Texas Theft Liability Act for Trade Secrets

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The Texas Theft Liability Act (TTLA) was enacted in 1989. See TEX. CIV. PRAC. & REM. CODE § 134.001. The TTLA was introduced because, although theft was criminalized under the Penal Code, there were no provisions for civil liability of theft. Committee Report on S.B. 269 p.2.; Cooper v. Sony Music Entertainment, Inc., 2002 U.S. Dist. Lexis 3832, *16 (S.D. Tex. February 22, 2002)(“[T]he Texas Penal Code does not provide a private right of action.”); Aguilar v. Chastain, 923 S.W.2d 740, 745 (Tex. App. Tyler 1996)(writ denied)(“[T]he Penal Code does not creat private causes of action, and a victim “does not have standing to participate as a party in a criminal proceeding.”). This was particularly true for trade secrets, even though trade secrets are generally considered to be rights in the nature of property rights. The only way a party could seek to enforce those rights prior to the passage of the Texas Theft Liability Act was through tort or contract principles. IBP, Inc. v. Klumpe, 07-00-0221-CV, 2001 WL 1456173, 7 (Tex.App.-Amarillo 2001). Thus, the legislature sought to provide statutory civil liability for, among other offenses, unlawful appropriation of intellectual property – trade secrets. In support of passage of the act, State Senator McFaland noted in committee that, “statutory civil liability [will] allow for monetary recovery by the victim against the offender, and thus supplement the criminal sanctions.” Id.

Elements of the Texas Theft Liability Act

Under the Texas Theft Liability Act, “a person who commits theft is liable for the damages resulting from the theft.” TEX. CIV. PRAC. & REM. CODE § 134.003(a). In addition, “a parent or other person who has the duty of control and reasonable discipline of a child is liable for theft committed by the child.” Id. at § 134.003(b). Theft under the TTLA is defined as the “unlawfully appropriating property or unlawfully obtaining services as described . . .” in Sections 31.1-7, 11-14 of the Texas Penal Code.

Under Texas Penal Code § 31.05(a), a trade secret is “the whole or any part of any scientific or technical information, design, process, procedure, formula, or improvement that has value and that the owner has taken measures to prevent from becoming available to persons other than those selected by the owner to have access for limited purposes.”

A person is guilty of stealing a trade secret when he “knowingly (1) steals a trade secret, (2) makes a copy of an article representing a trade secret, or (3) communicates or transmits a trade secret.” Id. at § 31.05(b). In order for a defendant to be liable under § 31.05, he must have taken trade secrets “without the owner’s effective consent.” Id.. “Effective consent” includes consent by a person legally authorized to act for the owner. Consent is not effective if:

(A) induced by deception or coercion;

(B) given by a person the actor knows is not legally authorized to act for the owner;

(C) given by a person who by reason of youth, mental disease or defect, or intoxication is known by the actor to be unable to make reasonable property dispositions;

(D) given solely to detect the commission of an offense; or

(E) given by a person who by reason of advanced age is known by the actor to have a diminished capacity to make informed and rational decisions about the reasonable disposition of property. Id. at § 31.03(3).

The Advantages of the Texas Theft Liability Act over Traditional Theft of Trade Secrets Theories

The ability to pursue a claim under the Texas Theft Liability Act has several distinct advantages over both traditional common law theories of trade secret misappropriation and traditional theft covered in the other sections of the Texas Penal Code.

A. Traditional Theft Statutes Section

31.03(a), which covers more traditional forms of theft, requires that the perpetrator (thief) intended to deprive the principle (owner) of the goods. Id. at § 31.03(a)(“A person commits an offense if he unlawfully appropriates property with intent to deprive the owner of property.”). See also Falcone v. Texas, 682 S.W.2d 418, 420 (Tex. App. 1st Dist. Houston 1984). Texas courts have routinely required the prosecution to prove this element. In fact, the Court of Appeals for the 1st District of Houston has gone as far as to state that under § 31.03 “[t]he intent to deprive the owner of the property must be proved in order to sustain a theft conviction, and failure to prove it requires reversal.” Falcone, 682 S.W.2d At 420. This is a significant problem in almost all trade secret cases because the plaintiff usually still has possession of his trade secrets. Therefore, the thief is often accused of having only copied the trade secret or having transmitted knowledge of the trade secret to another. Because the plaintiff still has possession of the trade secret, the defendant has not actually deprived the plaintiff of the secret, let alone intended to deprive the plaintiff of the secret. Id. Thus, obtaining a theft conviction under § 31.03 or civil damages under the Texas Theft Liability Act in conjunction with § 31.03 would be in most trade secret cases challenging.

