Hard to Keep Trade Secret in Small Town

It’s hard to keep a trade secret in a small town, especially if the secret is a customer list for providing computer networking service.

An Illinois appellate court reversed the trial court’s finding that an existing and potential customer list was a trade secret. The court also dissolved an injunction that prevented former employees from seeking business in what the court took judicial notice as “a fairly rural county and a comparatively small market” where “the defendants had personal relationships with many people in the community through family, friends, classmates, and contacts made from simply being longtime members of the rural community.”

Systems Development Services, Inc. (SDS) sought an injunction to stop four former employees from soliciting SDS’s customers, arguing that its customers and potential customer list was a trade secret. None of the former employees had signed covenants not to compete. The trial court found that the list was a trade secret as was “information about customers’ needs and networks.” The trial court also found that information concerning the customers’ computer networks was a trade secret. The trial court awarded damages of $481,892 and attorneys’ fees. It also enjoined the defendants from soliciting the customers for three years.

The appellate court found “the evidence at the trial was insufficient to establish that the identity and contact information of potential customers of computer network services was sufficiently secret to qualify for trade secret status.” The appellate court also found that “computer networking services for businesses is not a niche market” that would give the customer list trade secret status.

As to the trial court’s finding that the information on the customers’ networks was a trade secret, the appellate court noted, “SDS did not present evidence that its technicians installed or utilized anything proprietary in servicing computers and networks. On the contrary, the testimony at the trial established that the customers owned their computer systems, networks, and relation information, not SDS. Accordingly, SDS cannot invoke trade secret protection for the intricacies of its customers’ computer system, passwords, and network ‘was the customer’s own information,’ and SDS ‘cannot control what a customer does with its own information.’”

System Development Services, Inc. v. Timothy F. Haarmann, et al, Illinois App. Ct., Fifth Dist. No. 5-07-0648, issued April 13, 2009.