9/22/10

Thanks to LinkedIn, Your Client Database May Not Be a Trade Secret

There was an interesting ruling out of the Eastern District of New York last month where a Defendant argued that data found on LinkedIn, Facebook and other social media sites prevents the Plaintiff from claiming Trade Secret protection on its Client Relationship database. In Sasqua Group, Inc. v. Courtney, [PDF], Sasqua Group's owner, Christopher Tors found out that sometimes it isn't a good idea to hire family members -- at least not without making them sign a non-compete agreement first! It seems that Tors' niece, Lori Courtney, decided to split off from the family business and start her own headhunting agency and ended up taking a few of Uncle Chris' employees with her... oh, and she also took Uncle Chris' client list with her and immediately started using that list to get those clients to come over to her new agency. Of course, Uncle Chris did the family thing and took his sweet niece to court.

Putting aside the fact that Uncle Chris didn't have Niece Lori sign a non-compete or non-solicitation agreement, the court found that protection of this kind of information under the Uniform Trade Secrets Act (USTA) may not work in the 21st century where the information can be found in a matter of minutes using resources like LinkedIn.  Niece Lori stated in her argument that:
“virtually all personnel in the capital markets industry that Sasqua serves have their contact information on Bloomberg, LinkedIn, Facebook or other publicly available databases.” According to Courtney, the people who make up the financial services industry workforce, “including the Decision-Makers and other high level executives, typically change employers frequently . . .” and so “the contact information that a search firm may assemble in a database is almost immediately obsolete.” (see pg 7)
Apparently during the trial, Niece Lori even walked the judge through the process she used to find the information. It looks like the judge at trial and on appeal were so impressed by her competitive intelligence researching skills that the opinion goes on for about four pages describing all of the tricks of the trade that are used to find information on business executives using online paid databases and social media databases (starting on page 21 and going through 25).

Judge Tomlinson explained that the 20th Century way of gathering and protecting confidential client contact information may just not fly in the 21st Century. Tomlinson wrote:
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.
The end result was that Uncle Chris' database of client contact information was not protected as trade secrets and he lost his case. It seems that courts may be buying the argument that Niece Lori argued at trial that the time that people wanted their resumes and business contact information held confidential by headhunters, now those same clients want that information out there so they can get connected to others:
[i]t used to be years ago, that people were very protective about their resumes and personal information because no one ever wanted their employer to get wind that they were looking for another job. But in a post-Lehman bankruptcy world when everyone thought that the whole financial markets were going to the birds, and everyone was panicked about their jobs, the culture changed absolutely overnight to one  here people were protective of their information to one where almost everyone . . . puts it out there for the world to see because people want to be connected now. People want to know - - people want the recruiters knowing who they are and how to find your information and how to find them if they have a good opportunity. It has completely shifted. (pg 25)
It has completely shifted indeed!

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1 comments:

Hung Lee said...

Indeed an interesting ruling. The UK may be taking a different route - in 2008 a similar case was brought by high street giant Hay's who sued an ex-employee for the ownership of that individual's LinkedIn network - and won. The implication here was that LinkedIn was a company owned tool, and that like all other tools (such as email, phone number etc) they were to be returned to the company should you leave employment with that organisation. As it happens, I think the court got it wrong in the UK case, and right in this case in New York. However, what is worrying is that we have legal systems making potentially game changing rulings on matters which they may know very little about. And once a precedence has been set....! What we need is a wide ranging judicial review on the status of social networks, and who owns the output - to give courts guidance on what to do in future disputes. I'm not aware of any such initiative in the UK, where the politicians might be the one community more ignorant than lawyers on social media. Interesting times for us all. I've given some guidance on what all of us should do in the meantime in the following post related to the UK case: http://wisemansay.co.uk/2010/09/03/owns-linkedin-profile/

Be interested to hear of further cases from the US. Thanks for the post

Best wishes

Hung

 

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