Few assets are as important both to a
company’s sales efforts and to maintaining good customer relations as its list of client names and data. Lose the list
and you give away much of the proprietary
information that you built up during the
years of working with the customer. Your
firm stands to lose face — and business —
if the list is stolen and used by others to
undercut your business. When possible,
customer lists should be protected as trade
secrets, says J. Robert Arnett II, an attorney with the Dallas law firm of Munck
Butrus Carter, P.C.
Are all client lists protectable as trade
secrets?
Not by a long shot. First, they have to be
secret. That does not require an absolute
secret — known to one person and one
person only — but it does mean the information cannot be well-known or easily
acquired in the trade or industry. Second,
they have to derive value or at least potential value from the fact that the information
is not generally known or easily acquired.
In other words, the fact that you have the
information and your competitors do not
gives you a competitive advantage. Third,
the owner has to take reasonable efforts to
maintain the secrecy of the list, which
includes physical security and educating
employees about their obligation to keep
the information confidential. If customer
lists are legitimate trade secrets, courts will
give them a high level of protection.
How can a firm protect its customer lists?
First, you can employ physical security
measures — keeping the lists secured,
restricting access to the area within your
facility where the lists are kept, limiting
access to those employees who have a
need to know and use them, password protecting files, and limiting access to computer servers where the lists are kept.
Second, you can take steps with your existing employees to reinforce the secrecy of
the lists by training employees about the importance of protecting trade secrets and
requiring employees to sign nondisclosure
and/or noncompete agreements. Third,
you can take steps with departing employees to reduce the risk of them stealing your
lists — conducting exit interviews to
remind departing employees of their duty
to not disclose trade secrets and confidential information, checking what materials
the employees are taking with them as they
leave, requiring them to leave immediately,
retrieving their keys and pass cards, disabling their computer network access, and
having them come back after hours to
clean out their offices under supervision.
What about when a trusted employee
leaves? A simple jump drive will download
an entire hard drive.
You can’t completely stop employee
theft, particularly when technology exists
that makes it easy to copy information. You
can minimize the risk by having employees
sign nondisclosure and noncompete agreements. Noncompete agreements have to be reasonable as to duration, scope of prohibited activities and geographic extent,
but courts are willing to enforce reasonable noncompetes by issuing injunctions
against departing employees. If they can’t
go after your customers at all for some
period of time — say two years — stolen
lists have less value to them, and by the
time they can compete the stolen list may
have lost most of its value. Some firms also
employ measures that will alert them if
someone has stolen and is using a list, for
example, by ‘salting’ the list with people
who are not real customers or prospects
and who will inform the firm if someone
has contacted them to solicit business.
Isn’t it difficult, even with names ‘salted’ in a
list, to prove a list was stolen?
It is a rare case in which a departing
employee admits to stealing a list. Unless
you get some direct evidence through discovery, you generally have to rely on circumstantial evidence. But that is broadly
true in all types of business litigation and is
not a barrier to enforcing your rights.
For example, if a competitor who hired
your former employee suddenly contacts
your best customers and undercuts your
prices, that is pretty good circumstantial
evidence it is using your list. And, if a competitor calls a ‘salted’ name — like your
uncle who is not in the relevant market — it
is hard to envision the competitor coming
up with an innocent explanation. That’s
very good evidence, even if it is circumstantial.
You may also be able to get direct evidence that the competitor has your list
through aggressive discovery, including
seeking a forensic examination of your
competitor’s electronic files. That can be
expensive, but if the list you are trying to
protect is valuable it can be worth the
effort and expense.
J. ROBERT ARNETT II has more than 20 years of experience in all aspects of civil litigation at trial and appellate levels in state and
federal courts as well as before domestic and international arbitration tribunals. A shareholder at the Dallas law firm of Munck Butrus
Carter, P.C., 100 percent of his practice is devoted to litigation. Reach him at [email protected].