Not All Customer Lists Are Trade Secrets
In a case decided this past April, the Arizona Court of Appeals found that whether a business's customer list is a trade secret requires a factual inquiry. Calisi v. Unified Financial Services, LLC, Case No. 1 CA-CV-0812. The court's holding requires a two part inquiry to determine whether a customer list is, in fact, a trade secret.
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, courts 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 from this case are that it is important to keep your customer list secret, never provide the list to people outside of your business and be able to provide background and evidence on the list to support the four factors enunciated by the Court of Appeals.
About the author: Neal H. Bookspan is a partner at the Phoenix, Arizona law firm of Jaburg Wilk PC . He practices in business law and assists clients with business issues, commercial litigation, workouts and bankruptcy litigation.