合理措施播客

How to Define Trade Secrets in a Customer List

The hosts highlight that although customer lists are often seen as mundane compared to high-tech trade secrets, they are frequently at the center of litigation, especially if they contain unique, non-public information. They explain that courts generally require plaintiffs to prove the “specialness” of a customer list, often by showing that it includes specific, confidential data—such as purchase behaviors or budget cycles—that isn’t easily found elsewhere.

To illustrate the variability in how courts view customer lists as trade secrets, Tim and Chris compare two U.S. cases. In Head Over Heels, a gymnastics studio failed to protect its customer list, which was freely shared and unmarked as confidential, resulting in an easy loss in court. On the other hand, in Bruno International vs. Vicar, an Israeli distributor successfully claimed that their customer list was a trade secret because it was well-protected with confidentiality agreements.

H3: Avoid a Trade Secret Lawsuit & Protect Your IP

The episode closes with advice on how companies can enhance the protectability of their customer lists by adding confidential details and ensuring restricted access. The hosts conclude that while customer lists may seem mundane, they can indeed be valuable trade secrets if treated with care.

收获：

• Customer lists are often litigated despite being seen as boring.
• Unique and detailed customer information strengthens trade secret claims.
• Employers must prove that information qualifies as a trade secret.
• Proper documentation and protection measures are essential for trade secrets.
• Not all customer lists automatically qualify as trade secrets.
• The burden of proof lies with the trade secret owner.
• Simple customer lists are harder to protect legally.
• Best practices include limiting access and marking information confidential.
• Comparative case studies highlight the importance of proper management.
• Trade secrets can be valuable even if they seem mundane.

Transcript:

Tim (00:11.842)

Hey, Tim. Chris, we’re here. We’re live. We are.

And we have purple in the background. It’s the Tangibly Studio. That’s right. Tangibly Colors. It’s episode 11, which we’re going to now nickname the Spinal Tap episode. Well, it has to be. Sorry. Our last one was number 10, and that was full of trade secrets. But what if you need just a little bit more trade secret to push you over the edge? That’s awesome. This podcast goes to 11. I’m so glad you remembered that. That’s just fantastic. Well, it’s great to finally do this in person.

And fumbling around on that, you know, on our Zoom podcast for however long now. And so, you know, the one thing that’s going on in the background is Julianna is working on a jingle. So, you know, we’ve had numerous people reach out and say, hey, is the jingle ready yet? You know, when’s episode 11 coming? We need an icon. We need music. Yeah. So professional. It’s happening. Anyway, so today we’re going to talk about a case, a recent case from Hong Kong, which is a tax services business, Conpak, versus a Mr. former employee.

And you know, you give me a hard time sometimes when I pick a case and you’re like, that’s a little bit boring, you know? And so you send over this case, which is, you know, essentially a customer list case, right? And I thought, that’s a little boring, but you know, if Chris finds it interesting enough to serve up, then I may as well dig in. And there are some fun little nuggets in here. So there are, let’s let’s jump in. Why you tell us about Mr. Lock and people always give customer list litigation.

Tim (01:52.92)

Yeah, kind of short shrift and say, that’s that’s boring. It’s not real sexy or interesting. But the reality is customer lists are very frequently litigated and they’re probably the one trade secret that’s stolen more than anything else. even though it’s not high tech solar power. Genetic engineering semiconductor, you know, it’s not fancy.

It’s an Excel file. It’s super important. Yeah, it’s an Excel file or a Word document. You know, it’s it’s boring to a lot of people, but it’s litigated like crazy. And it’s it’s a real interesting because people have this idea that customer lists are always a trade secret or never a trade secret. And of course, reality is not that simple. It’s much more complicated. Right.

So so let’s jump in. This is a guy who was ultimately sued by his former employer. And among the headlines, you know, he emailed himself 223 emails over the course of some period, presumably misappropriating a whole bunch of confidential information. And so tell us a little bit about what happened in the case. Well, there were actually three companies involved. So he worked for the first company. He had his own kind of home business on the side. And then he left the first company to join second company. True. Three three companies were in the mix.

They only almost need to be like numbered in this case because that’s right. Company A, B and C. Yeah. And yeah, he did a number of things that Conpak company A said were wrong. So he was supposed to have declared that he had his own home business. He didn’t do that. Right.

They said he stole information that he contacted former clients and there were 223 emails that he forwarded from his company, a work account to his home personal one. So everything kind of teed up for a normal trade secret dispute. Exactly. Which, by the way, you know, we see these all the time and it kind of it makes me a little mental that people are still just emailing themselves. And I’m going to send it to my Gmail. And I guess people are not that creative or not that innovative in terms of ways of taking company information. Yeah, it is kind of Darwin award funny or stupid in a way that you did it in a very easily discovered way.

