Is LinkedIn Killing Customer Lists as Trade Secrets?

 An issue that is beginning to work its way through courts across the country is whether a business whose employees use LinkedIn can still protect a customer list as a trade secret.  Although this has not yet been addressed in a Texas appellate court decision, I suspect that former employees have already used what I will call the LinkedIn Defense at the trial court level.  That could stay under the radar because Texas trial courts don’t publish decisions explaining the basis for their rulings.

This post explains the issue facing employers; provides links to a few case opinions from outside Texas that have addressed LinkedIn in the context of trade secrets; and ends with my thoughts about what employers can do if they want to use LinkedIn and still protect customer lists as trade secrets.

Here is a hypothetical to illustrate the issue.  Acme, Inc. has a salesforce of ten people.  Upon hiring a new salesperson, Acme supplies the employee with a copy of Acme’s customer list.  Acme created the list through years of expense and sales force work and has maintained the list in confidence.  Competitors cannot create the list through use of publicly available information (for example, trade industry directories, etc…).

Having read countless articles about how businesses are using social media to increase sales, Acme instructs its salespeople to create accounts on the business social media site, LinkedIn, and to “connect” with their customers.  If you don’t use LinkedIn, “connecting” with someone on LinkedIn is like “friending” someone on Facebook.  If you don’t know what Facebook is, you probably aren’t reading this blog, so I can stop explaining.

Two years later, salesperson Janet leaves Acme to work for Acme’s competitor, Startup.com.  Acme discovers that — just before quitting — Janet accessed Acme’s computer to email a copy of Acme’s customer list to her personal email account.  At her new job, Janet begins contacting all of Acme’s customers to tout Startup.com’s product.

When Acme files a lawsuit seeking a pre-trial injunction to stop Janet from soliciting Acme’s customers, Janet raises the LinkedIn Defense.  Janet’s lawyer asserts that an injunction cannot be entered because Acme’s customer list is not a trade secret for two reasons.  First, Janet had “connected” with each of Acme’s customers on LinkedIn.  Each of her connections has been able to view the full list of all of her connections for the last two years.  Thus, Janet asserts that Acme has not undertaken reasonable steps to maintain the secrecy of its customer list.  Second, her lawyer argues that Janet — not Acme — owns her LinkedIn account.  Janet set up the account in her own name and LinkedIn’s terms of use state that LinkedIn’s agreement is with Janet.  Janet still uses the account.  Janet, therefore, claims that she owns her LinkedIn connections and cites that as a further basis for why Acme’s list is not secret.

There are a few courts outside of Texas that have published opinions considering these issues.  Two weeks ago, a federal district court in California issued this opinion on cross-summary judgment motions.  Like our Janet, the employee defendant argued that the Plaintiff’s customer list was not a trade secret because all of his LinkedIn connections could view the full list of the defendant’s LinkedIn connections.  The court did not resolve the issue because it decided that fact issues about how LinkedIn operates had not yet been resolved.

 A federal district court in Pennsylavania has issued two decisions addressing LinkedIn.  In this 2011 decision, the court stated that information that is publicly available on LinkedIn is not a trade secret.  In 2013, the court ruled that the employee owned the LinkedIn account.  An interesting twist in that case is that the former employer seized control of the defendant’s LinkedIn account when she was fired.  The employee ultimately regained control of the account, but the act of self-help shows that the employer recognized the value of LinkedIn connections.

So what should a business in Texas do if it wants to protect its customer list as a trade secret?  Stay in the Dark Ages and forbid its employees use of social media?  No.  We are in Texas, so do the two-step.  Here is the first step, require all employees who use LinkedIn to make the list of their connections on LinkedIn private.  That way, only the account holder can view the list of connections.  This can be done in less than one minute in LinkedIn’s settings.  Instructions are at this link.

 The second step is to have all of a businesses’ employees with access to the customer list sign enforceable confidentiality and non-competition agreements.  These will prohibit the departing employee from disclosing the identity of customers to a new employer or soliciting those customers for a reasonable period of time.  As a practical matter, this can negate the benefit a former employee might get by continuing to use a LinkedIn account post-employment.  It will be the former employee’s obligation to comply with the non-competiton and confidentiality agreements.  If that requires the employee not to issue “status updates” (announcements) related to her new employer’s business, so be it.