In the case of Scientific Machine & Welding, Inc. v. Rose, No. 03-20-00564-CV, 2022 WL 850409 (Tex. App.—Austin Mar. 23, 2022, no pet.), the Texas Court of Appeals determined (1) if the steps taken by the plaintiff amounted to a “reasonable measure” of keeping the relative information a trade secret, (2) whether Scientific came forth with legally sufficient evidence to support claims of breach of fiduciary duty and breach of contract, (3), whether Scientific’s claim of a “breach of implied contract of confidentiality” existed under Texas Law.
Scientific is a custom machine parts designer and manufacturer for other companies. Rose, while an employee of Scientific, serviced a company named Flashparking, who had employed Scientific for the development of kiosks for processing payment at parking lots (“Smart Stations”). On May 1, 2018, Rose stopped working for Scientific and began working for Flashparking immediately. When Rose left Scientific, Rose had in his possession drawings and design work for the “Smart Stations.”
Scientific sued Rose on claims of violating the Texas Uniform Trade Secret Act (TUTSA), breach of contract, breach of fiduciary duty, and breach of an “implied contract of confidentiality.” In response, Rose filed a no-evidence motion for summary judgment to all of Scientific’s claims. The trial court granted Rose’s motion for summary judgment, which led to an appeal by Scientific.
The appellate court first addressed Rose’s argument that Scientific failed to take “reasonable measures” to keep the information a secret. To justify his argument, Rose provided evidence of Scientific making almost no effort to keeping their information a secret, such as Rose being allowed to send design works to third parties without requiring the parties to keep the information confidential. Even Alan Basta, Scientific’s owner and president, provided a deposition stating that all work-related projects were always accessible to all of Scientific’s employees and were not password protected. Additionally, Basta was notified by Rose of his plan to leave Scientific and begin employment at Flashpoint, but Basta still allowed Rose to continue with the “Smart Stations” project.
In its response, Scientific provided evidence of “reasonable measures” that it took to keep the information at issue a trade secret. However, the documents provided by Scientific and argued as evidence of a reasonable measure failed to mention any instructions regarding confidentiality, secrecy, privacy, or safeguarding Scientific’s information. In addition, Basta’s testimony of allowing any employee of Scientific to access any information coupled with Rose’s ability to send design works to third parties without a confidential agreement led the court to determine that no reasonable factfinder could conclude that Scientific took “reasonable measures” to keep the information a secret. The court further stated that Scientific’s arguments in support of its breach of fiduciary duty and breach of contract claims were rejected for the same reason.
Finally, the court determined that a claim for a “breach of implied contract of confidentiality” does not exist under Texas Law. Rose argued this claim was a tactic by Scientific to recast its breach of fiduciary duty claim to avoid preemption under TUTSA. While the court did not need to address whether TUTSA preempted Scientific’s breach of fiduciary claim, the court agreed with Rose that a claim for “breach of an implied contact of confidentiality” does not exist under Texas law as Scientific did not cite any Texas cases recognizing such an action, and the the court did not find any.
There are two key takeaways from this case. First, there is no implied contract of confidentiality under Texas law. Second, taking “reasonable measures” is the first step that must be taken to keep the information a trade secret. Casually attempting to keep information a secret with half-hearted standards will not be adequate.