because it knows the trade secret is not actually a trade secret.
Attorneys need to be aware of this decision and others like it. Why? They need to remember to advise their clients that issues that “should” be resolved in a certain way is far from a guaranty. Likewise, it is a reminder that offering legal opinions on issues that appear to be strong cases need to be offered with key caveats.
This case also serves as a warning that Texas is not always the pro-business haven the state claims it is. Companies thinking about moving to or into Texas—or any other state—must perform a comprehensive search to ensure their business interests will be protected under the new laws that govern their industry.
David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, and other issues. In particular, he has a significant amount of experience in hospitality law by representing third party management companies, owners, and developers.
He can be reached at david@seidmanlawgroup.com or 312-399-7390.
This blog post is not legal advice. Please consult an experienced attorney to assist with your legal issues.
Image: Secret by Nick Youngson CC BY-SA 3.0 Pix4free
