CUSTOMER LISTS – WHEN THEY BECOME TRADE SECRETS
Although trade secrets can come in many different forms – such as a formula, pattern, compilation, program, device, method, technique or process – one form that is frequently litigated is a customer list. Customer lists may be protectable as trade secrets under certain circumstances, but the case results are often fact-driven and hard to reconcile with each other. However, a close reading of the leading California cases reveals several key or decisive factors that lead to customer lists being deemed as protectable trade secrets.
As discussed in more detail below, a customer list consisting of only names or contact information is less likely to garner trade secret protection than one that also includes other information such as customer preferences, purchasing history, pricing, etc. However, customer identities themselves have been deemed to be trade secrets if certain factors are present, including most importantly: (i) significant expense and difficulty in compiling the customer list; and (ii) the list of customer names consists of past buyers of a product rather than prospective buyers if certain additional factors are present, such as: (a) the fact that customers purchased the product is not commonly known or readily determinable; (b) the product that the customers purchased is inherently difficult to sell; (c) past buyers repurchase or renew at a high rate; or (d) the list of past purchases is the primary asset of the business.
Under the California Uniform Trade Secret Act, a trade secret is “information, including a... compilation... that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Cal. Civ. Code §3426.1(d). At minimum, therefore, a customer list may constitute a trade secret only where it “[d]erives independent economic value... from not being generally known to the public or... [competitors],” and this is usually the primary battleground in customer list cases that have reached the appellate courts. The second issue – whether a party took “reasonable” secrecy efforts – is often a jury question based on the particular facts in each case.
Jan-Mar 2014 issue
Newport Trial Group