ACC Litigation Network Fall 2018 Newsletter
IN THIS ISSUE...
Message from the Chair  
2018 Litigation Survey  
Upcoming Programs  
Memeber Spotlight  
Is the Notion that a Customer List is a Trade Secret Outdated?  
Networks
Virtual Library
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Message from the Chair
Coleman Lechner

Dear ACC Litigation Network Members,

This is the fourth and final newsletter for this term!  I truly have enjoyed serving as Chair of the Network, and thank you all for allowing me to serve. The Network’s goal has always been to bring forward new, relevant content to our membership, and this past year was no exception! 

The chairs of the Network’s subgroups did a terrific job of identifying and bringing forward content that is useful for any in-house counsel who handles litigation — even those lawyers who are not litigators by background. I thank our Executive Council for all their efforts and contributions!

Thank you also to our terrific co-sponsors who helped bring forward and present the content that the Network provided to the membership - Norton Rose Fulbright and Integreon have been valued partners!

Thank you to all of our other outside lawyers who provided or presented content to our membership via legal quick hits, webcasts, the Litigation Network Newsletters, the Annual Meeting, and the ACC online and print publications. Your expertise and experience help advise and guide the in-house bar!

Finally, and most importantly, thank you to our membership - we work to serve you, and we appreciate all of your feedback, suggestions and engagement!  Please reach out to anyone on the Executive Council if you’d like to get more involved with the Network.

I look forward to remaining involved with the Network and look forward to seeing you all at the Annual Meeting!

Coleman Lechner

Chair
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2018 Litigation Survey

It's that time of year again! Please take a moment to give the Network leaders and sponsors your feedback via the annual survey. CLICK HERE to access the survey.

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Upcoming Programs

September Legal Quick Hit 9.25.18  - Data Breach Litigation Trends - 5 Things to Know for the Year Ahead
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Memeber Spotlight
Coleman Lechner

1. Did you follow an interesting career path to your current job?

I feel very fortunate that I had terrific experiences at an international New York law firm and a boutique Denver energy law firm before I became an in-house counsel with Wyndham Worldwide. My family and I made the hard decision to leave Wyndham (based in NJ) to move back to Denver to be closer to my wife’s family. I’m looking forward to harnessing and applying all that I learned from being an outside lawyer and in-house counsel to my next stop on my career path in Denver!  I truly loved my in-house experience at Wyndham and I miss my colleagues dearly. Having split my time between outside and in-house roles positions me to seamlessly transition to my next in-house role or to be an even more effective outside lawyer should I go back to a firm.  At the moment, I’m enjoying my final months as the Chair of the ACC Litigation Network.  We have a terrific Executive Council, and, over the past year, we have produced some amazing legal quick hits, webcasts, and publications for our members.

2. What are your general responsibilities in your current role? 

Since leaving my role at Wyndham to move to Denver, I’ve been carefully considering in-house, law firm, and government roles. My hope is to expand upon my litigation, government investigations and government relations experiences.

3. What is your favorite part of your job? Least favorite?

My favorite part of working in-house is working with and advising the business side. Getting to work with so many people who handle so many different roles that help drive the business forward brings new and fun challenges every day.  However, I do miss getting up and making arguments in court and taking/defending depositions.

4. When you are not at work, what are some of your hobbies or interests?

When not working or spending time with my wife and two young children, I enjoy going to sporting events and concerts, and taking advantage of all the great outdoor activities Colorado offers!

 


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Is the Notion that a Customer List is a Trade Secret Outdated?
By: Stephen B. Stern, Partner with Hyatt & Weber, P.A

Stephen B. Stern, Esq., is a Partner with the law firm of Hyatt & Weber, P.A., working out of the firm’s Annapolis, Maryland office, as well as its Fairfax, Virginia office, where the firm is known as Hyatt & Weber, P.A., P.C. Mr. Stern’s practice focuses on employment counseling and litigation, commercial/business litigation, insurance issues, and conducting highly sensitive and complex investigations. His email address is sstern@hwlaw.com.

