Trade Secrets and Trade Secret Privilege in Texas

THE TRADE SECRET PRIVILEGE GENERALLY

The trade secret privilege is governed generally by Texas Rule of Evidence 507:

A person has a privilege, which may be claimed by the person or the person’s agent or employee, to refuse to disclose and to prevent other persons from disclosing a trade secret owned by the person, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice. When disclosure is directed, the judge shall take such protective measure as the interests of the holder of the privilege and of the parties and the furtherance of justice may require.

TEX. R. EVID. 507.

In the trial court, the party resisting discovery on the basis of the trade secret privilege must establish that the information is a trade secret. In re Cont’l Gen. Tire, 979 S.W.2d at 613. The burden then shifts to the requesting party to establish that the information is necessary for a fair adjudication of its claims. Id. If the requesting party meets this burden, the trial court should ordinarily compel disclosure of the information, subject to an appropriate protective order. Id. In each circumstance, the trial court must weigh the degree of the requesting party’s need for the information with the potential harm of disclosure to the resisting party. Id. In other words, when trade secret privilege is asserted as the basis for resisting production, the trial court must determine whether the requested production constitutes a trade secret; if so, the court must require the party seeking production to show reasonable necessity for the requested materials. In re Union Pac. R.R. Co., 294 S.W.3d 589, 591 (Tex. 2009) (orig. proceeding) (quoting In re Bass, 113 S.W.3d at 738).

WHAT CONSTITUTES A TRADE SECRET?

Is the information sought trade secret?

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." In re Bass, 113 S.W.3d at 739 (quoting Computer Assocs. Int’l. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1994)).

Texas courts consider the following factors in determining whether the material at issue qualifies for the trade secret privilege: (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 re Union Pac. R.R., 294 S.W.3d at 592; In re Bass, 113 S.W.3d at 739. Because trade secret materials may not always "fit neatly into each factor every time" and because other factors may also be relevant depending on the circumstances of a particular case, we will weigh the factors in the context to determine whether the materials qualify as trade secret. In re Bass, 113 S.W.3d at 740.

SOURCE: Amarillo Court of Appeals - 07-11-00066-CV - 7/19/11


Having concluded that the items in question were trade secrets and not discoverable as privileged information pursuant to Rule 507 and that Rockafellow, as a potential defendant, has no adequate remedy by appeal, we conclude that he has shown he is entitled to mandamus relief as requested. Accordingly, we conditionally grant the petition for writ of mandamus and direct the trial court to vacate its order dated January 21, 2011, authorizing the pretrial deposition of Michael Rockafellow and compelling disclosure of documents concerning MTBC’s acquisition of SalonQuest’s products. Because we are confident the trial court will comply with this directive, the writ will issue only if the court fails to do so. Our disposition of this case serves to lift the stay previously imposed by the Court. See TEX. R. APP. P. 52.10(b).