Is a Client List a Trade Secret in Texas?

0e348adfa4295fa0fabe78ead1d69672--lawyer-humor-job-humorI’ve been contacted by many a business owner saying, “my employee left, he had a confidentiality agreement, and now he is contacting my customers on behalf of his new employer. Can I stop him?”. The answer to that question, of course, depends on several factors. One of them is whether the business owner’s client list qualifies as a “trade secret” in Texas. 

Under the Texas Uniform Trade Secrets Act (“TUTSA”), a “list of actual or potential customers or suppliers” of a company qualifies as a trade secret as long as: (1) its owner, i.e. the company, took reasonable measures to keep it secret and (2) the list has an economic value because it is not generally known and cannot be easily determined by another person. 

Thus, a client list is not automatically a trade secret. Instead, a company must establish certain things at the temporary injunction hearing in order to get a court order prohibiting a former employee from contacting its clients on the ground that its client list is a trade secret.  

Recently, a Texas Court of Appeals in Cooper Valves, LLC, et al. v. Valvetechnologies, Inc., dissolved an injunction that prohibited a former employee from “possessing, copying, selling, disclosing, or using” any information about his former employer’s 1800 customers listed on the exhibit attached to the injunction order. The employer in that case, submitted under seal a list of all of its customers and asked the court to order the former employee not to use any information about those customers in his new job. The list, however, included only the names of the companies, and not the names and contact information for the key decision-makers.  It also included many pre-existing customers of the former employee’s new employer.

The Court of Appeals voided the injunction finding that it was overboard and that the company did not prove that company names qualified for trade secret protection. Thus, the owner of the client list failed to prove that his particular client list, consisting of just the company names, was a trade secret. 

BOTTOM LINE: Business owners in Texas should make sure that they take reasonable measures to protect the secrecy of their client lists and, when push comes to shove and they must seek a court order preventing a former employee from using such a list in their new job, must be ready to establish the necessary requirements under the Texas law proving that the information contained in their client lists qualifies for trade secret protection. 

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. For a consultation regarding a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

Protect Your Trade Secrets or Lose Them

TradeSecretsThe first rule of the fight club is you don’t talk about the fight club.  The same rule applies to trade secrets.  If you talk about your trade secrets – pricing, customer names, vendor relationships, or other aspects of your business, with people who do not have non-disclosure agreements, you are going to lose the “trade secret” status that such information may carry, which means your employees will be able to take that information to your competitor or their new business.

Under the Texas Uniform Trade Secrets Act (TUTSA), an owner of a trade secret must use “reasonable efforts under circumstances” to protects its trade secrets.  Depending on how large or sophisticated the business is, those methods may include anything from keeping key files in a locked cabinet to passwords for logging into a customer database, to issuing company computers that have no outside ports, to fingerprint and iris-scan access devices.  

Obviously, a mom-and-pop shop is not going to install fingerprint access devices or buy an expensive software that will alert it when an employee downloads an unusually large amount of information, but it can implement simple measures like asking all of its employees to execute a non-disclosure agreement as part of their employment file, make sure that the financial and other sensitive information is accessible only to the owners, and make sure that any confidential information, such as customer lists, is clearly marked as “confidential.” 

Larger businesses – those that wield a workforce comprised of dozens, hundreds, or thousands of employees – need to have more advanced trade secrets protection measures, as well as the periodic audits of the effectiveness of such measures.

At a bare minimum, all businesses should have a standard confidentiality (non-disclosure) agreement for its employees, vendors, investors, and anyone else who has access to the business’s trade secrets.  They should also look at what protection methods are used by their competitors or are common in their industry and implement those that make sense most for the company. 

A little time and expense invested in the trade secret protection on the front end can save thousands of dollars down the road.  If you think that providing company computers to your employees is too expensive, imagine how much it will cost in legal fees to retrieve your company’s confidential information from the departed employees’ personal devices.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.