Texas Theft Liability Act – Providing Civil Remedies for Criminal Theft of Trade Secrets

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 create 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 TTLA 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 McFarland 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.

Under the TTLA, “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. Id. at § 134.002(2) includes Sections 31.03, 31.04, 31.05, 31.06, 31.07, 31.11, 31.12, 31.13, or 31.14 of the Penal Code as covered types of theft. These sections define several different actions that constitute theft, including the theft of trade secrets in Section 31.05.

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.” Id. at § 31.05(a)(4).

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. This is defined in § 31.01(3) as:

“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.

I. The Advantages of the Texas Theft Liability Act

The ability to pursue a claim under the TTLA 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 v. Texas, 682 S.W.2d 418, 420 (Tex. App. 1st Dist. Houston 1984). 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 TTLA in conjunction with § 31.03 would be almost impossible in trade secret cases.

In contrast, § 31.05 eliminates the “intent to deprive” requirement. Furthermore, Section 31.05 covers not only actual trade secret theft but also communication, transmission, or copying an article representing a trade secret. Thus, Section 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).

II. Determining the Applicability of the Texas Theft Liability Act

As discussed above, the ability for a party to bring a claim under the TTLA, with respect to the theft of information, presents numerous advantages for such party. However, as the TTLA pertains in such respect only to the theft of trade secrets, the threshold inquiry for the court is determining whether the relevant information constitutes a trade secret.

To be a trade secret, “the information, design, process, formula or improvement must not only be a secret, but must also be generally unavailable to the public and it must give one who uses it an advantage over competitors that do not know of or use the trade secret.” See McGowan v. State, 938 S.W.2d 732,738 (Tex. App.-Houston [14th Dist.] 1996). When determining whether information constitutes a trade secret, courts generally consider factors such as:

(1) the extent to which the information is known outside of the owner’s business;

(2) the extent to which it is known by employees and others involved in the owner’s business;

(3) the extent of the measures taken to guard the information’s secrecy;

(4) the information’s value to the owner and his competitors;

(5) the amount of effort or money the owner expended to develop the information;

(6) the ease or difficulty with which the information could be properly acquired or duplicated by others. See Downing v. Burns, 348 S.W3d 415, 422 (Tex. App.-Houston [14th Dist.] 2011); see also, In re Bass, 113 S.W.3d 735, 739 (Tex. 2003).

Based on this stringent analysis, many times the relevant information is held not to be a trade secret.

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

Perhaps the biggest change that the TTLA brings to plaintiffs is in the area of damages. Under C.P.P.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 come 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. Tex. Civ. Prac. & Rem. Code § 38.001 – “A person may recover reasonable attorney’s fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for: (1) rendered services; (2) performed labor; (3) furnished material; (4) freight or express overcharges; (5) lost or damaged freight or express; (6) killed or injured stock; (7) a sworn account; or (8) an oral or written contract.” In federal cases, a party can always ask the judge to use his inherent power to sanction the other litigant and award attorney’s fees. Dorsaneo p. 200-55. Now, under § 134.005(b), “each person who prevails in a suit under this chapter shall be awarded court costs and reasonable and necessary attorney’s fees.”

Notably, the TTLA does not define who constitutes a “person who prevails in a suit.” Some have argued that a party who ultimately prevails on its claim under the TTLA, even though it recovers zero damages, should be entitled to recover attorney’s fees. See, e.g., Johns v. Ram-Forwarding, Inc., 29 S.W.3d 635, 638 (Tex. App.-Houston [1st Dist.] 2000). However, in light of recent cases, a finding of liability alone on a party’s TTLA claim, without an award of damages does not bestow “prevailing party” status and precludes the party from recovering attorney’s fees. See, e.g., Glattly v. Air Starter Components, Inc., 332 S.W.3d 620, 640-41 (Tex. App.-Houston [1st Dist.] 2010). This line of reasoning stems from the rationale established by the Texas Supreme Court in Intercontinental Group P’ship v. KB Home Lone Star L.P. There, the Texas Supreme Court faced the issue of a contract that provided for attorney’s fees for the prevailing party but that did not define “prevailing party.” See Intercontinental Group P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 653-54 (Tex. 2009). The court noted that in such case the ordinary meaning of prevailing party should be used. See id. The court held that a party, who does not obtain damages or other relief on its claim, could not be a prevailing party. See id. at 655-56. Thus, in order for a prevailing party to be entitled to costs and reasonable and necessary attorney’s fees, the prevailing party must obtain some award of damages.

