Maintaining Confidentiality of Customer Information Under The Illinois Trade Secrets Act

By: Stuart M. Sheldon

A recent decision by the Illinois Appellate Court clarifies the steps a company must take to maintain the secrecy or confidentiality of customer information, in ensuring that the information qualifies as a trade secret pursuant to the Illinois Trade Secrets Act.

The Court in Arcor, Inc. v. Haas, 363 Ill.App.3d 396, 842 N.E.2d 265 (1st. Dist. 2005), discussed whether a company’s customer information is protected as a trade secret when that company requires employees to sign confidentiality agreements, but takes no other steps to keep the information confidential. Arcor, Inc., a manufacturing company, filed suit against a former employee for taking Arcor customer information with him to his new employer, a competing manufacturing company. In determining whether Arcor’s customer list was protectable as a trade secret, the Court looked to the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. (the “Act”)

To state a claim for violation of the Act, a plaintiff must allege facts that the customer list was: (1) a trade secret; (2) misappropriated; and (3) used in the defendant’s business. The Court’s discussion focused on the first element, whether the customer list was a trade secret. The Act defines a trade secret as: “information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, that: (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.” 765 ILCS 1065/2(d).

Arcor argued that its customer list was a trade secret because it provided the company with a competitive advantage in the marketplace, and that Arcor took reasonable steps to maintain the list’s secrecy by requiring its employees to sign a confidentiality agreement. The Court acknowledged that the customer list was sufficiently secret to derive economic value, but nonetheless determined that Arcor’s customer list was not a trade secret because Arcor failed to take reasonable steps to keep its customer list secret. The Court held that Arcor’s “limited security measure of a confidentiality agreement was not sufficient to satisfy the second requirement of a trade secret.” Arcor at 402, 271. The Court added that “[h]ad Arcor taken additional measures, such as limiting access to its customer information by computer password or keeping track of the hard copies of the information, we might hold otherwise.” Id.

Given the Court’s holding in Arcor, it is clear that companies must take steps beyond merely requiring employees to sign confidentiality agreements to ensure that their customer information is protectable as a trade secret.