Trade Secrets Done Right – Defining a Trade Secret
This is the third post about trade secrets. My previous posts, found here and here, discussed criminal trade secret theft, the involvement of law enforcement and maintaining the secrecy of a trade secret.
This post again highlights the Vendavo v. Long, no. 19-cv-1725 (N.D. Ill. Aug. 30, 2019), case out of the Northern District of Illinois, and examines what information actually qualifies as a “trade secret.” The federal Defend Trade Secrets Act (DTSA), 18 U.S.C. §§ 1831 et seq. and its Maryland state law counterpart, Maryland Comm. Law §§ 11-1201 et seq., define a trade secret as information (a) sufficiently secret to impart economic value because of its relative secrecy and (b) for which the plaintiff has taken reasonable efforts to maintain its secrecy. The Vendavo court looked at several specific categories of information that frequently arise in trade secret litigation.
Customer-specific information. The Vendavo court ruled that information specific to customers constitutes protected trade secrets. This would include analysis and solutions developed for each customer and any in-house data generated by the business. In the Vendavo case, the business referred to this internal work as a customer’s “pain points,” but it really means any internal work generated by the business that is specific to each customer and not generally known. However, this can also include information that is generally known if that information is compiled or arranged by the business in a specific manner and/or for a specific purpose, as well as internal marketing strategies for a particular client. Qualifying its ruling, the court noted that this information would inevitably become stale and, thus, the information would not remain a protected trade secret forever. In Vendavo, the court decided on a three-year look back.
Customer lists. This comes up very frequently in trade secret and restrictive covenant litigation (i.e. non-compete, non-solicit). While customer lists are generally held to be trade secrets, they are not always depending on the facts. For example, the Vendavo court noted that the business regularly identified current customers as part of its marketing and advertising and did not advise employees that customer lists were confidential. As to prospective customers, the court noted that these prospective customers publicly sought out bids and that none were only known to the plaintiff. Adding to that, if a plaintiff only serves a well-defined market (i.e. McDonalds franchises within Howard county), those customers and potential customers are easily identifiable and likely not confidential.
Customer contacts. Contrary to mere customer names, the decision-makers and customer specific data (i.e. renewal preferences, pricing terms, marketing likes and dislikes) are usually considered confidential trade secrets.
Internal sales information. Data such as sales projections, market segmentation, referral projections, etc. are usually protectable trade secrets.
If the information is the result of a business’ internal work product, it is more likely to be considered a trade secret.However, litigants should be prepared to closely examine each specific category of information early in the litigation and certainly before any preliminary injunction hearing. Plaintiffs claiming protection should conduct thorough due diligence before filing suit.