Friday, June 17, 2011
Social Networking Requires Businesses to Reconsider How to Protect Client Lists
Image By: Hank Grebe
Customer lists have traditionally been protected by trade secret law. According to American law, a trade secret has three main elements: (i) it must not be generally known to the public, (ii) it must bestow some economic benefit to the owner by virtue of its anonymity and (iii) the owner must use reasonable efforts to keep it secret. Many states include “customer list” in their definition of trade secret. However, even if a state does not include “customer list” in its definition of trade secret, courts regularly protect these assets as trade secrets. Keep in mind that even if trade secrets are protected by statute, they still must fit the three criteria in the definition of trade secret in order to continue receiving protection.
Prior to the rise of sites like Linkedin, third parties essentially had no way of viewing customer lists. Nowadays, with the advent of social networking sites, employees can build social networks that are viewable by the public. These social networks often include professional acquaintances, many of whom may be company clients. As such, these social networks often reveal a large chunk of a company’s customer list, therefore, rendering customer lists public and no longer protectable by trade secret law.
Given the current reality that customer lists are less likely to receive trade secret protection, firms must take measures to ensure that these assets remain confidential. For one thing, firms can require employees to sign non-disclosure agreements that include client information as confidential. Additionally, firms should add a social media section to non-compete agreements that addresses the confidential nature of social networks. A similar clause should be added to non-solicitation agreements. However, simply defining social media contacts as confidential is not enough; the company must take steps to ensure that the information is treated as confidential. For example, employers can require employees to select privacy settings that would prevent the public from viewing their social networking contacts. Whatever a company chooses to do in order to adapt, it is apparent that the rapidly changing digital world is forcing companies to reconsider the way that they do business.
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