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Last week, a United States District Judge in New York approved the report and recommendation of a Magistrate Judge holding that a headhunter’s contact lists were not protectable trade secrets because the information therein was readily ascertainable on social networking sites. Sasqua Group, Inc. et al. v. Lori Courtney et al., 2010 U.S. Dist. LEXIS 93442 (Aug. 2, 2010) (report and recommendation).

If the recommendation is followed in other Uniform Trade Secrets Act (UTSA) cases, businesses may have to rethink the ways in which they protect their contact lists. The case also highlights the value of utilizing employment agreements containing non-competition or non-solicitation covenants.

Sasqua Group, an executive search firm for the financial services industry, sued its recently departed employee and her new firm claiming that use of Sasqua’s contacts lists constituted misappropriation of trade secrets. The contact lists identified decision-makers at financial services firms and traders who might be looking to change firms. Sasqua relied on cases from the 1980s and 1990s affording protection to seemingly comparable lists.

Defendants argued that because the information was known outside of the plaintiff’s business and was readily ascertainable from public sources, it did not constitute a trade secret. During the evidentiary hearing, Defendants walked the Magistrate Judge through how the data could be tracked down in only a few minutes on the internet. Having obtained the names of potential customers (financial institutions) by Google searches, Defendants would use LinkedIn and other social networking sites such as Bloomberg and Facebook.

The Magistrate Judge agreed with the Defendants, acknowledging in a detailed analysis that the world has significantly changed:

The information in Sasqua’s database concerning the needs of its clients, their preferences, hiring practices, and business strategies, as well as Sasqua’s acquaintance with key decision-makers at those firms may well have been a protectable trade secret in the early years of Sasqua’s existence when greater time, energy and resources may have been necessary to acquire the level of detailed information to build and retain the business relationships at issue here. However, for good or bad, the exponential proliferation of information made available through full-blown use of the Internet and the powerful tools it provides to access such information in 2010 is a very different story.

Id. at *30.

The Magistrate Judge pointed out that plaintiff was also handicapped because it did not have an employment agreement with the decamping Defendant containing non-competition or non-solicitation covenants.

The decision leaves open the possibility that, in markets where information about companies and their employees is not so public, trade secret protection may still be appropriate for contact lists. And, the decision recognizes that restrictive employment agreements can provide additional protection in a variety of business contexts.

FOR FURTHER INFORMATION
For further information on this topic or other issues involving trade secret liability, please contact one of the attorneys below or any Howrey attorney with whom you have an existing relationship.

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