Use Washington’s uniform trade secrets act to protect your customer list

Imagine the following scenario – you are the CEO of a fast growing niche technology company when several of your top executives depart unexpectedly, form a competing company and–using confidential information and contact information developed while they worked for your company–they begin soliciting your customers. Your company’s attorney had previously recommended noncompetition and confidentiality agreements with these executives, but you have been too busy growing the company to implement them. Now your company may be irreparably damaged if they are allowed to exploit the customer list they took from your company. What legal remedies are available to enjoin their conduct and recover any damages?

As a general rule, a departing employee who has not signed a non-competition agreement is free to engage in competitive employment. In doing so, the former employee may freely use his or her general knowledge, skills and experience acquired during prior employment. However, the former employee, even in the absence of an enforceable non-competition agreement, remains under a duty not to use or disclose, to the detriment of the former employer, trade secrets acquired in the course of the previous employment. Where the former employee seeks to use the trade secrets in order to obtain a competitive advantage, the former employer may be able to pursue injunctive relief and damages under the Washington Uniform Trade Secrets Act (UTSA).

A customer list can be characterized as a trade secret if it meets the criteria of the UTSA. To succeed on a claim for the misappropriation–or threatened misappropriation– of a customer list trade secret, a company must establish that (1) the information taken derives independent, economic value from not being generally known or readily ascertainable to others who can obtain economic value from knowledge of its use and (2) that reasonable efforts have been taken by the company to maintain the secrecy of the information. Where a customer list qualifies as a trade secret, Washington law imposes a duty upon former employees to refrain from using the list to the competitive disadvantage of their former employer. This applies to customer lists that are in written form and even applies to information that is memorized. It is not necessary to prove theft or conversion of electronic data or physical documents to prove misappropriation of a customer list trade secret.

Trade secret protection will not apply to customer lists where the information is readily ascertainable from public sources such as trade directories, phone books, the public library or the Internet. Accordingly, to rise to the level of a protectable trade secret, the customer list must contain valuable information not generally known in the trade, and there must be evidence that the company has taken reasonable steps to preserve the secrecy of that information. Litigation outcomes depend largely on the facts of each particular case.

Courts in Washington and elsewhere have granted trade secret protection to customer lists from many different businesses and industries–not just the high technology sector. Customer lists from insurance agencies, stock brokerage firms, manufacturing companies, distributors, retailers and many other industries have all qualified for trade secret protection where the facts supported this outcome. Additionally, in some cases, courts have granted trade secret protection to certain lists or contact information maintained by a company, while at the same time, they have denied trade secret protection to other kinds of lists or contact information maintained by the same company.

While the UTSA is not an effective substitute in many cases for carefully drafted non-competition and confidentiality agreements, it can be a safety net for companies which lack those agreements or where the agreements fall short of granting the protection or the remedies afforded by the UTSA. Where the facts support it, injunctive relief to stop the unfair competition can be obtained and damages can be awarded.

Richard G. Matson is the managing shareholder of the Vancouver office of Bullivant, Houser, Bailey, PC, a west coast regional, multi-practice law firm with six offices in four states. Matson’s practice emphasizes commercial litigation, employment defense and complex insurance defense. He can be reached at 360 737-2304 or dick.matson@bullivant.com.