Making Your Business Valuable: Trademarks and Trade Secrets (part 2)

Part 2: Shhhhh!  It’s a Secret!

What do you consider the bread-and-butter of your business?  Something that you want to keep away from your competitors such as a secret recipe passed down in your family for generation?  Or perhaps something a little more mundane such as a customer or client list?

You may be thinking—customer lists can be protected?  Well, yes, so long as the information you want to protect:

1. Has an independent economic value that isn’t generally known to the public or readily accessible to the public; and,
2. Is subject to reasonable efforts to maintain its secrecy.[see footnote 1]

Now, for trade secret protection to apply, the client list cannot merely be a contact list, i.e., a list that just gives the business name, business address, and telephone number that anyone can gather from Google®, the Yellow Pages, etc.  For the client list to achieve trademark protection there must be some sensitive information contained on the list that was obtained through the customer relationship.  As an Ohio court opined:

[A] client list entitled to trade secret status typically includes not only the name of the business but information not available to the public, such as the name of a contact person, a non-public telephone or cell phone number, an email address, and other pertinent business data known only because of the client relationship.  [Citation.]  Indeed, such information is the value in a client list.  The company typically has spent many hours of labor and interaction to develop the information reflected in the list, and disclosure to a competitor grants the competitor a tremendous advantage in not having to spend the time and money to develop that same information.[see footnote 2]

In a California case, State Farm Mutual Automobile Insurance Company obtained trade secret status for its customer’s list that not only included the names, addresses, and telephone numbers of policyholders, but also “the amounts and types of insurance …, due dates of premiums and amounts thereof, …, and particularly the renewal and expiration dates of policies in force.”[see footnote 3]

Hence, to obtain trade secret protection, the question to ask yourself is: Does my client list contain information that was acquired through my relationship with my customer that is of unique interest to my business?  If you answer yes, then you must take reasonable steps to protect that list.

Such reasonable steps to maintain the customer list’s secrecy may include the following (and this is by no means exhaustive):

1. Have all your employees and even business partners sign non-disclosure agreements (affectionately referred to as NDAs) that lays out what trade secrets are and what are the trade secrets of your business (i.e., expressly state “client and customer lists”).
2. Reiterate the above sentiment in your employee handbook.
3. Label or watermark the list as “Confidential.”
4. Limit access to the list to employees who need-to-know the information. You don’t have to keep it in a safe like the infamous Coke-Cola’s “Vault of the Secret Formula,” but having it password protected on your computer would certainly help.

In sum, a trade secret is information that gives its owner a competitive advantage because it remains a secret!  So, shhhhh, be careful who you tell and how you tell it.

[1] Cal. Uniform Trade Secrets Act, Civil Code §§ 3426.1(d).

[2] Columbus Bookkeeping & Business Servs., Inc. v. Ohio State Bookkeeping, L.L.C., 2011-Ohio-6877.

[3] State Farm Mut. etc. Ins. Co. v. Dempster (1959) 174 Cal.App.2d 418, 422.