SalesForce Reports Not a Trade Secret

On March 12, 2014, in Trade Secrets, by Brian A. Hall

UnIntellectual Property (UnIP): Trade Secret for Certain Customer Relationship Management Software Reports

This case from the Court of Chancery of Delaware involved the alleged possession and misuse of a fire alarm and fire protection system company’s proprietary information by certain of its former employees.  One former employee, in particular, upon termination, began working for an entrepreneur that started a similar business.  Plaintiff alleged that defendant copied the company’s proprietary information and trade secrets for the purpose of bringing that information to the new fire alarm and fire protection system business.  In particular, defendant copied, while working for his former employer, (1) a contacts report and (2) a sales opportunity report, both of which were generated by Salesforce.com (“Salesforce”), which is a “customer relations management tool” that Plaintiff uses to store data such as contact information, sales information, and proposal information for each of its customers.  Plaintiff paysapproximately $15,000 per year to use Salesforce and allegedly has spent thousands of dollars customizing the database to meet its specific needs.  While the Court, following a trial, addressed several causes of action, I am focused solely on the trade secret misappropriation cause of action, pursuant to the Delaware Uniform Trade Secrets Act (DUTSA), which was denied.

At issue are the two reports noted above.  The “contacts report” contains the names, addresses, and phone numbers for Plaintiff’s main contact at each of its clients.  The “opportunities report” contains Plaintiff’s potential business prospects, including the location and nature of the job and Plaintiff’s assessment of how likely it is to secure the project.  The Court first addressed whether either of these reports “derive[d] independent economic value” by virtue of the information “not being generally known to” and “not being readily ascertainable by proper means by” others.  The Court found that the “opportunities report” satisfies this criterion, but the “contact list” does not.  The Court reasoned that the “opportunities report” includes valuable information beyond just the names of the opportunities, such as how much Plaintiff has bid on certain projects and how Plaintiff became aware of the opportunity.  Since the vast majority of the opportunities were created by some combination of cold calling, customer referrals, and repeat business from existing customers, these opportunities are “generally known.” The Court determined that it also is unlikely that a potential competitor to Plaintiff could produce the same list of opportunities without spending significant time and money to develop an existing customer base and solicit new business.
Equating the “contacts report” to a client or contact list, the Court held that it was not a trade secret, and in doing so relied upon its previous holding:
The market of the product or service involved is the main factor in determining whether a client list constitutes a compilation deriving independent economic value from not being generally known by other persons who can obtain economic value from its disclosure or use. If the buyers are easily identified, it is unlikely that their identities will hold independent economic value even when the identities are considered confidential.107
It held that Plaintiff has not carried its burden of proving that the identities of its customers cannot be easily determined, such as by using knowledge of the industry and replicating such a list.  Plaintiff’s attempt to argue that the “contact report’s” inclusion of key decision makers somehow made it qualify as a trade secret also failed because the Court recognized that such information could be identified through proper means.
Ultimately, the Court held that “neither the contacts report nor the opportunities report constitutes a protectable trade secret under DUTSA because Wayman has not shown that the reports were the “subject of efforts that are reasonable under the circumstances to maintain [their] secrecy.”  The Court based its decision on the fact that, although SalesForce was password protected, there were no policies regarding confidentiality or confidentiality provisions in any employment agreements, employment handbooks, etc.
This case was of particular interest to me because my law firm uses SalesForce and has a very robust contact and opportunity reporting structure in order to manage prospective client and existing clients alike.  We do far more than password protect, and the practice of law’s restrictions would introduce additional complexities in the event of any similar fact pattern.  Nevertheless, users of SalesForce or other comparable customer relationship management software should be mindful of this decision.

Wayman Fire Prot., Inc. v. Premium Fire & Sec., LLC, CIV.A. 7866-VCP, 2014 WL 897223 (Del. Ch. Mar. 5, 2014).


 

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