Businesses invest significant time and resources toward creating and maintaining customer lists. While customer lists were historically relatively simple and straight-forward documents listing customer names and contacts, companies today often use customer relationship management (CRM) tools to compile, organize, and analyze large amounts of customer data – including contact information, personal information, products, marketing materials, social media information, purchase history, buying preferences, and more. Such data can be crucial for maintaining current customer relationships and soliciting prospective business relationships. For this reason, customer lists are more and more frequently being deemed a significant intellectual property. Likewise, should such intellectual property fall into the wrong hands, it can be very damaging to the business. So what steps can businesses take to protect their valuable customer lists? This article discusses recent case law on trade secret protection of customer lists and offers a checklist for businesses to ensure that they are taking appropriate steps to protect their information. For purposes of this article, we use the term “customer list” broadly, referring to any compilation of the above-listed categories of data and information relating to customers.
Why Trade Secret Protection?
There are various types of intellectual property protection in the United States. However, unlike patent, copyright, or trademark protection, trade secret protection is the only type of intellectual property right that does not require disclosure of the information itself in order to avail protection. As customer lists hold their value only when they are confidential, trade secret coverage is the appropriate protection for this type of intellectual property.
There are numerous laws protecting trade secrets in the United States, both at the federal and state level. Though there is some overlap, this article focuses on federal trade secret law. Specifically, the Defend Trade Secrets Act (DTSA), 18 U.S.C. §§1839 et seq., which became law in 2016, created the first federal cause of action for misappropriating trade secrets. The DTSA defines a trade secret as all forms and types of “financial, business, scientific, technical, economic, or engineering information.” 18 U.S.C. § 1839. To enforce a trade secret, its owner must prove the following: (1) that it has taken reasonable measures to keep the information secret; and (2) the information has independent economic value from being generally not known and not reasonably ascertainable.
Is a Customer List a Trade Secret Under Federal Law?
In the few years since the enactment of the DTSA, courts have been busy interpreting what kinds of information constitute a trade secret under the DTSA. As of the writing of this article, more than 100 court orders have referenced both the DTSA and customer lists. Courts have generally relied on precedent in their circuit in determining whether a customer list generally qualifies as a trade secret. As a result, the outcomes and interpretations have not been consistent. In the Ninth Circuit, for example, courts have explained that they have previously granted trade secret protection to customer lists because such a list “allows a competitor . . . to direct its sales efforts to reach those potential customers that are already doing business with the” trade secret holder. Chartwell Staffing Servs. Inc. v. Atl. Sols. Grp. Inc., No. 819CV00642JLSJDE, 2019 WL 2177262, at *5–8 (C.D. Cal. May 20, 2019) (internal quotations omitted). However, other courts have found that “[c]ustomer lists, pricing information, long-term sales strategies, and customer buying habits do not necessarily constitute trade...
