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Are You Taking the Right Steps to Protect Your Customer List?

March 23, 2009

Your customer list is the very heart and soul of your business. Should it fall into the hands of a competitor, your business could suffer a loss of some or its entire customer base. This can jeopardize the success if not the very survival of your business. However, there are specific steps that businesses can take to help prevent the disclosure of its customer list.

When courts look at whether your customer list should be protected, it is a determination of whether it qualifies as a “trade secret.” If it does, then the customer list will be able to avail itself of a host of legal protections. Here are the factors that the courts look at:

  • Do you take active steps to protect others from gaining access to your customer list?
  • Is the information contained in your customer list generally known to those outside your company and, if so, to what extent (e.g., industry-wide)?
  • What is the value of your customer list to your competitors?
  • Do you acquire a competitive advantage from your customer list as a result of it not generally being known to others?
  • Is the information contained in your customer list generally known to those within your company and, if so, to what extent?
  • How much effort, time or money was invested in the development of your customer list?
  • How easy would it be for a third party to duplicate your customer list?

The courts will look at all of the above factors, but none of them is determinative. As the above factors show, the courts’ focus is on how well known your customers are to your competitors and what steps you have taken to keep your customer list confidential.

What can you do to protect the confidentiality of your customer list? Here are ten key steps you should take:

  • Have all employees sign a confidentiality and non-disclosure agreement.
  • Affirmatively notify your employees that your customer list is confidential.
  • Make sure that your customer list, in whatever media it may be maintained (e.g., a written list or on your computer system) is marked “Trade Secret” and/or “Confidential and Proprietary.”
  • Limit access to your customer list by locking a written list in a safe place or if on your computer system, make sure that only those employees that require access to it have access to it and through individual passwords.
  • Restrict access to your customer list to a strictly need to know basis.
  • Maintain as few copies of your customer list as possible.
  • Always shred written versions and delete computer versions of your customer list when being discarded.
  • Make sure that your Employee Handbook specifically states that your customer list is a trade secret and confidential.
  • Remind departing employees of the confidentiality of customer list and that they signed a confidentiality and non-disclosure agreement that you intend to enforce.
  • Require departing employees to return all copies, in whatever medium, of your property, including all confidential information.

It must be noted that taking all of the above steps will not automatically guaranty that your customer list will qualify as a trade secret. However, implementing the above steps will help you protect your customer list and reduce the probability that your customer list will wind up in the hands of your competitors.