It keeps happening. People need to be more creative about it. But then the strange thing is in the litigation, CONPAC never produced and actually refused to produce the emails to the court, which is bizarre. Or maybe the emails weren’t as bad as they were saying they were right. Maybe they’re emailing himself like, you know, dinner reservations. It be, but it was just bizarre because those emails were kind of the core of the alleged wrongdoing. That’s right. That action of sending him all this information is what Conpak was upset about and brought him to court. So you think the first thing you would do is say.

Hey, judge, here’s 223 emails. But that never happened. Yeah. And when the court looked at the customer list, they said it was simple information, just names and contacts. all of that was information that you could have found publicly. So the court not only was upset that the emails were not produced, but the customer list itself was very simple and didn’t have anything really special in it. And that kind of led to Conpak just being dismissed. Just tossed it. Yeah. Right. And so we see this a lot. And I think the one of the key take homes for me in these customer list cases and we talked to lots of litigators in this space is that there’s got to be something a little special. Right. So if you’re just going to even if you say, hey, there’s my CRM, it’s confidential, it’s got, you know, it’s got people’s information, right? It’s got customer information. That’s still, I’d say in most cases we read it’s probably not enough, right? It’s kind of then like, even if you were, and I’ll take a big leap, but I would say even if you’re doing a really good job of saying, know, my Salesforce instance is confidential and so on, which you should do, right? If all that’s on there is the name of the customer and an email contact,

I think you’re still a little hard pressed to win cases today. It would definitely be harder. So there’s a spectrum of customer lists. So there’s everything from like Conpak’s for this example that were super simple. But then you can still try to assert those if it’s stolen, especially if you’ve taken reasonable measures to otherwise protect it. Yeah, it’s still confidential information. It’s still a trade secret that you have to protect just like any other trade secret. Right. But there’s this big spectrum of kind of the specialness or uniqueness of customer lists. And as you make them less publicly available and more special, it should be easier to enforce and to convince a court that it’s really a trade secret. So things like mobile phone contact numbers that are not public things like buying patterns or types. How frequently did that customer purchase? What types of products were they buying? Exactly. All of that kind of more detailed customer information makes it. Not public, and it would be very hard for a court to say, well, this customer list doesn’t qualify.

When you have like buying patterns and pricing models and like what kind of discounts was that customer getting versus the customer on the next line of the spreadsheet. So anything you can do to make your customer list special and unique will only help you after it’s stolen. Yeah. Think also think about budget cycles. Right. You when do budgets get approved at that customer?

Tim (08:29.464)

You know what? Who do they have to get approval from to buy right like that kind of more nuanced info that that adds up to something very confidential. It took real work and real money to figure all that stuff out and no one else knows it exactly. All of those kinds of information that only you and the customer know. If that can go into the document somewhere, it will strengthen that document and there’s no way someone could say, well.

That’s just public information or you can hop on LinkedIn and find it. None of that stuff is publicly available. So I take it back about my comment about Mr. Lux emailing himself if they wouldn’t produce the 223 emails. You you have to wonder. They were probably pretty mild or maybe it was 223 emails of saying, hey, I’m leaving this job. Good luck with the new replacement, right? It may have been that innocuous. We we just don’t know. Yeah. And the decision, though, I think there’s some there’s some wording in here that we see quite a lot in the US cases we review. And so it’s it’s talking about a precedent and it’s the PCCW HKT Telephone Limited case versus Atkin. And basically it’s this one sentence in here I think is really great, this employer will have the burden of identifying precisely what the confidential information of an equivalent status is, right? And so it’s this particularity type, you know, we keep coming back to the same thing of the plaintiffs, the trade secret owner needs to prove it was a trade secret. Yeah. And do it increasingly specifically. Right. And they didn’t do that here.

Yeah. So OK, I know we’re going to talk about a couple more cases that relate to this from the US. But before we do that, I would say let’s just take a stop here and say, okay, if you’re going to counsel someone today, they have a Salesforce instance, for instance, right? And so they’ve got all their customer data in Salesforce or monday.com or whatever the platform is. You’re doing a good job. keep it. How would you… counsel them to then take this next step of saying, OK, well, let’s let’s really make sure this is protectable under trade secret law. What would you actually do? Well, I think there’s two different approaches that will improve your chance. And again, hopefully no one ever steals your information.

They respect your IP, all that good stuff. Doubtful. Yeah, sorry. I’m living in this dream dream world here. People behaving admirably. But, One is just treat it like a valuable trade secret, like any of your other trade secrets and say all the information in that CRM. I will follow my policies and procedures for a high value trade secret with the expectation that eventually someone will steal it. And then the other one is, like we just said, to add in as much non-trivial information about who those customers are what they’re buying, what they’re buying pattern or behavior is to make it very nonpublic. So the more nonpublic you can do, the better the quality of that trade secret. So it’s really making the trade secret itself special and then taking all the normal reasonable steps that you do to protect valuable assets. Right. So it’s kind of two angles. Yeah.

So and I, we live this most every day with our customers. But if you say, I’m gonna go, I wanna go really protect this XYZ process as a trade secret, yeah, it’s pretty simple, right? You write it down, you mark it, you know where it’s stored, you know who has access to it, right?

