Protecting Your Customer List

Protecting Your Customer List Thadford A. Felton

ARNSTEIN & LEHR LLP 120 SOUTH RIVERSIDE PLAZA | SUITE 1200 CHICAGO, ILLINOIS 60606 P 312.876.6934 | F 312.876.0288 [email protected]

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hether you own a big company or a small company, you know that it is your customer base that keeps your company in business. Depending on the size and sophistication of your company, you may keep a list of those customers. That list may be kept in your head, it may be kept on index cards, it may be kept in a book or it may be kept on a computer. Regardless of how that customer list is kept, you want to take steps to protect that customer list from being disclosed to people outside of your company, especially your competitors. And in taking those steps, you may be able to qualify your customer list as a trade secret, which would allow you to take advantage of certain legal protections, such as those offered by the Uniform Trade Secret Act. This Act is an important tool in preventing third parties from obtaining and using your customer list. Just because a company believes that its customer list is a trade secret, does not mean that it is. Whether a customer list is a trade secret reflects a balancing of conflicting social and economic interests. In determining whether your customer list is a trade secret, courts typically look to the following factors: •

Does your company gain a competitive advantage from its customer list because your customers are not generally known to others?

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Does your company take affirmative steps to keep others from gaining access to its customer list?

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To what extent is the information in your customer list known to others outside your company?

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To what extent is the information in your customer list known to people within your company?

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How valuable is your customer list to your competitors?

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How much time, effort or money did it take to develop your customer list?

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How easily could a third party duplicate your customer list?

While no one of the above seven factors is determinative of whether your customer list qualifies as a trade secret, you can see that a primary focus is whether your customers are not generally known to your competitors and whether you have taken the necessary steps to maintain the confidentiality of your customer list.

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Generally, customer lists that are developed over time with considerable effort and expense are given more protection provided that the company has taken the appropriate steps to maintain the confidentiality of the customer list. Courts use a sliding scale of confidentiality, holding larger companies to more rigorous standards of confidentiality than smaller companies. Regardless of the size of your company, at a minimum, all companies should take the following steps to protect their customer lists: •

Have your employees sign confidentiality/non-disclosure agreements;

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Advise your employees that your customer list is confidential;

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Label your customer list “Confidential” or “Trade Secret”;

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Keep your customer list under lock and key and/or on a password protected computer. If you keep your customer list on a computer, make sure that each employee uses a different password to access the computer;

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Restrict access to your customer list to those that really need access;

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Maintain as few copies of your customer list as possible; and

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Shred or delete old customer lists before they are thrown away.

In addition, companies that have large sales forces might consider implementing the following additional procedures to maintain the confidentiality of their customer lists: •

Instead of having just one combined customer list, have separate customer lists for each sales territory. This will prevent your employees from having access to your entire customer list, which will help guard against misappropriation of your entire customer list.

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Only allow your sales teams to access the customer list for that sales teams’ territory.

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If your customer list is stored on a computer, give each member of the sales team his/her own password and identification number that will allow him/her to access the relevant customer list. This will allow you to limit who can access the customer list.

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When a sales person accesses the customer list through the computer, have a confidentiality reminder statement pop-up on the computer screen before the customer list can be accessed.

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Make sure your Employee Handbook contains a confidentiality provision that explicitly states that your customer list is considered confidential information and have your employees acknowledge receipt of the Employee Handbook.

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When a member of a sales team leaves or changes territory, eliminate or change that person’s access to the customer lists.

Despite implementing the steps above, your customer list may not qualify as a trade secret. If your customer list is generally known or understood within an industry, it will not qualify as a trade secret. If your customer list is derived from public sources and did not require a lot of time and effort to compile, cull or analyze, it will not qualify as a trade secret. However, even if your customer list does not qualify as a trade secret, www.arnstein.com 2

implementing the steps above will still help you protect your customer list and decrease the likelihood that your customer list will come into the hands of your competitors.



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