In contrast, § 31.05 eliminates the “intent to deprive” requirement. Furthermore, § 31.05 covers not only actual trade secret theft but also communication, transmission, or copying an article representing a trade secret. Thus, § 31.05 anticipates and eliminates potential proof problems by specifically including trade secret theft offenses that would not otherwise be covered under the general theft statute. Id. at 421.

B. Traditional Trade Secret Misappropriation

In addition, under § 31.05 there is no requirement that the accused thief actually use the trade secret. This is particularly significant because one of the three required elements in a traditional misappropriation of trade secrets claim is that “the defendant used the trade secret.” Dorsaneo, Texas Litigation Guide § 200.05[1], p. 200-30. There have been several trade secret cases where courts have found no liability simply because the defendant did not use or attempt to profit financially from the use of the trade secret. Under § 31.05, this would not be a problem because the defendant is guilty by simply taking the trade secret.

C. Burden of Proof

Traditionally, criminal charges of theft, including the theft of trade secrets, require that the prosecution prove the offense beyond a reasonable doubt. Shalk v. Texas, 823 S.W.2d 633, 637 (Tex. Crim. App. 1991); Weightman v. Texas, 975 S.W.2d 621, 624 (Tex. Crim. App. 1998). This is not the standard in civil cases. Rather, a civil claim usually need only be proved by the preponderance of the evidence. While this issue has not been heavily litigated, the Texas Criminal Practice Guide has stated that “[b]ecause [an action under the TTLA] is a civil cause of action for damages, it appears that the burden of proving theft would be by a preponderance of the evidence rather than beyond a reasonable doubt.” Texas Criminal Practice Guide/Volume 6: Chapters 126-135 SUBSTANTIVE LAW (cont.)/Chapter 127 ROBBERY AND THEFT/I LEGAL BACKGROUND / § 127.03D Civil Liability for Theft (citations omitted).

Recovery of Attorney’s Fees Under the Texas Theft Liability Act

Perhaps the biggest change that the Texas Theft Liability Act brings to plaintiffs is in the area of damages. Under C.P.R.C. § 134.005(a), the TTLA provides that “a person who has sustained damages resulting from theft may recover . . . from the person who commits theft, the amount of actual damages . . . and . . . a sum not to exceed $1,000.” This statutory availability of actual damages does not really add anything to what could be recovered under a traditional trade secret misappropriation claim. The real change comes in sub-section (b), which for the first time authorizes by statute the recovery of attorney’s fees in trade secret theft litigation.

This is significant because the general rule in the United States (including in Texas) is that a party is to bear its own attorney’s fees unless there is an express provision in a contract or statute indicating otherwise. This is such a universal rule that it is commonly known as the “American Rule.” And the Texas Supreme Court has regularly held that “attorney’s fees are not recoverable either in an action in tort or a suit upon a contract unless provided by statute or by contract between the parties.” This has meant that in the past a plaintiff usually had to look to contractual provisions or the discretion of a judge acting under C.P.R.C. § 38.001 to get attorney’s fees.

For more information on this topic, please visit our Trade Secret Litigation service page, which is part of our Intellectual Property Litigation Practice.

About the firm:

Klemchuk LLP is an Intellectual Property Law, Litigation, and Transactions law firm.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution.  

The firm publishes the following blogs: Intellectual Property Law, Conversations with Innovators (interviews with thought leaders), Leaders in Law (discussions on timely law topics), and Culture Counts (thoughts on law firm culture and the business of the practice of law).