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Preventing Misappropriation of Customer Lists
On behalf of Schachter Harris, LLP posted in Business litigation.
DALLAS, TX, January 12, 2012 /Small Business PR News/ -- One of the most valuable assets a business has is its list of customers. Business owners need to know how to protect that confidential information from misuse and misappropriation by competitors, especially when an employee leaves a company to go work for a competitor. There are steps that business owners can take to ensure that their company lists are protected under trade secrets law.
Texas Trade Secret Law
Under Texas law, in order for a plaintiff to recover under a theory of misappropriation of a trade secret, he or she must prove: (1) a trade secret existed, (2) the trade secret was acquired through a breach of a confidential relationship or was discovered by improper means, (3) the defendant used the trade secret without the plaintiff's authorization, and (4) the plaintiff suffered damages as a result.
Texas courts continue to follow the six factors used to identify a trade secret set forth in Restatement of Tort Section 757, despite that Section 757 was omitted from the Restatement (Second) of Torts and that the Restatement (Third) of Unfair Competition provides a slightly altered definition of trade secrets.
The six factors followed by Texas courts are:
- The extent to which the information is known outside of the business;
- The extent to which it is known by employees and others involved in the business;
- The extent of the measures taken by the business to guard the secrecy of the information;
- The value of the information to the business and to its competitors;
- The amount of effort or money expended by the business in developing the information; and
- The ease or difficulty with which the information could be properly acquired or duplicated by others.
Guidance From the Uniform Trade Secrets Act
Beginning in 1984, states began to pass versions of the Uniform Trade Secrets Act (UTSA), which was a compilation of many court decisions governing confidential information. While Texas has not passed the UTSA and still relies on common law protections for trade secrets, the UTSA is consistent with Texas' six factors and offers guidance for those looking to protect information as a trade secret.
In order to show information is a trade secret, a person / company usually needs to demonstrate that:
- The information has independent economic value
- The person / company took reasonable steps to maintain the secrecy of the information
Independent Economic Value
Courts are usually unwilling to protect customer lists if they are nothing more than information that anyone could get from a phone book. In order to show that a list deserves protection, a company needs to show that the list has economic value. Some ways to do that include:
1) Detailing the process that the company goes through to compile the list
2) Keeping track of the costs of compiling the list, including time, money and other resources the
3) company expended to create the list
4) Creating a written document explaining the process and costs of creating the list
5) Maintain Secrecy of the Information
A company also needs to show that it took reasonable steps to keep its customer list private. Some of the ways that businesses keep client lists secret are:
1) Telling employees that the information is a trade secret in writing and having employees sign a form acknowledging that they understand
2) Informing employees that they are not to share the information with others, except for company business
3) Allowing only those who need to know the information to access it
4) Protecting computer files containing the information with a password that only some employees know
By implementing a few simple confidentiality policies, a business can go a long way in protecting the information that it worked so hard to collect and prevent others from unfairly capitalizing on its efforts.
More on the original article: http://www.schachterharris.com/blog/2011/11/preventing-misappropriati ... ists.shtml
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