by Denis M. Fitzgibbons
Your business owns information critical to your success, and you need to protect it from competitors and other outsiders. However, not everything you think is confidential is protected as a trade secret.
In its 2013 Calisi ruling, the Arizona Court of Appeals provided useful criteria for what constitutes trade secret protection. The Calisi case involved a company’s customer list that a former employee took with him when he left to join a competitor.
The Court of Appeals held that only those secrets “affording a demonstrable competitive advantage” will qualify as a protected trade secret. Further, Arizona law will not protect a company’s information if the company has not taken appropriate steps to ensure that its information qualifies as a “trade secret.”
The Court of Appeals cited several factors to determine whether a customer list qualifies as a trade secret.
First, a customer list may be entitled to trade secret protection when it represents a “selective accumulation of detailed, valuable information about customers – such as their particular needs, preferences or characteristics – that naturally ‘would not occur to persons in the trade or business.’”
In other words, a qualifying customer list must contain information a company compiles by virtue of its relationship with the customer, not simply by gathering required contact information or purchasing a commercial list of prospects.
Second, a customer list may be protected if the company can show it compiled the list by “expending substantial efforts to identify and cultivate its customer base, such that it would be difficult for a competitor to acquire or duplicate the same information.”
Third, as noted above, another factor to consider is whether the information contained in the customer list “derives independent economic value from its secrecy, and gives the holder of the list a demonstrable competitive advantage over others in the industry.”
Finally, courts will examine how the company handles its customer list. Is the list marked “confidential”? Does anyone who uses the list sign an agreement to maintain its confidentiality? If the company does not treat the list as confidential, neither will the courts.
Achieving Trade Secret Protection
To strengthen your claim that your customer list is a protected trade secret, start with the following:
Include in your customer list more than mere contact information. The list should also contain types of services provided, notes from client meetings and phone calls, billing histories, reminders about client preferences, notes about plans for future products and services to be purchased, and any unique and novel information concerning the customer.
Use a process to obtain and maintain the information beyond basic information gathering. Preserve any information concerning the marketing methods used to build a client list as well as the success rate of those methods.
Keep records of the expenses incurred in creating and maintaining the customer list. By having a record of the expense and effort that go into building a client list, you will be in a better position to protect your list as a trade secret.
Communicate to all employees the secret nature of client information and grant access only to employees who require that information to perform their job functions. Your employee manual and new employee training should emphasize that this information is confidential and the company expects its employees to maintain that confidentiality.
Require non-employees to sign an acknowledgement of confidentiality before you give them access to your customer list.
These steps provide only a starting point for protecting your customer list. Creating a written plan that maximizes that protection should be the result of a well-thought-out process that reflects the nature of your industry and competition, the unique characteristics of your company, and the input of a legal advisor experienced in protecting trade secrets and other confidential information.
Denis Fitzgibbons is a senior partner at the Fitzgibbons Law Offices in Casa Grande, 520-426-3824, firstname.lastname@example.org.