The Oregon Court of Appeals recently held that while certain customer data could be protected by a trade secret claim, basic information such as customer identities and email addresses, without more, did not give rise to a trade secret. Rather, the employer had to present evidence that the information derived economic value from not being generally known and was subject to reasonable efforts to maintain its secrecy.
Peterson Machinery Co. (Peterson) was engaged in the business of renting and selling heavy machinery in Oregon, Washington, and California. Modern Machinery (Modern) was one of Peterson’s primary competitors in Oregon. Heavy machinery sales is a “niche” market in Oregon, and only a handful of companies are engaged in this business. Bryan R. May (May) was a former rental and sales consultant who began working for Peterson in 2006. In October 2017, May accepted a job offer from Modern as the territory manager in Eugene, Oregon. As a territory manager, May’s primary job duty was to call on prospective purchasers of heavy machinery in his assigned territory and negotiate potential sales.
In January 2018, Peterson sued May and Modern alleging, among other causes of action, a claim for misappropriation of trade secrets. Peterson asserted that May had access to confidential customer information and market research compiled in Peterson’s customer relations database, SalesLink, which contained details about Peterson’s customers and potential customers, including contact information, sales analyses, fleet information and preferences, and sales and rental history. According to Peterson, May accessed SalesLink 12 times in his final month of employment, and sent an email to 139 Peterson customers using the autofill feature from Peterson’s address book before departing from the company. Additionally, Peterson alleged that May had retained a list of customers contained in a copy of a Performance Improvement Plan that May left in his truck, and that May took and destroyed a notebook with information that should have been entered into SalesLink.
May and Modern asked the trial court to dismiss the trade secret claims without trial, arguing that Peterson had failed to identify any “trade secrets” and that there was insufficient evidence of “misappropriation” by Modern or May. The trial court granted the motion and dismissed Peterson’s misappropriation claim. Peterson appealed.
Opinion on Appeal
The Oregon Court of Appeals affirmed the trial court’s decision, finding that Peterson had failed to show that the information at issue qualified as “trade secrets” within the meaning of Oregon statute. To constitute a trade secret under ORS 646.461(4), information must both (1) gain value because it is not generally known, and (2) be the subject of reasonable efforts to maintain that secrecy. Each of those determinations must be made on the basis of historical facts and circumstances of the parties, such as whether the information is generally known within the relevant community, whether it becomes more valuable by not being generally known, and what efforts were made to keep it secret.
The court determined that the mere names of customers and potential customers were not protectible trade secrets. The evidence showed that heavy machinery customers in Oregon are already generally known to heavy machinery dealers, such as Peterson and Modern. In fact, at the time that May left Peterson, there were over 300 crossover customers or prospective customers between the two competitors. With respect to contact information such as email addresses, the court held that Peterson did not meet its burden by presenting evidence reflecting, for example, that the email addresses (or how many) were not publicly known, how long it would take someone to compile such information, or what the economic value of those email addresses was as compiled by Peterson.
The court acknowledged that there was evidence that May had kept some handwritten notations about customers and retained in his memory certain other information like sales preferences and history. The court held, however, that Peterson had failed to present evidence from which a reasonable fact finder could determine that May or Modern had actually misappropriated—i.e., used or disclosed—such information. Absent an enforceable noncompete or nonsolicitation agreement, May was entitled to solicit Peterson customers while working for Modern, and the mere fact that he had retained certain information about Peterson customers in his memory after working there for 11 years was insufficient to support a misappropriation claim. The court observed that, in the end, “equity has no power to compel a man who changes employers to wipe clean the slate of his memory.”
This decision demonstrates the difficulty of enforcing a misappropriation claim based on customer and sales information. Unlike secret formulas or unique software code, customer identities and related sales information are often generally known in the relevant community or otherwise publicly available, especially within niche markets like heavy machinery. To make a successful claim for trade secret misappropriation, a company should be prepared to present evidence about its efforts to compile and develop information such as customer lists, how long it would take an average businessperson to develop similar data, whether the information was specialized and confidential, whether it is generally known, and how the information has independent economic value. Another way to protect against the misappropriation of trade secrets is through the use of effective noncompete and nonsolicitation agreements.
Peterson Machinery Co. v. May, 313 Or. App. 454, — P.3d — (2021).