It’s a series of very fairly simple steps, you just gotta do it and technical information, know, it’s like, where’s the SOP for that? you know, so everyone that, you know, we ultimately onboard on to tangibly, like you can get your head around that pretty quickly. But I still think this customer list thing is still, it’s still tricky, right? Because you’re saying, yeah, like I know the buying pattern for that company and I know the budget cycle for this company and I know another couple things about this company. They’re all very different, right? And so is what you’re suggesting is like that level of info. Number one needs to be in CRM somewhere and then number two needs to be highlighted as part of a documentation process.

I think that’s right. And if you can get acknowledgement or at least notification to people who are accessing that information that hey, this is trade secret and you need to treat it properly and don’t do anything bad with it. That will help. And it can’t be just a simple list and you can’t just leave it available to everyone. You need to have limited access to people who really need to know that information. Need to know. Exactly. And then what about these couple more cases that I think are from the U.S.

I always love it when I can announce a case called Head Over Heels gymnastics versus where we are head over heels. And I wanted to pick a couple of US customer list cases just to contrast with the one we saw in Hong Kong. I love the Hong Kong case first off because it’s a good case, but also it’s in China. And we’re seeing China is taking trade secret theft more and more seriously and awarding some while not in this case, but in other cases pretty substantial damages for sure. So I wanted to pick kind of a good and a bad example from the US to compare. Right. And head over heels is kind of a simple story. So there was a gymnastics studio, one of the instructors left to start their own competing studio. And of course, the first one was not happy about that. And the person took the customer list with them to try to compete.

The problem was that absolutely everyone had a copy of the customer list. Like it was completely not secure. Everyone at the first company had it. Even the students and their parents were given a complete copy of this customer list to be able to network and make friends and just stay in touch with each other. And it was never marked confidential, never marked trade secret.

Tim (15:33.848)

There was no NDA. There was just nothing at all. Good luck. But it was kind of like the first studio. That was the only arrow they had to try to shoot. Right. And but it was it was so weak that the court just kind of laughed it off and said, you did not take even one step right to making this a protectable trade secret, let alone reasonable measures. They didn’t even take step one.

So it’s a very extreme but also very entertaining case. the minimal effort people put into trade secrets and end up losing the case. Well, let’s just hope for their sake that was a very quick case and hopefully not too expensive. He’s too much money on on lawyer fees. What about Bruno International versus Vicar? This is kind of cool because it’s a distributor case. This one’s a distributor case and it’s also a great example of relationships gone bad or relationships gone south where they actually had a great distributor relationship.

So there was a U.S. company in Massachusetts that made power systems for electronics companies. And Bruno was an Israeli district exclusive distributor of theirs for 25 years. This is a super, super long term. Everyone was happy. Everyone made money. Things were great until 25 years later when things were not so great anymore. took over the business. Maybe so. And things again took a real sharp turn where they wanted to add another distributor or multiple non-exclusive distributors. Got it. Which they were allowed to do contractually. Like you could go from an exclusive relationship down to non-exclusive. Got it.

But the Massachusetts manufacturer was taking a lot of information that they had learned over those 25 years and giving it to the newly onboarded, non-exclusive distributor, which of course upset Bruno greatly. Reasonably so. Totally reasonable. And the thing here, though, is there were customer lists and a lot of other information, but they were protected very, very well. And

There were agreements to keep it confidential. They weren’t distributed all over the place like the gymnastics one. Things were done properly to protect that valuable information that Bruno took 25 years to develop. So they actually got a favorable result out of this because they did things properly and they treated these assets as valuable and took at least reasonable, probably reasonable plus efforts to protect them. So they actually did things right. That’s a nice nice cross section of cases. And I think maybe just ending on the sort of emphasis that these may seem a little silly, you know, but they happen all the time. Right. Probably one of the more litigated trade secret types of cases. Yeah. Yeah, that’s right. And it’s always the business trade secrets that get litigated often. So things like customer lists, pricing models, margin data, compensation programs from HR, all the kind of boring stuff is most frequently litigated. Now, it’s usually not the massive damages, like the massive damage cases usually are on technology, where it’s foundational to the whole company. But in terms of volume of cases filed,

It’s the boring business ones, which I’ve always found really fascinating because I.P. lawyers traditionally say, it’s it’s just business information. It’s not even I.P. It’s not even I.P. It’s just kind of boring. But they actually make great trade secrets if you do them properly. Yeah. The other thing for all three cases, the Hong Kong and the good and bad US ones, it shows that customer lists are not like always a trade secret or never a trade secret. It really depends on what’s in them and how they’re treated that lead you in one direction or the other. It’s not just automatically. Yes, they are. No, they’re not. Yeah. So this is for boring stuff. It’s pretty cool. Yeah, I was just I was so stoked to see that they wouldn’t produce the emails. I would love to see those emails. Exactly. They’re either really juicy or really boring? I’m not sure which. That’s grocery lists. Probably.

All right, man. Good to see you. We’ll see you on number 12. Awesome. Thanks.