Some of the most valuable trade secrets in the world are worth billions of dollars, such as Google’s algorithms and the Coca-Cola formula.  For many companies, however, their “secret sauce” may be something much simpler and less scientific, such as customer relationships or customer lists. The notion that a customer list may constitute a trade secret is well-established in American jurisprudence. Changes in technology and social norms may be challenging this long established notion, however. Social media poses two potential challenges for companies seeking to protect customer lists as trade secrets:  (1) the potential public availability of information that a company seeks to protect as a trade secret; and (2) the potential “mobility” of customer names and contact information in social media profiles that a company might be seeking to protect as a trade secret.

Before delving into the potential challenges posed by social media, it is important to understand what constitutes a trade secret. Many states have adopted the Uniform Trade Secrets Act, which defines a “trade secret” as any information, including a “formula, pattern, compilation, program, device, method, technique, or process that: (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use[;] and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”  One of the challenges historically to protecting a customer list as a trade secret has been whether the company actually invested time and resources to develop the list in such a manner that it was not readily ascertainable by the company’s competitors.  Some courts have ruled customer lists were not trade secrets because they were easily replicated by reviewing the yellow pages.  See, e.g., Home Paramount Pest Control Cos. Inc. v. FMC Corp./Agricultural Prods. Group, 107 F. Supp. 2d 684, 693 (D. Md. 2000) (finding customer list was not a trade secret in part because “[t]he names and addresses of [the] clients are obtainable through public sources such as a phone directory”); Delta Med. Sys. V. Mid-America Med. Sys., 772 N.E.2d 768, 781 (Ill. App. Ct. 2002) (holding trial court erred in finding a trade secret when the names on the customer list could “be duplicated with little effort” because they “could be derived by merely looking in the yellow pages or from a FOIA request”).  While the concept of replicating the phone book or yellow pages may seem outdated, social media and other modern Internet tools may be having the same effect on customer lists and whether they constitute trade secrets.

In Sasqua Group, Inc. v. Courtney, CV 10-528 (ADS) (AKT), 2010 WL 3613855 (E.D.N.Y. Aug. 2, 2010), a search firm claimed its customer list was a trade secret.  The former employee it sued argued the customer list was not a trade secret because the information contained in the customer list (e.g., profession, position/title, contact information, even resumes/bios of individuals) was readily available in forums such as LinkedIn, Facebook, and Bloomberg.  The court agreed with the former employee, and found the customer list was not a trade secret. The court explained that “in the early years of [the company]’s existence[,] . . . greater time, energy and resources may have been necessary to acquire the level of detailed information to build and retain the business relationships at issue here[,]” but “the exponential proliferation of information made available through . . . the Internet and the powerful tools it provides to access such information . . . is [now] a very different story.”  In other words, information about customers and customer relationships may now be found rather easily through various forums on the Internet, such as social media and, in the process, undermining the notion that a customer list may constitute a trade secret.

For those companies seeking trade secret protection for their customer lists, all hope is not lost.  At least one court has found that the power of social media may actually enhance a company’s argument that its customer list constitutes a trade secret. In Christou v. Beatport, LLC, 849 F. Supp. 2d 1055 (D. Colo. 2012), several nightclubs and their founder sued a former employee and his new company for misappropriating trade secrets in the form of login information for profiles on MySpace, lists of MySpace “friends,” and lists of personal cell phone numbers and email addresses for DJs, agents, promoters, and customers.  The defendants contended that the information could not constitute trade secrets because it was “broadcast to the public via the Internet.” The court, however, recognized the power of social media could support, rather than undermine, the plaintiffs’ argument that their customer lists were trade secrets. The court found that social media profiles were comparable to a database with names and contact information. The court explained that, because it was a social networking site, the company could acquire hundreds and thousands of “friends” and those friends provided access to personal information of customers and potential customers, including contact information, interests, and preferences. The court acknowledged it was possible the former employee could know the names of each MySpace “friend” from “general experience,” but the court ultimately concluded it was unlikely the former employee knew all the contact information and preferences of those “friends” from general experience or that it could be obtained from public directories or other outside sources. Thus, the court denied the defendants’ motion to dismiss and allowed discovery to proceed.

