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September 24, 2010
Availability of Client Data on LinkedIn, Facebook, and Google Sinks Trade Secrets Claim -- Sasqua Group v. Courtney
[Post by Venkat with a brief comment from Eric]
Sasqua Group, Inc. v. Courtney, 2010 WL 3613855 (E.D.N.Y. Aug. 2, 2010)
Background: Sasqua Group and its principal (Tors) ran a executive search consulting firm for professionals in the financial services industry. They work with "a small group of high-caliber clients, including . . Barclays Capital, The Royal Bank of Scotland, Nomura American Holding, Inc. . . . " In 2000, Sasqua took on Lori Courtney (Tors's niece) as a consultant. Sasqua claimed that Courtney ran the day-to-day affairs of Sasqua and lacked experience when she came to work for Sasqua. Courtney's version differed.
In 2008, Tors and Courtney negotiated but did not enter into a partnership agreement and continued to work together. [If this isn't a red flag for a dispute in the future, I'm not sure what is.] Courtney continued to work with Sasqua under a consulting agreement which was renewed annually. In 2009, despite the lack of a partnership agreement, Tors and Courtney started sharing profits and expenses of Sasqua. In early 2010, Courtney resigned from Sasqua and formed Artemis Consulting. Within the week, three Sasqua recruitment consultants advised Sasqua that they were leaving to work for Courtney at Artemis. Tors contacted Sasqua clients to let them know of Courtney's departure, and one of the clients (Standard Charter) told Tors that it already know what was going on. Predictably unhappy, Tors sued Courtney and Artemis. Sasqua asserted a variety of claims, but sought an injunction to prevent Courtney's communication with Sasqua's "client contacts" (i.e., particular individuals at companies who were in charge of hiring companies such as Sasqua and Artemis).
The Court's Decision: Since Sasqua did not have a non-competition or a non-solicitation agreement with Courtney, it was left to rely on a trade secrets claim based on its client list. This claim did not fare well.
The key issue the court focused on was whether the information sought to be protected as a trade secret was known outside the business or readily ascertainable. Courtney argued that the information Sasqua sought to protect was freely available, or available with little efforts through using sources such as LinkedIn, Facebook, and Google:
virtually all capital markets personnel have their contact information on Bloomberg, LinkedIn, Facebook or other publicly available databases, including the firm's own media advertising.
Sasqua argued that it developed database software which kept track of client contacts and preferences. Unfortunately for Sasqua, Courtney was adept at finding information on the internet, and her in-court demonstration of how to find out information that Sasqua claimed was a trade secret seemed to have impressed the court:
Courtney . . . described a . . . process that she would utilize if she were approached by a foreign exchange trader who was looking for a position at Nomura and if she were starting from scratch. Going to Google first this time, Courtney typed in the phrase "global head of FX in Nomura." Approximately 72,400 hits came up, the first of which was entitled "Nomura Appoints Head of Fixed Income Research." . . . Courtney next went to Bloomberg.com . . . Doing a search on Bloomberg, Courtney was able to find the direct phone number for Gladwin at Nomura's offices in London, the London address itself and Gladwin's direct e-mail address. The Bloomberg site also allows the user to send an instant message to Gladwin . . . .
Courtney also explained how such a search could be conducted on LinkedIn, which she described as being "like Facebook but for business" and as being more searchable than Bloomberg "because people put their whole profile on LinkedIn."
The court also credits her testimony on the availability of contact information and professional details on the internet:
[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 . . . [now] 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.
Sasqua argued that although contact information for certain decision-makers may be readily ascertainable, things like the chain of command, placement preferences, and histories were not. The court held that Sasqua failed to put forth evidence in support of this. Additionally, the court sided with Courtney on the issue of whether Sasqua undertook reasonable measures to protect the secrecy of the alleged trade secrets. Courtney submitted a declaration from Sasqua's computer technician that Sasqua actually misappropriated the client list from its prior employer and that Sasqua was "extremely lax" in its efforts to safeguard the data.
In the modern era where professional networking on the internet is the norm, things like client lists will become increasingly difficult to protect as trade secrets. If the information you are seeking to protect as a trade secret is available on the internet (and the defendant can access it with clean hands), you're going to have an uphill battle. (But see Hirel Connectors, Inc. v. United States, 2004 U.S. Dist. LEXIS 31036 (C.D. Cal. Jan. 23, 2004) ("This Court declines to hold that information that becomes publicly available on the Internet can never be a trade secret under California law.").) Also, as more information that may fall into the trade secrets category is in electronic form, efforts to protect its secrecy will be important. Allowing employees at the company to freely access information that a party later claims is a trade secret will put the party in an awkward position.
Additional coverage: 3 Geeks and a Law Blog ("Thanks to LinkedIn, Your Client Database May Not Be a Trade Secret").
Eric's comment: This case reminds me a lot of the classic trade secret case Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202 (1978). In that case, Van Zeeland took in a young apprentice Sandas, taught him the business (in that case, booking bands at music venues) and then saw Sandas leave only to go into competition with his former mentor. As Sandas walked out the door, he grabbed a list of contacts at the various music venues. Ultimately the court concludes that the information wasn't protectable as a trade secret because it would be simple to recreate that list. This was back in the 1970s, when in fact it was comparatively hard to put together contact lists. In the digital age, where people and businesses publish detailed profiles implicitly describing what they are looking to buy and sell, it will become increasingly harder for many businesses to claim their contacts/customer lists as trade secrets.
Posted by Venkat at September 24, 2010 10:24 AM | Trade Secrets