by Greg Bennett
One of the most common types of information that is misappropriated, especially by employees at the time of termination, is customer information. When is customer information a trade secret and is there anything an employer can do to prevent its misappropriation or to stop the employee from using it once he has taken it?
Client information may qualify as a trade secret when the elements stated in my previous articles are present (the information possesses independent economic value due to it being secret and reasonable steps have been taken to protect the secret) and “the employer has expended time and effort identifying customers with particular needs or characteristics.” The more difficult information is to obtain and the more time and resources expended by an employer in gathering it, the more likely such information constitutes a trade secret. A customer list will satisfy the independent economic value test if it can be shown that the “secrecy of this information provides a business with a “substantial business advantage”. So, for example, a court will uphold the trade secret status of a customer list that has been developed over time and that contains sophisticated customer information such as billing rates, private information about customer’s contact persons, specialized requirements or mark up rates and reflected well-established long term relationships between employer and customers because such list represents an investment of substantial time and money in its development. Conversely, customer information will not be considered a trade secret when the customer names are generally known to the public, easily discovered though public sources and the compilation process used by the employer was not sophisticated, difficult or time consuming.
If a former employee has misappropriated your trade secret information, what should you do? The answer to that question depends on how damaging the employee’s use of your trade secret information will be to your business. If the use of the misappropriated information will cause you serious harm, then you should consult an attorney conversant in trade secret litigation to file for injunctive relief, the return of misappropriated information and monetary damages. If the damage to your business appears to be outweighed by the cost of such a litigation (which can be very expensive), it might make better business sense to have your attorney send a warning letter and then contact your customers in an attempt to retain as many of them as you can. If after doing this, it still appears that your business will be substantially harmed, you can always sue the former employee, and his new employer, at some later time.
As can be seen from the foregoing, trying to “un-ring the bell” after trade secret information has been misappropriated can be extremely difficult, time consuming, but there are a few simple steps you can take to prevent such an event from happening. First, have everyone with access to your trade secret information sign a confidentiality agreement. Second, actually protect your trade secret information as carefully as economically possible, and, third take immediate steps to eliminate the terminated employee’s access to your confidential information by changing passwords, physically removing files, thumb drives, company cell phones, etc., containing trade secret information from his possession.
Wm. Greg Bennett, Esq. is an attorney with over 20 years experience in private business and commercial real estate transactions and litigation. Mr. Bennett is a partner in the law firm of Bennett & Bennett, APC with his wife, Kelly Bennett, Esq. who practices family law, is a professional mediator and the former Mayor of Murrieta. Mr. Bennett is also a partner in Mediation Law Group, Inc. an alternative dispute resolution provider specializing in civil litigation and divorce mediation. Mr. Bennett can be reached by calling (951) 719-3456 or emailing him at gregbennett@bennettandbennettlaw.com