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Not All Customer Lists are Trade Secrets!

Categories: Business & Corporate, Article

Whether a customer list is, in fact, a trade secret depends on a two-step analysis to be applied on a case-by-case basis. The first step relates to efforts to keep the list secret. If so, the second step is a four-factor analysis detailed below.

First, a trial court must determine whether the customer list has been kept secret or there have been reasonable efforts to keep the customer list secret. If the facts show this to be the case, the court then must consider four factors to determine whether a customer list is a trade secret: (1) whether the customer list contains a selective accumulation of detailed, valuable information about customers; (2) whether substantial efforts were expended to identify and cultivate the customer base such that it would be difficult for a competitor to acquire or duplicate the same information; (3) whether the information in the customer list derives independent economic value from its secrecy and gives the business a demonstrable competitive advantage over others in the industry; and (4) whether the business divulged its customer list externally or internally. If a business cannot provide and present evidence to a court to support these four factors its customer list is not a trade secret.

The takeaways for you are (1) it is important to keep your customer list secret, (2) never provide the list to people outside of your business, and (3) maintain background information and evidence on the list to support the four factors set forth above.


About the Author: Neal H. Bookspan is a partner at the Phoenix, Arizona law firm of Jaburg Wilk. He assists clients with business issues, commercial litigation, business divorces, and bankruptcy litigation. You can follow Neal's blog at Business Law Guy's Blog.