CONFIDENTIAL CLIENT LIST MAY BE A TRADE SECRET ENTITLED TO PROTECTION UNDER OHIO LAW

By

Jerry P. Cline, Esq.

Imagine that one of your company’s sales associates recently left your employ to begin his own company selling the same service.  The former sales associate utilizes his memory of your client list (instead of printing it from your electronic database) to contact your clients.  The former sales associate’s activities result in the loss of several of your clients, costing you thousands in lost revenue.  What can you do?

Under the recent Supreme Court decision of Minor v. Martin, company client lists such as yours may be protected from disclosure and usage as a trade secret under Ohio’s Uniform Trade Secrets Act (UTSA).  Your company may be protected even without the use of an employment contract, non-compete agreement or non-solicitation agreement with the former employee.  Moreover, confidential client lists do not lose their character as a trade secret merely because a former employee utilized his memory of the list rather than by acquiring a written or electronic list from your database.  In effect, the UTSA creates a non-compete/non-solicitation agreement between employees and employers for all trade secrets, regardless of whether a signed non-compete/non-solicitation agreement actually exists.  For your client list to be considered a “trade secret,” Ohio courts consider the following six factors:

1. The extent to which the information is known outside the business;
2. The extent to which it is known to those inside the business, i.e., by the employees;
3. The precautions taken by the holder of the trade secret to guard the secrecy of the information;
4. The savings effected and the value to the holder in having the information as against competitors;
5. The amount of effort or money expended in obtaining and developing the information; and
6. The amount of time and expense it would take for others to acquire and duplicate the information.

In Minor v. Martin, the Supreme Court, in deciding in favor of the employer, focused on the precautions taken by the holder of the trade secret (the former employer) to guard the secrecy of the information as well as the amount of effort or money expended in obtaining and developing the information.  In that regard, below are some practical measures to help assure that your client list remains confidential:

1. Inform all employees that client information is confidential and is not to be made public;
2. Circulate a Computer Usage Policy that reminds employees that client names and associated information is confidential and not to be made public and are not to be removed from the confines of the office;
3. Secure client information from those entering the office;
4. Include a section in the employee handbook that establishes the company’s client list as a trade secret and confidential information protected under Ohio’s Uniform Trade Secrets Act, R.C. § 1333.61, et seq.

BELOW NOT PART OF ARTICLE

In 1994, the Ohio General Assembly enacted the UTSA, which defines a “trade secret” as:
            Information, including the whole or any portion or phase of any scientific   or technical information, design, process, procedure, formula, pattern,             compilation, program, device, method, technique, or improvement, or any   business information or plans, financial information, or listing of names,      addresses, or telephone numbers, that satisfies both of the following:

1. It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
2. It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The Supreme Court has established a six-factor test for determining whether information constitutes a trade secret pursuant to UTSA:

• The extent to which the information is known outside the business;
• The extent to which it is known to those inside the business, i.e., by the employees;
• The precautions taken by the holder of the trade secret to guard the secrecy of the information;
• The savings effected and the value to the holder in having the information as against competitors;
• The amount of effort or money expended in obtaining and developing the information; and
• The amount of time and expense it would take for others to acquire and duplicate the information.