Are Client Lists Trade Secrets in Texas?
Dec. 29, 2022
For many companies, executing marketing campaigns to the masses to sell their products and services is not the best way for them to thrive. Instead, they develop and curate their customer lists and target their marketing efforts. That client list may be a company’s lifeline.
What happens if a competitor gets access to that list? Do Texas and federal trade secret laws protect them, providing legal recourse for financial recovery from their losses?
The short answer is, “It depends.” Trade secret laws, like any other laws, are subject to interpretation by the courts. The Parzivand Law Firm, PLLC helps clients in Stafford, Sugar Land, or Fort Bend County, Texas, understand when client lists are and are not trade secrets. They represent those fighting to protect their lists as well as those accused of misappropriating them.
What Makes Something a Trade Secret Under Texas Law?
The Texas Uniform Trade Secrets Act (TUTSA) broadly defines what may constitute a trade secret. It includes “all forms and types of information, including business, scientific, technical, economic, or engineering information.” This could include prototypes, designs, formulas, patterns, plans, and processes.
There are, however, other standards required to qualify property as a trade secret. First, the owner must have taken all reasonable measures to protect the property from misappropriation. This includes such actions as having employees sign non-disclosure agreements (NDAs), limiting access to the property, and discussing legal protections with employees in exit interviews.
The second standard relates to the value of the property. Does it provide a financial and competitive value for the owner by merit of its proprietary status? In other words, if the property makes no difference in the company’s competitive standing or profitability, it may not qualify as a trade secret.
What Is Misappropriation?
“Misappropriation” as a general term is broad, encompassing such actions as misuse, stealing, embezzling, cheating, fraud, and deceit. The TUTSA defines trade secret misappropriation as the acquisition of something by someone who knows or should suspect that it was acquired improperly or the disclosure of the owner’s trade secret without consent. In other words, the definition covers both the acquirer and the discloser of the secret.
For example, a former employee of Company A who helped develop a new software program uses their knowledge of the program to get a job at Company B. Company B should assume the employee signed an NDA. Therefore, the employee is sharing a trade secret they should not share, which makes the former employee liable under the law. Because Company B knows or should know the employee is disclosing a trade secret, it too is culpable under the law. Both would be subject to being named defendants in a Texas trade secret lawsuit.
Are Client or Customer Lists Trade Secrets in Texas?
This background brings us to the question of whether client lists are, in fact, trade secrets under the TUTSA. If a list contains information anyone has access to, often referred to as “directory information,” such as name, address, phone number, and email address, there is nothing secret about it. It could be recreated by anyone and holds no value for the company alleging a trade secret violation.
In this digital age, however, client lists contain a wealth of other information. If a plaintiff company can provide evidence that it took reasonable steps to protect the list and that the list provides competitive and profitable value to the plaintiff, it could be considered by the court to be a trade secret.
There are also other factors that courts weigh to determine whether a client list is a trade secret, including whether the list and client information is maintained in print format as well as digital and the currency with which the list is maintained.
The difference between a simple client list and a list that includes proprietary client information is subtle but significant. It is a distinction a plaintiff must prove to prevail in trade secret commercial litigation.
What Is the Difference Between Client Lists and Client Information?
A list is a list. It contains a client’s name, contact information, and little else. Client information is much more.
Client information includes such information as the client’s purchasing history, preferences regarding products, services, and delivery, payment methods, records of correspondence and chat interactions, web browsing history, and a record of digital “cookies,” which provide additional insight into the client.
The owner company uses all this information to target clients with emails, texts, offers, and other communication. Such targeting makes marketing efforts tailored which, in turn, increases the likelihood that the client will purchase from the company that owns the list rather than a competitor who does not have such information.
Strategic Counsel: The Parzivand Law Firm, PLLC
The business attorney at The Parzivand Law Firm, PLLC in Stafford, Texas, maintains a record of success in litigating trade secret cases for both plaintiffs and defendants. If you believe your client list has been misappropriated or if you have been accused of misappropriation, The Parzivand Law Firm, PLLC can help by determining the merits of a trade secrets case, negotiating with the opposing side, and if necessary, representing you at trial.
Don’t delay. Call The Parzivand Law Firm, PLLC now to schedule a case consultation.