Originally published by Zach Wolfe.
As Patrick Keating recently reported on his excellent trade secrets blog, some Texas courts seem to be ignoring the definition of “misappropriation” in the Texas Uniform Trade Secrets Act (TUTSA). Despite the plain language of the statute, some Texas courts have held there is no “misappropriation” in the common situation where an employee initially acquires the secret through proper means but later uses or discloses it in violation of a duty to maintain its secrecy. As Vince Lombardi might say, “what the ****’s going on out here?!”
I’ve noticed that some Texas courts are also confused about customer lists as trade secrets. They think that a misappropriated customer list can be a “trade secret” even if the information in the list is “readily ascertainable” by competitors. This view persists despite the fact that the Texas Uniform Trade Secrets Act defines a “trade secret” as not “generally known” and not “readily ascertainable” to others in the industry. How can Texas courts be getting this so wrong?
There seem to be two sources of confusion: (1) failing to distinguish between misappropriation of trade secrets and common law causes of action, and (2) failure to recognize that enactment of the Texas Uniform Trade Secrets Act in 2013 superseded any conflicting common law rules.
But I’m getting ahead of myself. Let’s go back in time and look at Texas common law on customer lists.
Prior to TUTSA, Texas courts disagreed on whether a readily ascertainable customer list could be a trade secret. Some courts held that if the information in the customer list was “readily accessible” by industry inquiry, then the list was not confidential information deserving protection. Others, held that even if the information was readily accessible in the industry, an employee could be held liable if she gained the information while working for the former employer.
In a case called Dannenbaum v. Brummerhop, the Houston Court of Appeals described this conflict and sided with the courts holding that an employee is liable for misappropriating an employer’s customer list even if the information is readily ascertainable.
Some Texas courts have since applied the “Brummerhop rule” to misappropriation of trade secrets and other causes of action, such as breach of a confidentiality agreement or breach of fiduciary duty.
Law school students take note: Investigating the origins and rationale of the Brummerhop rule would an interesting project. But this is “Five Minute Law,” so it will suffice to say that I’m skeptical of the original rationale for this curious common law rule.
The more pressing question for Texas litigators and their clients is whether the Brummerhop rule has any viability after the adoption of the Texas Uniform Trade Secrets Act. As to common law causes of action such as breach of fiduciary duty, the answer is a matter of opinion. But as to misappropriation of trade secrets, the answer is a clear “no”—or at least it should be.
TUTSA makes two things very clear. First, the statute expressly defines what is required to make a customer list a “trade secret,” and that includes the requirement that the information is not “readily ascertainable.” Second, TUTSA supersedes any common law trade secrets claim. Therefore, Texas cases that applied the Brummerhop rule to a common law trade secrets claim should no longer apply.
Surprisingly, some have suggested that the Brummerhop rule continues to apply to a claim for misappropriation of trade secrets, despite the clear language of TUTSA. This is a mistake.
This is not to say that a customer list is never a trade secret. It just means that a customer list—like any kind of information—must be “not readily ascertainable” to qualify as a trade secret under the statute.
Whether the Brummerhop rule should continue to apply to common law claims is more debatable. Like I said, I’m skeptical. How can it be a violation of a confidentiality agreement or a breach of the common law duty of confidentiality to take a customer list if the information in it is not really confidential? There is also an obvious causation problem. How can taking a customer list cause damage to the employer if the competitor could have readily ascertained the same information without the benefit of the list?
On the common law claims, there is at least room for argument. Therefore, when I represent the plaintiff-employer, I will reserve the right to argue that the Brummerhop rule still applies to common law claims. But don’t get confused and think that the rule should still apply to a claim for misappropriation of trade secrets under TUTSA. Read the statute. In the immortal words of Yogi Berra, “you can observe a lot just by watching.”
Zach Wolfe practices business litigation with Fleckman & McGlynn, PLLC, a Texas law firm with offices in Austin, Houston, and The Woodlands.
These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.
 Dannenbaum, Inc. v. Brummerhop, 840 S.W.2d 624, 632-33 (Tex. App.—Houston [14th Dist.] 1992, writ denied).
 See, e.g., 360 Mortgage Group, LLC v. Homebridge Fin. Servs., Inc., 2016 WL 900577, at *4 (W.D. Tex. Mar. 2, 2016); Tendeka, Inc. v. Glover, 2015 WL 2212601, at *14 (S.D. Tex. May 11, 2015); Rimkus Consulting Group, Inc. v. Cammarata, 688 F. Supp. 2d 598, 667 (S.D. Tex. 2010).
 Tex. Civ. Prac. & Rem. Code § 134A.007.
 For example, in Castle & Co. v. Byrne, 123 F. Supp. 3d 909, 920 (S.D. Tex. 2015), the court agreed with the plaintiff that “some Texas courts have held that even if customer information is readily available in the industry, liability will be upheld if the defendant gained the information in usable form while working for the former defendant” and said that “[t]his Court has found that a number of courts in Texas have continued to recognize the viability of [the] B[r]ummerhop rule.” However, the court was addressing TUTSA and common law claims together. The court did not address whether TUTSA’s definition of “trade secrets” supersedes the Brummerhop rule.
from Texas Bar Today http://ift.tt/2aqdvVa
via Abogado Aly Website