By: Shanna O’Brien

Will the proliferation of professional and social media networking sites such as LinkedIn and Facebook spell the end of trade secret protection for customer lists and client contacts? The U.S. District Court for the Eastern District of New York recently weighed in on precisely this question.

In Sasqua Group, Inc. v. Courtney (E.D.N.Y. Aug. 2, 2010), Plaintiff sought a temporary restraining order to prevent Defendant from using the Plaintiff’s confidential , proprietary and trade secret information. Defendant was a former employee and competitor of Plaintiff – a firm specializing in the recruitment and placement of professionals in the financial services industry. Plaintiff asserted that its trade secrets included its client contact list, and that upon conclusion of Defendant’s employment with Plaintiff, Defendant misappropriated Plaintiff’s client contact list for use in her competing business. Customers of Plaintiff and Defendant’s services were financial institutions, and specifically, the executives at those institutions responsible for hiring and staffing. Traditionally, customer lists developed by a business through substantial effort and kept in confidence have been treated as a trade secret and protected against disclosure to a competitor, provided the information is not otherwise readily ascertainable.

In opposing Plaintiff’s application for a temporary restraining order, Defendant argued that the recruitment of professionals for the financial services industry is a highly competitive field, and that virtually all personnel in the industry (including, i.e., Plaintiff’s clients and potential clients) have their contact information on LinkedIn, Facebook, Bloomberg or other publically available databases. Therefore, the threshold question was whether Plaintiff’s client database was entitled to trade secret protection.

Courts consider several factors in determining whether information constitutes a trade secret, including (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken to guard its secrecy; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could be properly acquired by others.

The crux of the arguments and the Court’s discussion concerned the first factor – the extent to which the information is known outside the business. Plaintiff argued that it had invested substantial time, energy and resources into developing its client contacts, which were not known outside Plaintiff’s business. However, the Court agreed with Defendant’s assertion – that the “stock tool” of Plaintiff and Defendant’s business is the Internet, where information regarding prospective financial institution customers, as well as job candidates, is readily available to any recruiter.

At the hearing, Defendant demonstrated how a search on LinkedIn instantly revealed the identity of a potential customer, including his prior employers and positions, current title, undergraduate school, e-mail address and personal interests. Thus, Defendant established that the information was known outside of Plaintiff’s business, and the Court held that it should not be afforded trade secret protection.

The Court reinforced the highly factual nature of this analysis and suggested that the outcome could be different in cases where Plaintiff is selling a unique product to a few industry insiders, where potential customers cannot be readily ascertained, or where Plaintiff is educating customers regarding an unusual or highly technical product or process.