TRADE SECRET AND NON-COMPETE LITIGATION: A BUSINESS’S CUSTOMER LIST JUSTIFYING ENFORCEMENT OF A NON-COMPETE AGREEMENT

As a business owner, ensuring that your customer list is adequately protected can often be a challenging task. Employees who have direct access to a customer list can misappropriate that information and use it to compete directly against the business. Fortunately, a business’s customer list may qualify as a trade secret to justify the enforcement of a non-compete agreement under Section 542.335, Florida Statutes. The aim is to prohibit employees from using the customer list for their own benefit. For a customer list to qualify as a trade secret, courts look at various factors, including but not limited to, the extensive work and considerable effort that went into creating the list, as well as the knowledge, time, and expense associated with its creation. Peter Mavrick is a Miami trade secret and non-compete litigation lawyer who has extensive experience with litigation involving misappropriation of business customer lists.

Simply because a business has a customer list, does not mean that list qualifies as a trade secret. When a customer list is more complex and contains information that is not easily obtainable in the public domain, it makes the content of the list more valuable. By contrast, when a customer list contains information that is easily obtainable on the open market, it is less likely that the list will qualify as a trade secret. Unfortunately, the courts have yet to establish a bright line rule when it comes to determining whether a customer list qualifies as a trade secret.

In Unistar Corp. v. Child, 415 So. 2d 733 (Fla. 3d DCA 1982), Florida’s Third District Court of Appeal analyzed a business’s customer list to determine whether it qualified as a trade secret. A former employer who was in the business of selling investment grade diamonds and gemstones to their customers through “financial planners,” sought a preliminary injunction to prevent former employees from contacting and selling to its customers. The employer alleged their customer list was a trade secret. The former employees contended, inter alia, that the employer is not entitled to a preliminary injunction because the customer list does not qualify as a trade secret since it was available to the public. The trial court denied the employer’s injunctive relief. The employer appealed.

The undisputed facts demonstrated that it took several years to compile the business’s list of over 4,000 financial planners who would be interested in selling the diamonds and gemstones to the employer’s customers, of which 1,850 of them were signed by the employer as dealers. Over 12,000 financial planners were screened in the process, and this cost the employer $800,000 to sign the 1,850 financial planners. A year and a half prior to the commencement of the lawsuit, 274 of the 1,850 were actively selling the employer’s diamonds, and 18 of the 274 generated 43% of the employer’s sales. The former employees later quit their employment and opened a business that competed directly with the employer. They even started selling to the employer’s customers. During that year, the employer’s monthly sales dropped from a staggering $440,000 to $70,000. The former employees also did not refute the fact that their customer list was essentially the same list acquired and used by them when they worked for the employer.

Despite the absence of a non-compete and non-disclosure agreement, the appellate court ruled in favor of the employer and reversed the trial court’s decision denying the employer’s motion for injunctive relief. The appellate court held that the former employer’s customer list, which was a distillation of a larger list, reflected considerable effort, knowledge, time and expense on part of the former employer. It qualified as a trade secret. The court found that because the customer list is a trade secret, it could not be used by the former employees for their own benefit. The appellate court determined an injunction was appropriate to bar the former employees from contacting and selling to the former employer’s customers.

If you are currently in litigation regarding misappropriation of a trade secret, or if you have any general questions regarding customer lists, please contact Miami trade secret litigation attorney Peter Mavrick.

The Miami trade secret litigation and non-compete attorneys at the Mavrick Law Firm have successfully represented many businesses in trade secret misappropriation in the Miami-Dade, Broward, and Palm Beach County areas encompassed by the Third and Fourth District Courts of Appeal, as well as Hillsborough, Sarasota, and other counties encompassed by the Second Circuit Court of Appeal. 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.