Is a customer list still protectable as a trade secret? Two recent cases suggest that, as a practical matter, it is getting tougher to protect this category of trade secret claims, and it is a valid question as to whether it is worth attempting to protect at all.
About 10 days ago, I wrote about the Eagle v. Morgan case in the Eastern District of Pennsylvania that addressed the ownership of a LinkedIn account. Given the buzz over who owns what in a social media account, this case has generated a tremendous amount of commentary within the blogosphere and merited coverage by the Wall Street Journal.
The employer in that case, Edcomm, initially claimed that the LinkedIn contacts qualified as trade secrets, but later ceded that position during the course of a motion to dismiss. That was probably a prudent move, given what happened to the employer in Sasqua Group, Inc. v. Courtney, 2010 U.S. Dist. LEXIS 93442 (E.D.N.Y. Aug. 2, 2010), who made a similar claim and lost. In that case, the Eastern District of New York found that the customer list and information at issue did not qualify as a trade secret because it could be found on LinkedIn and other sites on the Internet, and as a result, was readily ascertainable. (For a more detailed analysis of this case, see my post from last year). In short, contact information displayed on LinkedIn probably won’t qualify as a trade secret.
Another case out of the Tenth District Court of Appeals in Ohio reinforces the challenge in protecting customer lists as trade secrets, although from a more conventional approach. In Columbus Bookkeeping & Business Services, Inc. v. Ohio State Bookkeeping, Case No. 11AP-227 (Dec. 30 2011), the Tenth District reversed a preliminary injunction issued against several former employees who were alleged to have misappropriated the customer list in question. (A copy of the opinion is attached below).
The Tenth District was unimpressed with the customer list at issue. It emphasized that “the evidence does not indicate that the client list consists of any information but the names of the entities that do business with plaintiff and perhaps a billing address” and that “[n]othing in the evidence suggests that any sensitive information, otherwise unavailable to the public, is included in the list.” Reading between the lines, I suspect that the Tenth District was troubled by the absence of non-competes or other agreements and what it perceived to be an end-run effort to create them through a relatively weak trade secret claim. (For fellow trade secret geeks here in Ohio, this opinion reminds me of Hydrofarm, Inc. v. Orendorf, 180 Ohio App.3d 339 (10th Dist., Dec. 23, 2008), another Tenth District opinion troubled by the absence of a non-compete and rejecting an inevitable disclosure claim).
The future of customer lists remains a topic of debate within the trade secret community. For those active in LinkedIn, I would encourage you to join the Trade Secret Protection Group, where Dylan Wiseman, a trade secret lawyer with Littler Mendelson in California, has forcefully argued that protection of the customer list in California remains viable particularly because California’s version of the Uniform Trade Secret Act (UTSA) does not have the “readily ascertainable” limitation.
I remain a skeptic. In my experience, customer lists are among the more challenging trade secrets to protect. There is the invariable argument likening them to phonebooks and they may appear, at times, to be thinly-disguised efforts to impose non-solicitation agreements when none exist. In the era of LinkedIn and the Internet, protecting customer lists will only be more difficult and good luck to the claimant that rushes into court with that as its only trade secret.
Columbus Bookkeeping v. Ohio State Bookkeeping.pdf (105.14 kb)