Is Your Customer List a Trade Secret?
If your company does not properly treat its customer list as confidential,
neither will Arizona courts.
Your business owns information that is critical to your
success and that you need to protect from competitors and other outsiders.
However, not everything that you think is confidential is protected as a trade
In its 2013
Calisi ruling, the Arizona Court of Appeals provided useful criteria for
what constitutes trade secret protection. The Calisi case involved a companys
customer list that a former employee took with him when he left to join a
The Court of Appeals held that only those secrets “affording a demonstrable competitive advantage” will qualify as a protected
trade secret. Further, Arizona law will not protect a companys information if
the company has not taken appropriate steps to ensure that its information
qualifies as a “trade secret.”
The Court of Appeals cited several factors to determine
whether a customer list qualifies as a trade secret.
First, a customer list may be entitled to trade secret
protection when it represents a “selective accumulation of detailed, valuable
information about customers - such as their particular needs, preferences, or
characteristics - that naturally would not occur to persons in the trade or
In other words, a qualifying customer list must contain
information that a company compiles by virtue of its relationship with the
customer, not simply by gathering required contact information or purchasing a
commercial list of prospects.
Second, a customer list may be protected if the company
can show that it compiled the list by “expending substantial efforts to identify
and cultivate its customer base, such that it would be difficult for a
competitor to acquire or duplicate the same information.”
Third, as noted above, another factor to consider is
whether the information contained in the customer list “derives independent
economic value from its secrecy, and gives the holder of the list a demonstrable
competitive advantage over others in the industry.”
Finally, courts will examine how the company handles its
customer list. Is the list marked “confidential”? Does anyone who uses the list
sign an agreement to maintain its confidentiality? If the company does not treat
the list as confidential, neither will the courts.
achieving trade secret protection
To strengthen your claim that your customer list is a
protected trade secret, start with the following:
Include in your customer list more than mere contact
information. The list should also contain types of services provided, notes from
client meetings and phone calls, billing histories, reminders about client
preferences, notes about plans for future products and services to be purchased,
and any unique and novel information concerning the customer.
Use a process to obtain and maintain the information
that goes beyond basic information gathering. Preserve any information
concerning the marketing methods used to build a client list as well as the
success rate of those methods.
Maintain records of the expenses incurred in creating
and maintaining the customer list. By having a record of the expense and effort
that go into building a client list, you will be in a better position to protect
your list as a trade secret.
Communicate to all employees the secret nature of client
information and grant access only to employees who require that information to
perform their job functions. Your employee manual and new employee training
should emphasize that this information is confidential and the company expects
its employees to maintain that confidentiality.
Require non-employees to sign an acknowledgement of
confidentiality before you give them access to your customer list.
These steps provide only a starting point for protecting
your customer list. Creating a written plan that maximizes that protection
should be the result of a well-thought-out process that reflects the nature of
your industry and competition, the unique characteristics of your company, and
the input of a legal advisor who is experienced in protecting trade secrets and
other confidential information.