Published on:

Trade Secret Misappropriation

In this blog post, we will look at the federal courts and the need to evaluate the protection of customer lists as trade secrets. Contextually speaking, the federal statute is in place for the purposes of misappropriation.

In order to meet the standard of a misappropriation, there must be:

(1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means or  (2) disclosure or use of a trade secret of another without express or implied consent. When the alleged misappropriation is based on disclosure or use, the person who disclosed the information must have: “(i) used improper means to acquire knowledge of the trade secret; (ii) at the time of the disclosure or use, knew or had reason to know that the trade secret was; (I) derived from or through a person who had used improper means to acquire the trade secret; (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or (iii) before a material change of the position of the person, knew or had reason to know that—(I) the trade secret was a trade secret; and (II) knowledge of the trade secret had been acquired by accident or mistake.” 18 U.S.C. § 1839(5).

Customer lists can be considered one of the most valuable assets that a company can have.  Theft or trade of such information can cost some companies up to hundreds of thousands, if not millions.  That is why there has been a move to guard the trading of this within the United States of America.  The scope of the internet and the way we interact in the current climate is affected by digital marketing, online purchasing and through the selling of products via social media.  This often requires tracking of customers via a list or database of clientele that is accumulated by business over the years.

In the past, violations have been met with a lawsuit.  Now there has been a change in legislation and at a Federal level.  Misappropriation now equals a breach of law in the absence of a suit.  Previously, such claims were subject to diversity in legislation. Under the legislation, a company whose customer list is misused is entitled to equitable relief, actual damages, punitive damages, and attorney fees.

In order for compensation to be received, the trade secret must be worthy of some value economically.  A list must, therefore, contain more than information that is available to the public.  This is even if a list was laboriously compiled with time and effort involved.  The list must show the company’s work in creating a market for product or service. Traditionally, the courts have kept that standard to having more than five categories available for each client. It is suggested that data such as the following is more likely to be considered as within the category of being a trade secret:

  • Credit history
  • Purchasing habits and history
  • Sales volumes
  • Pricing data
  • Product preferences
  • Demographics (age group, gender, geographic region)
  • Communication preferences (email, text, phone)

Though the legislation gives greater chances for one to pursue the route of litigation, it also clearly requires that the customer lists constitute as being trade secrets. Part of making the claim stronger also means that the trade secrets are strongly secured by having:

  • Access only on a “need to know” basis and protected with passwords
  • Written nondisclosure agreements covering employment with the company and its obligations
  • Agreements for third-party non-disclosures
  • Noncompete agreements signed by all employees so that they cannot use information obtained from customer lists after they leave These agreements must be drafted to ensure terms are reasonable.
  • A general policy in place defining terms of an employee handbook/your company’s intranet/a communal space, defining what the company considers to be trade secrets and in what situations the information may be used.

https://www.law.com/nationallawjournal/sites/nationallawjournal/2018/01/02/misappropriation-of-your-customer-lists-make-a-federal-case-out-of-it/

http://www.ipwatchdog.com/2016/06/10/misappropriation-trade-secret-dtsa/id=69826/Super Lawyers named trade secret trial attorneys Peter Lubin and Vincent DiTommaso Super Lawyers and Illinois business dispute attorneys Patrick Austermuehle and Andrew Murphy Rising Stars in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. DiTommaso Lubin Austermuehle’s Illinois business trial lawyers have over thirty years of experience in litigating complex class action, copyright, noncompete agreement, trademark and libel suits, consumer rights and many different types of business and commercial litigation disputes.  Our Schaumburg and Evanston business dispute lawyers, civil litigation lawyers and copyright attorneys handle emergency business lawsuits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist Chicago and Oak Brook area businesses and business owners who are victims of fraud. You can contact us by calling (630) 333-0000 or our toll-free number (877) 990-4990.  You can also contact us online here.