Trio of Decisions Sheds Light on Protectability of Customer Lists as Trade Secrets

In early December, the U.S. Court of Appeals for the Eighth Circuit, in Tension Envelope v. JBM Envelope, added to the patchwork of outcomes on the question of whether customer lists are considered trade secrets when it affirmed a Missouri lower court’s rejection of trade secrets (and other claims) related to allegedly pilfered customer lists.

The background is as follows: JBM supplied specialty envelopes to Tenison for approximately 10 years. During the course of the relationship, JBM allegedly assured Tenison that it would not sell directly to Tension’s customers, although JBM refused to sign a non-compete agreement. Eventually Tension learned that JBM had been selling directly to Tension’s customers. Tenison sued, asserting a number of causes of action, including misappropriation of its trade secrets — namely, the “identity of its customers and their unique requirements.”

Concurring with the lower court, the Eighth Circuit found that bare “customers contacts” — although potentially protectable — were not protectable under a theory of trade secret. The fact that they were accompanied by “customer requirements” did not sway the court, which determined that those requirements were “obtainable without recourse to misappropriation” — namely, that they were the customers’ information, not Tension’s.

The Tension decision comes after a 2016 ruling from the U.S. District Court for the Southern District of New York, Free Country v. Drennen, which also rejected the notion that customer lists are trade secrets on a motion for preliminary injunction and temporary restraining order. Free Country, a clothing company, had sued former employees asserting various claims under the Defend Trade Secrets Act and New York law. Its claim centered on a former employee's alleged misappropriation of the company's client list and pricing information, which he had sent to his personal email address. As in the Tension decision, the court in Free Country held that the customer list at issue included well-known apparel retailers whose identities were not protected and whose contact information was readily ascertainable; therefore, the list was not a trade secret.

Earlier decisions make clear, however, that customer lists are not immune from trade secret protection.

For example, although the court in a California case, Pyro Spectaculars North v. Souza, recognized that if the bare identities and contact information of the plaintiff’s customers, operators and vendors were the only information at issue, the list would not be protectable, it nevertheless held that the list did qualify as a trade secret. According to the court, the value of the plaintiff’s database was in its “comprehensive, if not encyclopedic, compilation of customer, operator and vendor information.” In this instance, the plaintiff had also taken certain steps, although imperfect, to protect the lists — including listing “customer lists” in the section of its employee handbook that described the company’s confidential and trade secret information. It also employed security practices, such as requiring a password to access the database where the list was housed.

This trio of decisions makes clear that businesses should not assume that courts will protect their customer lists: Courts come to different conclusions based on the unique facts of each case. At the same time, these cases also serve as a reminder that taking certain steps can improve the likelihood that valuable lists will be recognized as secret. For example, courts are more likely to protect lists that incorporate and reflect the company’s work and insight, as opposed to lists that are, essentially, bare compilations of names and contact information.

The bottom line? Take appropriate contractual and technical steps to protect information your company considers to be valuable.