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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Is Your Company’s Customer List Still A Trade Secret If Your Company Uses Labeled Delivery Trucks?

Posted in Practice & Procedure, Trade Secrets

Does using a labeled truck identifying your company to deliver products to your clients make your client list publicly available? Will doing so undermine protecting your client list as a trade secret?  Last month, the defendant in a case before a federal district judge in California tried to make that argument, and while the case was decided on other grounds, it does pose some interesting questions for trade secret litigants attempting to protect customer lists. While many businesses do not necessarily consider the identity of their clients trade secrets in the Internet and social media age, some still closely guard the identity of their customers and believe that at a minimum such information is confidential or proprietary, if not a trade secret.

On April 8, 2013, the court in Magic Laundry Services, Inc. v. Workers United Service Employees International Union granted the defendant’s special motion to strike four claims, including misappropriation of trade secrets, interference with contract, defamation, and trespass. The case poses an interesting question, namely, whether the use of labeled delivery trucks for deliveries to clients prevents a company from gaining trade secret protection for their client list.  Magic Laundry Services, Inc.’s (“Magic Laundry”) lawsuit stemmed from the defendant Workers United Service Employees International Union’s (“WUSEIU”) alleged attempts to unionize its employees.  According to Magic Laundry, Defendant allegedly created flyers describing the poor working conditions at the company, spoke to its customers and sent them letters regarding these conditions.  Defendant also allegedly organized a secondary boycott of Magic Laundry’s customers, and petitioned both local and national political entities regarding working conditions.

In deciding the motion to strike, the court addressed the following causes of action:

Interference with Contract

Magic Laundry alleged that WUSEIU’s actions were designed to disrupt Magic Laundry’s contracts with third parties, which made the performance of contracts challenging.  Defendant’s however, alleged that Section 7 and 8 of the National Labor Relations Act (NLRA) permitted their actions, as it provided the right to unionize. The court agreed, finding that the defendant’ actions were “squarely within the purview of the NLRA.”  Furthermore, there were no allegations of violence which would remove the claim from the purview of the NLRB.

Defamation

Magic Laundry alleged that WUSEIU’s actions were defamatory in nature.  However, the court found otherwise, holding that Magic Laundry had not made any showing of malice.  According to the court, “Magic Laundry apparently concedes that it does not have evidence” to show that some of the statements were false.

Trespass

Magic Laundry alleged that defendant’s members entered their private property.  However, Defendant denied the allegations of trespassing, and argued that even if they did enter the property, their actions are exempt under the California law which exempts those engaging in lawful union activity from its trespass statutes.  The court agreed, finding Defendant’s conduct was exempt, and dismissing the claim.

Misappropriation of Trade Secrets

Magic Laundry alleged that its customer list, which WUSEIU used to send letters regarding working conditions, was a trade secret, and had been improperly acquired by WUSEIU.  The Defendant argued that the information was not a trade secret, since Magic Laundry’s market trucks publicly delivered to their clients’ locations, and therefore, the clients’ locations were public knowledge. The court found no evidence that the list had been acquired via improper means, or that Plaintiff’s had properly proved damages.  Furthermore, there was no evidence that the disclosure of the client’s locations harmed Magic Laundry in any manner.  Magic Laundry narrowed the claim to encompass only prospective employees, however, the court still found that there was insufficient evidence to support Magic Laundry’s contention that the Defendant was aware of the potential client list was improperly disclosed.  Accordingly, the court found that Plaintiff had failed to make a prima facie showing of trade secret misappropriation.

RICO Claims

Magic Laundry also asserted a number of Racketeer Influenced and Corrupt Organizations (“RICO”) claims against the Defendant.  The court appeared skeptical of these claims, stating in the order that it “is dubious that Magic Laundry can allege a proper RICO claim.”  Nonetheless, the court permitted Magic Laundry to amend its claims, but warned that there would be no subsequent amendment of the complaint. The case was subsequently dismissed without prejudice.

Takeaway

From a trade secret litigation perspective, Defendant’s argument that Plaintiff’s well-labeled delivery trucks appear in public at the location of their clients was sufficient to render Plaintiff’s customer list public knowledge is interesting, particularly since businesses often like to advertise some of their significant customers on their websites or otherwise. The court never specifically adopted this argument, yet it did not reject it either in deciding to strike the claim.  Instead, the court found that Plaintiff failed to show damages or improper disclosure.  As one expert points out, the argument “seems like a stretch” and “could place any company that delivers its products to or services its customers using marked vehicles in jeopardy of losing trade secret protection for its client list.”  Whether courts will adopt this reasoning in future trade secret cases involving customer lists remains to be seen. It serves as a reminder that companies should be careful about their public disclosures to or regarding customers particularly if they consider their customers identity trade secret or confidential information.