UnIntellectual Property (UnIP): Trade Secret for Customer Identity, Customer Information, and Customer Lists

The Michigan Court of Appeals has affirmed a trial court’s granting of summary disposition (the equivalent of summary judgment under other state law) to defendant, and, in doing so, dismissed plaintiff’s claims.  Plaintiff, an industrial repair provider, sued defendant, an industrial repair company.  Both plaintiff and defendant had entered into a written agreement for submitting joint proposals for complementary business services to customers.  The agreement contained language identifying confidential information and language concerning non-solicitation of employees and/or independent contractors.  Thereafter, they entered into a Purchase Agreement that also contained a confidentiality section dealing with, among other things, “customer information.”  An employee of Plaintiff resigned and accepted a position with Defendant, who eventually terminated the employee.  Nonetheless, Plaintiff filed a lawsuit alleging, among other things, Violation of the Michigan Uniform Trade Secrets Act.  Plaintiff was granted preliminary injunctive relief to prevent defendant from soliciting any of plaintiff’s customers in the asset management business.

After affirming the trial court’s finding that the Purchase Agreement superseded the prior agreement and that no breach had been found, the Court made clear that there was no ruling that the plaintiff’s customers and contacts could not qualitfy as confidential information.  However, it did rule that the customer information did not qualify as a trade secret under Michigan law, namely MUTSA.

In particular, the Court stated: “The trial court noted in its opinion that “[t]he gravamen of ICR’s MUTSA claim is that McBroom misappropriated Plaintiff’s trade secrets when it hired Young, and allowed him to solicit business on behalf of McBroom utilizing certain information he obtained while employed by ICR, including the identity of ICR’s customers, and the contacts at those customers.” The trial court concluded that “the customer information compiled by Young simply does not qualify as a ‘trade secret’ under the MUTSA.”

In affirming the trial court, this Court noted the plaintiff’s failure to identify the alleged trade secret with specificity.  It went on to hold that “To the extent that plaintiff identified any specific information it believes was a trade secret, such information falls into the category of customer identity, customer information, and customer lists. Such information, although protectable by a confidentiality agreement, is not a trade secret under MUTSA.”  In reaching its conclusion, it relied upon, what it deemed to be, black letter law, including: “A list of customers compiled by a former employee from personal and public sources available to that employee is not protectable as a trade secret.  This is true even if the former employee has learned about the “peculiar needs of particular clients” from his employment; although such information may be protectable by a non-competition agreement, such information is a not a trade secret.”

This case reiterates that customer identity and information related thereto, even if specific to the customer, is not a trade secret under Michigan law and the best way to protect such information is via a non-compete agreement.  However, there still needs to be misappropriation, or in this case, a breach by disclosing or using such confidential information in order to have an actionable and recoverable claim.  Assuming this occurs, damages need to be proven, which this Court did not analyze given that it affirmed the trial court’s decision regarding the merits themselves.  So, employers should read this to mean they need non-compete agreements, but at the same time, such an agreement can not make what is otherwise not confidential or available elsewhere the impetus for a trade secret or breach of contract lawsuit.

Indus. Control Repair, Inc. v. McBroom Elec. Co., Inc., 302240, 2013 WL 5576336 (Mich. Ct. App. Oct. 10, 2013).


 

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