Are You Protecting Your Trade Secrets Properly

A trade secret is something that provides independent economic value from not being generally known to others. Customer lists, inventions that have not been patented, secret formulas, processes, and other business information may all be trade secrets.

Reasonable efforts must be made to protect your trade secrets. Many businesses use non-disclosure agreements to protect their trade secrets. However, this alone is not always enough to protect a trade secret. To learn more about how to protect your company’s trade secrets, consult with an experienced business attorney.

Qualifications of a Trade Secret

The Arizona Court of Appeals examined requirements to prove information is a trade secret in the case of Calisi v. United Financial Services. Calisi was a former employee of United. The company claimed he misappropriated a trade secret by using the company’s customer list to start his own tax services firm.

The court noted several factors used to determine if the customer list was a trade secret, including:

  • whether substantial effort was used to identify and cultivate its customer base
  • whether the holder of the list has a demonstrable competitive advantage over others in the industry
  • the extent to which the customer list was divulged internally and externally

In this case, United failed to show that it had expended substantial efforts to generate its customer lists.  That and the failure to treat the customer lists as a secret resulted in a finding that the lists were not trade secrets.

How to Protect Trade Secrets

There are several lessons to be learned from Calisi as to how to protect trade secrets. First, be aware that a non-disclosure agreement on its own may not be enough.

Efforts to generate customer lists should be documented. If your business can show the amount of effort it expended to build a customer list, it has a better chance of arguing that the customer list is a trade secret.

Customer lists probably have more value and are more likely to be treated as a trade secret if they include more than just contact information. By including detailed information about the customer – including what services they have purchased, communications, and other client preferences – a customer will have more value to the user and contain information only known to the company.  The list becomes economically valuable and gives the owner an advantage.

Finally, have systems in place to control how customer lists or other potential trade secrets are used and protected.  Communicate to employees that the information is confidential, and retrain the employees on secrecy policies regularly. Genuinely treating something as a secret makes it more likely to be considered a trade secret.

Chernoff Law Firm handles complex business litigation matters, including misappropriation of trade secrets and other employment disputes. If you would like to discuss your employment dispute, call our office in Scottsdale at 480-719-7307.