Many confidentiality agreements will contain language about customer lists being confidential information. Others will contain broad language about everything under the sun being proprietary trade secrets. A simple list of companies and addresses is not very likely to be protected as a trade secret. When determining whether customer lists are trade secret, a court’s analysis will consider factors such as whether the list was compiled with substantial effort and expense, whether the customer identities are public or commonly known, and the sophistication of the customer information. Customer lists are more likely to be protected if they include key contacts, special customer requirements, ordering history, billing rates, payment terms or other information that is not generally known by others.
An interesting issue that we have seen is where a service company was subcontracted by a product distributor/reseller for installations, repairs and general maintenance work. There was a confidentiality agreement executed between the distributor and service company. The manufacturer was provided a list of all companies that had products installed by distributor/reseller for warranty purposes. Thus, the detailed information about what customers had what products was known to and available from the manufacturer, along with warranty work records.
Fast forward a few years and there is a parting of the way between the distributor/reseller and the service company. Since the distributor/reseller is unable to directly provide warranty service, the manufacturer wants to contract directly with the service company for warranty work and a service agreement is executed. The manufacturer supplies its list of customers with product installations and the products installed at each site to the service company. Thus, the customer list details were provided by someone other than the distributor. The distributor makes a claim against the service company for breach of the confidentiality agreement when it sends a letter to companies with product installations that it will handle warranty and maintenance issues going forward.
The case settled before a court was able to determine whether the data actually qualified as a protectable trade secret or confidential information given the fact that he manufacturer had a list and supplied it to the service company. Under the facts of this case, we were confident that there was no breach because the information was available and provided by a third party with no obligation to keep it confidential. That is an exception to confidential information as defined by most written agreements.
This scenario is not unusual. Confidentiality agreement and trade secret cases occur quite regularly. Having a form agreement that you have employees and independent contractors sign if only a first step to establish and protect your proprietary information. Employers should make reasonable efforts to maintain the secrecy of such information by limiting its disclosure to a need to know basis, restricting public and employee access to the information, labeling the information confidential, and requiring employees to sign confidentiality agreements that prohibit the use or disclosure of such information. These obligations continue for a period after employment and this should be covered in exit interviews and termination paperwork.