In the April 2005 case of Liebert Corporation and Zonatherm Products, Inc. v. Mazur, et.al., the Illinois Appellate Court discussed what the law requires before a court decides a company’s customer list is deemed a protected trade secret under the Illinois Trade Secrets Act (the “Act”).
Plaintiff Liebert Corporation (“Liebert”) is an Ohio corporation engaged in the manufacture and sale of computer network equipment. Plaintiff Zonatherm Products, Inc. (“Zonatherm”) is an Illinois corporation that sells products manufactured by Liebert and was the exclusive Liebert representative in the Chicago area. Defendant John Mazur (“Mazur”) was a former Zonatherm employee who worked as a territory sales manager. Defendant Gregory Schwabe (“Schwabe”) was also employed by Zonatherm. Mazur and Schwabe resigned from their employment with Zonatherm on January 20, 2004, and began to work for Defendant Aerico Inc. (“Aerico”), which was in the business of marketing and selling products manufactured by American Power Conversion Corporation, a competitor of both Liebert and Zonatherm. Mazur and Schwabe formed Aerico just two months before they resigned from Zonatherm.
Liebert and Zonatherm filed suit against Mazur, Schwabe, and Aerico because they misappropriated Zonatherm’s customer lists. The customer lists included company names, phone numbers, addresses, customers’ email addresses and the names, telephone numbers and addresses of the individual contacts within each company. Zonatherm created separate lists for each sales territory. The sales representatives assigned to a particular territory had access to that territory’s customer list on Zonatherm’s server, but they were not given access to customer lists for other territories. By the time the suit was filed, the information relating to 2,000 customers was contained in the customer lists.
The court noted that under the Act there are two requirements must be met to establish that information is a trade secret. First, a plaintiff must establish the information was sufficiently secret to provide the plaintiff with a competitive advantage. Second, a plaintiff must prove it took affirmative measures to prevent others from acquiring or using the information. Courts also consider six other factors when deciding whether a trade secret exists, such as: (1) the extent to which the information is known outside the plaintiff’s business; (2) the extent to which it is known by employees and others involved in the plaintiff’s business; (3) the extent of the measures taken by the plaintiff to guard the secrecy of the information; (4) the value of the information to the plaintiff and its competitors; (5) the amount of effort or money expended by the plaintiff in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
In determining whether Zonatherm’s customer lists were trade secrets, the court considered various other cases where courts determined whether customer lists constituted trade secrets under the Act. In Stampede Tool Warehouse, Inc. v. May, the plaintiff sold tools to automotive jobbers and engaged in what the court referred to as “prospecting,” which involved creating a customer list by calling service stations and tool dealers to acquire customer names. Only two key employees had access to the customer list and the information in the list was only made available to other employees on a need to know basis. The company maintained hard copies of the customer list locked in an office; used security cameras; required employees to sign confidentiality agreements; and constantly reminded employees about the confidentiality of the list. Because of the extensive protections employed by Stampede Tool to protect the customer list, the court found the customer list was a trade secret. In Elmer Miller, Inc. v. Landis, the plaintiff, who was involved in the custom tailoring business, argued that its list of over 500 customers was a trade secret. The court in that case found the information contained in the customer list was sufficiently secret because of the difficulty involved in creating the list since such a business caters to a large pool of individuals with more particular needs. The court also found the plaintiff had maintained sufficient measures to protect the customer list: the list was placed in a closed file drawer and the plaintiff’s salespersons had limited access to it and were advised of the confidential nature of the list when they joined and left the employment of the plaintiff. Accordingly, the court in Elmer Miller found that the customer list was a trade secret.
In Gillis Associated Industries, Inc. v. Cari-All, Inc., the court found that the customer list at issue in that case was not a trade secret because of the plaintiff’s failure to take adequate measures to protect the list. Although only three key employees had access to the list on the plaintiff’s computer, there was no evidence that hard copies of the list were subject to any restrictions, as the copies were not locked in the office; they were not marked confidential; and the employees were not instructed on the confidentiality of the list.
In Liebert, the court found the customer list was sufficiently secret to provide the plaintiff with a competitive advantage. The founder of Zonatherm testified the customer list was created over a span of 35 years by calling various contractors and engineers and involved additional research through phone calls and lunch meetings to determine the appropriate contacts within each company. The court noted Zonatherm’s method of building its customer list by discovering and developing relationships with appropriate buyers was similar to the prospecting method employed by the plaintiff in Stampede Tool and that any attempt at duplicating the list would involve significant time, effort and expense.
The court, however, found Zonatherm failed to employ sufficient measures to prevent others from using or acquiring the information contained in the customer list. Zonatherm’s customer list was stored in its server and each salesperson had an electronic copy of the lists for his or her assigned territory. Zonatherm, however, took no steps to restrict hard copies of the list; failed to require employees to sign confidentiality agreements; failed to advise employees that the list was confidential; and failed to label the information as confidential. Accordingly, the Court found that the customer list was not trade secrets under the Act.
The Liebert case demonstrates the importance of employing various measures to protect the information contained in customer lists and, in particular, the necessity of advising employees of the confidentiality of such lists. If you have any questions concerning the precautions that should be taken to insure that a customer list would be deemed to be a trade secret under the Act, please contact a member of our firm.