It is not an unlikely scenario: your top salesperson leaves your company to work for a competitor, taking your customers\u2019 names and contact information with her on her personal BlackBerry.\u00a0 What legal rights do you have to keep your ex-employee from using the customer information she obtained while working for you?\u00a0 Can she use that information to solicit your customers on behalf of her new employer?<\/p>\n
If your employee did not sign an agreement containing covenants against the use of confidential information, solicitation of customers or competition while working for your company, one of your primary legal protections is the law of trade secrets. In Georgia, trade secrets law is embodied in the Georgia Trade Secrets Act (the \u201cTrade Secrets Act\u201d). Most other states have similar statutes. [1]<\/sup><\/p>\n Under the Trade Secrets Act, if a company can show that its customer lists, pricing information and other sensitive documents or information are trade secrets, it may be able to prevent a departing employee from taking or using that information in a competitive manner.\u00a0 The key to claiming protection under the Trade Secrets Act is showing that the information constitutes a \u201ctrade secret.\u201d This requires proof of several elements.\u00a0 First, a company must show that the information in question belongs to the company.\u00a0 Second, the information cannot be commonly known by, or available to, the public.\u00a0 Third, the information must have actual or potential economic value to the person who possesses it because others cannot generally ascertain it by proper means. And fourth, the company must have used reasonable efforts to maintain the secrecy of the information. More than anything else, written policies regarding the use and disclosure of sensitive information, as well as policies concerning computer use, are critical to a company\u2019s ability to stop a former employee from using information in a competitive manner.<\/p>\n The Trade Secrets Act was adopted before the proliferation of laptop computers, personal digital assistants and other mobile electronic devices.\u00a0 Whereas proving a Trade Secrets Act claim was once fairly straightforward, it has become more complicated with the advent of BlackBerrys, iPhones, cellular telephones and laptop computers.\u00a0 In the past, businesses primarily kept track of sensitive customer information \u2013 customers\u2019 names, addresses, phone numbers, and preferences \u2013 in paper files.\u00a0 Now, contact information is most often stored electronically.\u00a0 Businesses commonly keep customers\u2019 names and contact information in a number of electronic formats and in multiple places. As a result, it is more difficult than ever to know who owns the information, and whether a business has made reasonable efforts to preserve its secrecy.<\/p>\n This article explains how the elements of the trade secret test apply in the age of the BlackBerry and iPhone, and suggests some steps that you, as a company owner or executive, can take right now to protect your company\u2019s trade secrets and preserve your rights under the Trade Secrets Act. [2]<\/sup><\/p>\n Showing It\u2019s Yours<\/strong><\/p>\n To invoke the protection of the Trade Secrets Act, you must first meet its most basic requirement: the information you are seeking to protect must be yours. But, not all information is capable of being owned. Georgia courts have consistently ruled that a company can own tangible compilations of its customer contact information, but that it cannot own its customers\u2019 names, email addresses or phone numbers alone.\u00a0 Practically, this means that your ex-employee, if not bound by a nondisclosure agreement or other restrictive covenant, is free to solicit your customers so long as she relies on her own memory to recall those customers\u2019 identities and obtains their contact information from publicly available sources. It is only if she takes or copies \u201can actual list contained on paper\u201d that the Trade Secrets Act can be used to stop her.<\/p>\n In the past, this tangible\/intangible distinction provided an easy way to distinguish between compilations of names and the names themselves. But modern businesses seldom restrict their customers\u2019 information to a single printed sheet of paper.\u00a0 Chances are, you keep your customers\u2019 contact information on a computer hard drive or a network or web-accessible database.\u00a0 In fact, you may keep this information in a number of formats:\u00a0 perhaps in an Excel spreadsheet for sales projections, in a financial management software program for billing purposes, and in your Microsoft Outlook program for communication needs.\u00a0 And maybe the Outlook contacts sync to your employees\u2019 BlackBerrys or iPhones.