In a case decided this past April, the Arizona Court of Appeals found that whether a business’s customer list is a trade secret requires a factual inquiry. Calisi v. Unified Financial Services, LLC, Case No. 1 CA-CV-0812. The court’s holding requires a two part inquiry to determine whether a customer list is, in fact, a trade secret.
First, a trial court must determine whether the customer list has been kept secret and there have been reasonable efforts to keep the customer list secret. If the facts show this to be the case, courts then must consider four factors to determine whether a customer list is a trade secret: (1) whether the customer list contains a selective accumulation of detailed, valuable information about customers; (2) whether substantial efforts were expended to identify and cultivate the customer base such that it would be difficult for a competitor to acquire or duplicate the same information; (3) whether the information in the customer list derives independent economic value from its secrecy and gives the business a demonstrable competitive advantage over others in the industry; and (4) whether the business divulged its customer list externally or internally. If a business cannot provide and present evidence to a court to support these four factors its customer list is not a trade secret.
The takeaway from this case is that it is important to keep your customer list secret, and clearly never provide the list to people outside of your business, and to be able to clearly provide background on the list to support the four factors enunciated by the Court of Appeals.
As a side note, two of my partners represented the plaintiff and were successful on all issues in the appeal.
If you or anyone you know needs advice or assistance on either side of a customer list or trade secret case, please call me for assistance at (602) 248-1009 or email me at firstname.lastname@example.org.
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