Another court looked at the functionality of social media to recognize that factual determinations either could support or undermine a company’s position that social media contacts (which, as a practical matter, can be the equivalent of a customer list) were trade secrets.  In Cellular Accessories For Less, Inc. v. Trinitas, LLC, Case No. CV 12-06736 DDP, 2014 WL 4627090 (C.D. Cal. Sept. 16, 2014), a company sued a former employee arguing, among other things, that the former employee’s LinkedIn contacts were trade secrets and subject to the confidentiality agreement the employee signed.  The former employee on the other hand argued that many of the people he contacted had been contacted by other competitors and LinkedIn suggested many of them as contacts, which the court noted, if true, would undermine the company's position on trade secrets because these facts would suggest that the company’s information gathering techniques were not “sophisticated” or “difficult.” The former employee also argued that LinkedIn contacts were not trade secrets because the company encouraged its employees to create LinkedIn accounts and his contacts would have been “viewable to any other contact he has on LinkedIn” to which the company responded that information on LinkedIn was available only to the degree that a user chose to share it.  The court ultimately found that there was insufficient evidence to support either party’s position at summary judgment and disputes of material fact existed as to whether LinkedIn connections were trade secrets.

Other than the potential availability of information on the Internet as a basis to undermine a company’s ability to protect its customer list as a trade secret, social media also increases the potential “mobility” of a company’s customer list. Assume for example that a company considers its customer list to be a trade secret and the company’s employees utilize social media to connect with customers and potential customers of the company. If the company does not have appropriate agreements and policies in place regarding the treatment of those social media contacts, when an employee leaves the company and changes his/her social media profile, the customer and potential customer contacts (i.e., the company’s trade secret) in the employee’s account/profile (e.g., connections or friends, depending on the social media platform) will go “mobile” and leave with the employee when the employee changes or updates his/her profile.  This concern was illustrated by the court in BTS USA, Inc. v. Executive Perspective, LLC, No. X10CV116010685, 2014 WL 6804545 (Conn. Super. Ct. Oct. 16, 2014).  In BTS, the company sued a former employee and his new employer for misappropriation of trade secrets, among other claims. The company argued that some of the employee’s LinkedIn connections were clients and contacts he developed while working for BTS.  The court, however, found that “BTS had no policies or procedures regarding employee use of social media; did not request or require ex-employees to delete BTS clients or customers from LinkedIn accounts; . . . [and] allow[ed] employees to maintain LinkedIn accounts without monitoring or restriction.”  The court further explained that “[a]bsent an explicit provision in an employment agreement which governs, restricts or addresses and ex-employee’s use of [social] media, the court would be hard pressed to read the types of restrictions urged here . . . into the agreement.”

The cases highlighted here do not represent the entire universe of cases that have addressed these issues, but there is not a vast body of case law either.  The treatment of customer lists as trade secrets in the era of social media remains a developing area of law and it is unclear how courts across the country will address these issues. There is some guidance that we can take from the decisions that have been issued so far, however. For example, the more information a company adds to its customer list beyond mere names and contact information, such as customer preferences or purchasing history, increases the likelihood that the customer list will be found to be a trade secret.  In terms of social media contacts, companies should be proactive in developing social media policies and including appropriate provisions in employment agreements as part of their trade secret protection programs that clearly identify what information the company owns and how employees should treat that information during and after the employment relationship. While it remains unclear how effective that these policies and agreements will be or what the appropriate scope may be, implementing policies and agreements that seek to establish control over information the company seeks to protect should give companies a better chance to prevail than remaining passive and waiting to see how employees will handle their social media accounts or what courts will do.

 
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