Customer Lists as Trade Secrets: What Protections Are Sufficient?

Customer lists are frequently a source of trade-secret-misappropriation litigation. Under the Uniform Trade Secrets Act, a plaintiff must establish that it took reasonable efforts to protect its customer list. In Farmers Ins. Exchange v. Steele Ins. Agency, Inc., 2013 WL 2151553 (E.D. Ca. May 16, 2013), the court found that Farmers reasonably protected its customer list.

Here, Farmers sued several of its former agents, who were working for a new insurance agency started by one of the former agents. Farmers maintained a customer database that contained identifying information about its current and former policyholders, along with “policy expiration date, insured property, claims history, financial and other information.”

Farmers presented evidence that the defendants improperly accessed Farmers’ database and downloaded huge amounts of data regarding customers the defendants serviced while at Farmers. Farmers sought, and the court granted, a preliminary injunction barring use of this information.

After the court determined that the customer database contained information that could be protected as a trade secret (another critical issue surrounding customer lists and trade secrets, which I am not discussing in this post), it examined whether Farmers took reasonable steps to protect this information.

Farmers did an excellent job explaining how it protected its customer database. Farmers used the following protective measures:

  • Maintained the database on a password and user-ID protected system;
  • Solely provided each agent with information about that agent’s clients, not the entire customer database;
  • Implemented company policies regarding access to the database;
  • Periodically reminded employees about Farmers’ confidentiality policies via bulletins, yearly compliance memoranda, and other communications;
  • Required employees to acknowledge that they were accessing confidential information each time they logged on to the database; and
  • Immediately disabled access at the end of an agent’s employment with Farmers.

Given these steps, the court concluded that Farmers reasonably protected its customer database.

A customer database is often one of a company’s most valuable intangible assets. It is worth spending the time and money to implement protections like those listed above to reduce the likelihood of misappropriation and put the company in the best possible position should litigation become necessary.

2 responses

  1. Pingback: Liability of Ex-Employees for Breach of Confidence | Rationes Decidendi

  2. Pingback: Thursday Wrap-Up (May 30, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web | The Trade Secret Litigator

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