\u00a0 So, how does the tangible\/intangible distinction work for electronically stored information?<\/p>\n So far, the Georgia courts have offered little guidance.\u00a0 The most recent cases to evaluate this issue have continued to find that businesses must put information in a tangible list in order for it to be protected as a trade secret.\u00a0 In 1997, for example, a federal court applying Georgia law reaffirmed the tangible\/intangible distinction as the trade secret threshold. In that case, the court declared, \u201ccompanies may create customer lists on notebook paper, parchment, computer disk, microfiche, or on the back of a napkin; such tangible lists are protected by the Trade Secrets Act.\u201d\u00a0 In 1999, another federal court struck down a company\u2019s argument that former employees stole its \u201ccustomer base.\u201d Chastising the company for failing to point to a particular compilation of customer information, the court explained that it \u201cshould have reduced its customer list to tangible, written form.\u201d<\/p>\n Showing You\u2019ve Kept it a Secret<\/strong><\/p>\n You must also have used reasonable efforts to maintain the secrecy of the information in question. It is not enough simply to declare that information is confidential; you must demonstrate affirmative actions to maintain secrecy.<\/p>\n In the past, you could satisfy this requirement by showing that you maintained only one copy of your customer list, on paper, locked in a safe or a drawer where only executive management had access to it.\u00a0 But, what qualifies as a \u201creasonable effort\u201d to maintain secrecy if your information is in an electronic file rather than on paper?<\/p>\n A recent Georgia case provides a helpful example.\u00a0 In Paramount Tax & Accounting, LLC v. H&R Block Eastern Enterprises, Inc., the court addressed the secrecy of tax preparer H&R Block\u2019s customer database.\u00a0 A former H&R Block employee used the database to send letters on behalf of a new tax preparer, soliciting H&R Block\u2019s customers.\u00a0 The court recognized that H&R Block had established companywide policies protecting its client information from disclosure to third parties, counseled its employees regarding those policies, limited access to its customer database to certain employees, protected the database with a password, prohibited employees from printing out information from the database, and prohibited employees from taking home information from the customer database.\u00a0 Based on these confidentiality measures, the court decided H&R Block had made a reasonable effort to protect the secrecy of its customer database.<\/p>\n H&R Block showed that in a number of ways, it acted affirmatively to protect the secrecy of its customer database.\u00a0 If, for example, H&R Block had allowed its employees to sync their BlackBerrys and iPhones to company computers, the court might have concluded that this was not consistent with making reasonable efforts at maintaining secrecy.\u00a0 This case shows the importance of instituting policies that restrict how employees may access and use information.<\/p>\n What You Can Do to Protect Your Information and Relationships<\/strong><\/p>\n As you can see, there is little certainty for employers seeking to claim trade secret protection for their electronic lists and information. But there are some things you can do now to avoid later problems:<\/p>\n [1]<\/sup> Some protection may also be available under Georgia\u2019s Computer Systems Protection Act (the \u201cComputer Protection Act\u201d) and similar statutes in other states.\u00a0 A discussion of the Computer Protection Act is outside the scope of this article.<\/em><\/p>\n [2]<\/sup> This article discusses the two elements of a Trade Secrets Act claim that are most affected by the proliferation of BlackBerrys and similar devices: whether the information is owned by the company claiming trade secret protection, and proving that the company used reasonable efforts to maintain the secrecy of the information.\u00a0 The remaining two elements \u2013 whether the information is commonly known by the public and whether it has economic value \u2013 are less affected by these recent technological developments and are outside the scope of this article.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" It is not an unlikely scenario: your top salesperson leaves your company to work for a competitor, taking your customers\u2019 names and contact information with her on her personal BlackBerry.\u00a0 What legal rights do you have to keep your ex-employee from using the customer information she obtained while working for you?\u00a0 Can she use that […]<\/p>\n","protected":false},"author":4,"featured_media":569,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_mo_disable_npp":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[4,9],"tags":[22,29],"acf":[],"yoast_head":"\n\n