Customer Lists Part 1: Trade Secret or Not?

When determining whether customer lists qualify as a protectable trade secret, a court’s analysis will consider a number of factor: whether the list was compiled with substantial effort and expense, whether the customer identities are public or commonly known, and the detail and sophistication of the customer information. The greater the detail, the more proprietary the information. Key contacts alone may not be sufficient to warrant trade secret status especially if they are easily assembled with a Google search of the internet or located in an industry directory disseminated publicly. However, special customer requirements, ordering history, billing rates, and payment terms are pieces of information not generally known by others, and thus could be valuable data accorded trade secret protection.

In order for a company to receive judicial protection of its customer lists, employers should make reasonable efforts to maintain the secrecy of such information by limiting its disclosure, restricting public and employee access to the information, labeling hardcopies and electronic copies of the information “confidential”, and requiring employees to sign confidentiality agreements that prohibit the use or disclosure of such information. Failure to take basic steps to protect the information will result in loss of trade secret protection.

In our next article, we will explore specific steps a company can take to increase its chances of enforcing restrictive covenants against separated or terminated employees such as sales staff, management executives, and accounting department personnel.