The TTLA is not limited to providing recovery of attorney’s fees for plaintiffs. Defendants who have successfully prevailed in defending against TTLA claims have also recovered their attorney’s fees. See Moak v. Huff, 2012 Tex. App. LEXIS 1245 (Tex. App. San Antonio Feb. 15, 2012) (reversed and remanded judgment denying attorney’s fees finding that a defendant who successfully defends a TTLA suit is entitled to recover.

IV. Summary

The TTLA provides distinct advantages over common law and contract claims, but also heightens the risk that a losing plaintiff could be required to pay a prevailing defendant’s attorney’s fees.

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Rainproof Shoes – The Technology, Benefits and Buying Tips

Like most parents, when you are looking to buy rainproof shoes, boots or trainers for yourself or your children you will want to ensure they are going to perform well in wet and rainy conditions so that your feet are not cold and soggy throughout the rest of the day! Of course when you do shop for your shoes you will want to be certain that you are getting the best advice and a good deal. This article provides you with a clear explanation of the technology behind waterproof shoes and gives you some important buying tips so that you can be confident in your purchase.

The Benefits of Waterproof Shoes

The introduction of waterproof and breathable membranes into footwear was a relief for many consumers. The ordeal of coping with soggy feet and socks following a particularly sudden downpour, only to be made worse by your child splashing in puddles, suddenly became a thing of the past.

Another feature welcomed by consumers was the breathable membrane which fits neatly inside the shoe, encasing the foot in a sweat free environment and ensuring ‘smelly’ shoes are a thing of the past. With the foot no longer trapped in a hot and sweaty environment, there was far less chance of bacteria breeding and leading to itchy and unsightly Athletes Foot.

The Technology Behind the Waterproof Breathable Membrane

So how was the membrane that has revolutionised adults and kids feet originally discovered? Well, it all started when scientists at W.L Gore and Associates Inc. in the USA were working on a stretched polymer technology. They managed to develop a new material which had an incredible 9 billion tiny pores per square inch. These microscopic pores were about 20,000 times smaller than a droplet of water but 700 times bigger than moisture vapour (or sweat) molecules. Hence, water or rain droplets could penetrate the membrane, whilst warm moisture generated from a body was drawn away to evaporate. The membrane was called GORE-TEX.

The Waterproof Membrane In Shoes

As with many new technological advances the GORE-TEX membrane was first used in industrial applications. However, once an opportunity in the consumer market had been identified it was soon adopted in performance outer-wear and quickly progressed into walking boots and ski boots.

A Membrane Sandwich In Our Shoes

A great feature of this membrane was discovered when scientists ‘sandwiched’ it between two conventional fabrics. It was found that as long as the two fabrics either side were breathable then the waterproof and breathing properties of the complete ‘sandwich’ remain unaffected. Thus GORE-TEX could be placed next to breathable materials such as leather, suede, some fabrics as well as some PU’s. This breakthrough meant it could be adopted into more mainstream items of footwear.

Could technology Defeat Children’s Sweaty Feet?

It is a little known fact that children’s feet have exactly the same number of sweat glands as an adults but spaced out over a much smaller surface area. Another little known fact is that every foot sweats on average an egg-cup full of moisture a day! Is it any wonder then that we find out feet prone to being sweaty and hot?

Building on their technological success, and identifying this extra need for kids footwear, W.L.Gore Associates GmbH, developed an even more porous / breathable membrane called GORE-TEX Performance. This new and improved membrane ensures kids feet are kept cool and dry by drawing the sweat away from the foot to the outside of the shoe to where it can evaporate. Regardless of the weather, the temperature or what they might be doing, a child’s foot is now in the correct environment for hours at a time.

6 Key Tips For When You Buy Waterproof Shoes

1. Are the shoes sold as ‘Waterproof’ or ‘Water Resistant’? Make sure its the former if you want a shoe that does not leak at all. Water Resistant means that your feet could still get wet!

2. Are the shoes sold with a branded waterproof membrane e.g. GORE-TEX or Sympatex? If yes, then you know that the shoe will perform.

3. Get you child measured beforehand to ensure you buy the correct size. Alternative buy from an on-line retailer with a good measuring guide.

4. If you are buying on-line then read up on the website’s fitting advice for the style you require so that you know how the shoe fits before you buy. Some good websites will allow you to contact them and provide free advice on fitting so that you get the best shoe for the type of foot or fitting you require.

6. Always check the returns policy of any retailer as you want to make sure you get a full refund or can exchange the goods if the fit is not right! Often Waterproof shoes are expensive so you need to make sure they fit!

5. Do not forget to choose a size which allows for sufficient growing room.

6. Make sure you keep the care instructions that come with the shoes. You need to look after them properly!

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