Texas is one of only four states which have not adopted the Uniform Trade Secrets Act. Indeed, the state of Texas actually has no body of law specifically focused on trade secrets; leaving considerations and evaluations of proprietary information and its use or misuse to an amalgamation of common law and other related but decentralized statutes, most of which are (according to some commentators) outdated and incapable of adequately addressing the rapid emergence of technology. But that reality could soon change as the Texas Legislature considers a modified version of the Uniform Trade Secrets Act proposed both in the House (HB 1894) and the Senate (SB 953).
The current state of trade secret law in Texas brings to mind a recent article I read regarding the “choice of law” provision in a franchise agreement and its ultimate effect on the franchisor’s ability to obtain remedy for a post-term non-compete agreement. In that case, the franchise agreement was governed by Michigan law, which recognizes payment of money as an available alternative to equitable relief for violation of a non-compete. But when the franchisee subsequently filed for Chapter 13 bankruptcy, the franchisee’s obligation to pay those damages was erased, making the non-compete unenforceable and leaving the franchisor with no remedy against the competing former franchisee. I would like to believe that such an absurd result was not intended by the Michigan law at issue in that case, but it was unfortunately the conclusion which had to be drawn in light of the then-applicable state of law.
Most people understand that different states can have different laws regarding the same subject matter. But every so often situations emerge and draw to light the need for some degree of uniformity—or at least a measure of consideration for setting forth an up-to-date system of analysis. Concepts as familiar and critically important to franchise systems as trade secret protection and non-compete agreements most certainly belong on that list.
For expanding businesses generally, and for franchise systems specifically, the proposed trade secret legislation in Texas would no-doubt provide a degree of clarity and set the stage for a more adequate level of risk analysis. Given the radically diverging outcomes of similarly-situated trade secret cases I have witnessed in my own practice, I am hopeful that this proposal turns into a reality.
David L. Pratt II is a franchise and brand expansion attorney with DL PRATT, PC. Like all posts made on this blog, this posting is solely for informational purposes and is in no way intended to be, or to be interpreted or construed as, legal advice or as creating an attorney-client relationship