A lawyer’s favorite phrase might be “it depends.” And when an employer asks whether its customer lists qualify as a trade secret, “it depends” is often the answer. But even if it’s difficult to definitively state whether customer lists qualify as a trade secret, the converse—whether customer lists might not constitute a trade secret—can be helpful to assessing how much protection a court will provide.
With the advent of the Uniform Trade Secrets Act (“UTSA”), no state categorically denies trade-secrets status to customer lists. That’s because the default definition of a “trade secret” under the UTSA includes compilations of information, and several states modified the default definition to explicitly include customer lists as potential trade secrets. See, e.g., Conn Gen. Stat. § 35-51(d); O.C.G.A. § 10-1-761(4); Or. Rev. Stat. § 646.461(4); 12 Pa. Cons. Stat. Ann. § 5302. Other states opted to mention that a “listing of names, addresses, or telephone numbers” may qualify as a trade secret if the listing, like any trade secret, has independent economic value because it is not readily ascertainable and is subject to reasonable efforts to maintain its secrecy. See, e.g., Co. Rev. Stat. Ann. § 7-74-102(4); Oh. Rev. Code Ann. § 1333.61(D).
States still, however, apply varying degrees of scrutiny before conceding that customer lists constitute a trade secret. In more skeptical jurisdictions, courts decline to confer trade-secrets status on customer lists for one of three reasons.
First, many courts will not recognize a “bare bones” list of customer names and addresses as a trade secret. Instead, the expectation is that identity and contact information must be paired with additional, non-public information before the list is considered “not readily ascertainable.” For instance, a customer’s credit history, buying habits, specific pricing information, or sales volume can significantly bolster the likelihood that a customer list qualifies as a trade secret. Employer-specific information, like costs, project staffing, or profit margin, when included with a customer list, is equally helpful.
A helpful rule of thumb is the five-column rule; if the customer list contains fewer than five discrete categories of information about each customer, then it may not be sufficiently detailed to warrant trade secret protection. In less favorable jurisdictions, the employer may want to combine multiple sources of information into a single document or spreadsheet. By doing so, the employer might bestow trade-secrets protection on information that, on its own, would be considered readily ascertainable.
Second, some jurisdictions do not permit employers to claim that a customer list developed by the departing employee is a trade secret. In those jurisdictions, it’s helpful to compile and maintain a centralized customer list or include company information with the customer list so that the list is not exclusively the product of the employee’s efforts.
Third, many other courts consider whether customers in that industry are readily identifiable. For example, a court is unlikely to find a list of dry cleaners in a specific area prepared by a company that sells hangers is a trade secret. On the other hand, even a bare customer list might be a trade secret if it takes substantial and significant efforts to identify customers in the first place.
Identifying whether information is a trade secret is not an inquiry guided by bright lines or categorical rules. Still, these three guideposts allow for a quick triage to determine whether a customer list might not qualify as a trade secret. For cases where the answer is “it depends,” we can help. Contact your Seyfarth trade secrets attorney for state-specific guidance on whether your business’ customer list qualifies as a trade secret and how to protect critical business information.