Securing your Network: Claiming Contacts as Trade Secrets

The paradigmatic trade secret is something that is obviously technical, such as source code or the formula for Coke.  Though trade secrets protection is not limited to technical trade secrets, it can sometimes be tricky to claim trade secrecy over non-technical trade secrets, such as customer or employee contact lists, that are commercially valuable yet may seem more accessible and therefore less secret.  California Code of Civil Procedure Section 2019.210 compounds the issue by requiring a plaintiff to make a detailed disclosure of trade secrets as a precondition to frame the discovery to come.  Section 2019.210 therefore immediately places an often-challenging decision upon the plaintiff—selecting what it should claim as trade secrets in litigation.  By claiming a set of trade secrets too narrowly, the plaintiff may risk unduly limiting the scope of discovery and potentially “missing” proprietary information in a defendant’s possession.  By claiming a broad set of trade secrets, on the other hand, the plaintiff can expose itself to allegations of overreaching and determinations that its trade secrets are “specious” and “nonsensical,” as the California Court of Appeal concluded in a case last week.

In Cypress Semiconductor Corporation v. Maxim Integrated Products, Inc., a trade secrets case based in part on an employee contact list, the court upheld an $180,000 award of attorneys’ fees against the plaintiff for overreaching regarding alleged trade secrets.  Cypress alleged that Maxim, its competitor, stole its trade secrets—including both a contact list of employees developing Cypress’s touchscreen technology and other proprietary information concerning the technologies.  The court, finding that Maxim had relied on public information in soliciting employees, determined that Cypress’s complaint was “meritless on its face [and] based upon theories of liability that were not merely specious, but nonsensical.”

At first glance, the court’s characterization of the contact list trade secret as nonsensical may seem unduly harsh in light of the still open question of whether LinkedIn contacts constitute trade secrets.  Very likely, the Cypress court was influenced by the relative publicity of the asserted customer list trade secret.

Accordingly, trade secrets plaintiffs asserting protection in customer lists should vet the secrecy and economic value derived from such secrets.  For example, a plaintiff should pay particular attention to:

  • How much time and effort was put into development?  Contact lists resulting from significant effort by the plaintiff are more likely to be protectable.  The amount of time, the difficulty and complexity, and the resources—both human and monetary—that are put into development of the list are important considerations.  A list that can be replicated with little effort through internet searches or social media is less likely to be protectable, although, as the court suggested in the LinkedIn case, privacy settings on social media accounts could play a role in determining whether contact lists are protectable.
  • What particular needs or characteristics are identified?  Contact lists that identify specific qualities or needs, in addition to traditional contact information, are more likely protectable.  Value judgments attributed to the contacts—such as characteristics observed through interactions, determinations concerning quality of the service offered, or other information added through experience with the customers provide a stronger claim for trade secret protection.
  • What steps must employees take to get access to this list?  Ensuring that employees are aware that contact lists are proprietary and confidential is important but alone may not be enough.  Limiting access to only employees that need it, requiring certain authentication, such as a password, before an employee can access the contact list, and revoking access once an employee leaves the company are best practices that can provide more ammunition in a fight over whether such a list is protectable.

Plaintiffs who carefully consider each of the above points will be in a better position to determine the viability of a claim that their contact lists are protectable trade secrets.  The line between a list that has enough economic value and is sufficiently secret and one that is not is a fine line to toe, with potentially great rewards on one side and penalties on the other.