Intellectual Property Law Blog

When Can Customer Information be Considered a Trade Secret?

November 5th, 2015

By John Simmons, Esq. and Fred Tecce, Esq.

When Can Customer Information be Considered a Trade Secret? - See more at: http://panitchlaw.com/blog/?p=188&preview=true&preview_id=188&preview_nonce=c47998b474#sthash.v4kdwEVB.dpufWe’ve recently discussed trade secrets, any information known to you but not to others that gives you a business advantage. While examples such as product designs and secret recipes are good examples of intellectual property that can be treated as trade secrets, we frequently are asked about one business advantage that is not so clear cut: customer information.

We field many inquiries from companies that have recently had an employee depart – usually an employee who, by virtue of their job responsibilities, has extensive contact with and knowledge of the company’s customers.

Can a company stop the former employee from “taking their customers” with them to their next place of employment? If necessary, can a company take legal action against those former employees or their new employers to stop them from “stealing” those customers?

The answer to that question often is complex, and depends upon the format and origin of the customer information and on a particular state’s laws.

Public vs. Private Customer Data

At its most basic, a customer list simply is a list of company names. A list of publicly available company names, addresses and phone numbers that, hypothetically, anyone could compile cannot be considered a trade secret.

However, customer information that typically would not be available to the public may qualify as a trade secret. Many companies store their client data in customer relationship management (CRM) databases, which can contain a great deal of additional information gleaned specifically by that company. CRM systems allow business development staff to share notes about previous interactions with the client, to record valuable inside information about a client’s organizational structure, and even to facilitate small talk by recording key contacts’ birthdays, family members’ names and similar personal information.

All this supplemental information, which is not publicly available and typically could not be acquired without the access to the client provided by the former company’s business relationship, could reasonably be treated – and enforced – as a trade secret.

A former employee may be able to head to a competitor with a list of customer names and phone numbers but not with CRM data on a USB drive or via private email accounts.

Company vs. Personal Assets

Even here, there are some grey areas. Sales often is a high turnover profession, and many sales professionals maintain their own customer lists or even CRM databases, which they build and bring with them from job to job. In such cases, the ownership of that data and whether the salesperson can “take their customers with them” if they leave the company depends upon the terms of the company’s employment agreement with that person.

Employment agreements can be an effective tool to protect a company’s valuable intellectual property including its trade secrets. Such agreements can include language that prevents an employee from competing with the company for a reasonable period following their departure. This can offer an additional legal tool to help protect a company’s trade secrets and business advantages from being usurped by any former employees-turned-rivals.

To learn more about protecting your company’s assets, contact one of the experienced intellectual property attorneys of Panitch Schwarze Belisario & Nadel at 888-291-5676.

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