CUSTOMER RELATIONSHIPS AS TRADE SECRETS

Businesses enter into non-competition and confidentiality agreements with employees to protect trade secrets, which are usually in the form of specific practices, processes, designs, or a compilation of information. The agreements are designed to deter misappropriation of the trade secrets after the employment relationship has ended. The most frequent issue in non-competition or confidentiality agreement cases is establishing that a customer list constitutes a protectable trade secret, as opposed to a list that merely identifies commercially available information regarding the company’s clientele.

Florida appellate courts have explained that a former employer’s customer relationships do not automatically qualify as trade secrets. This is so even when a party’s restrictive covenant attempts to nominally characterize them as trade secrets. To qualify as a trade secret, there must be evidence that a customer list: (1) was the product of great expense and effort; (2) that it included information that was confidential and not available from public sources; and (3) that it was distilled from larger lists of potential customers into a list of viable customers for a unique business.

In East v. Aqua Gaming, 805 So.2d 932 (Fla. 2d DCA 2001), the former employee, i.e., Mr. East, used client lists obtained from his former employer, i.e., Aqua Gaming, to get the very business accounts that Aqua Gaming cultivated during Mr. East’s employment. The list included casinos, vendor names, telephone numbers, addresses, and client contacts compiled by Aqua Gaming over a number of years. The customer list qualified as a trade secret because it was the product of Aqua Gaming’s great expense and effort, not available from public sources, and distilled from a larger list of potential customers into a list of viable customers for its gaming business.

By contrast, a customer list is not a trade secret when it is merely compiled from publicly available information. In Sethscot Collection v. Drbul, 669 So.2d 1076 (Fla. 3d DCA 1999), plaintiffs sued to enjoin the defendant from utilizing a list of prospective customers. The list contained the names of 9,600 social fraternities and sororities. Since the information was obtained from commercial materials readily available to the public and not the product of any great expense or effort, it did not qualify as a trade secret.

However, the court in Sethscot enjoined the former employee from using his former employer’s “active” customer list as distinguished from its “prospective” customer list. The active customer list contained the names of approximately 6,800 sororities and fraternities that actually ordered from the plaintiffs over the course of eight years. The active customer list also contained detailed purchase history for each sorority and fraternity on the list. While the former employee was barred from using the active customer list, he was still allowed to use contacts, expertise, and even customer lists he personally developed.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.