HR Management Compliance

Lack of Secrecy Dooms Employer’s Go well with to Cease Former Gross sales Reps’ Use of Buyer Lists

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The Illinois Commerce Secrets and techniques Act (ITSA) prohibits misappropriation of commerce secrets and techniques and permits restoration of attorneys’ charges in fits to implement the Act. A current resolution by the Appellate Courtroom of Illinois is a cautionary story for employers wanting to guard buyer lists and different data.

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Multimedia Gross sales & Advertising and marketing (MSM) contracts with radio stations to purchase and promote airtime to companies that wish to air public service bulletins. To amass new prospects, MSM purchases gross sales leads from third-party sellers. If a sale is made, the shopper turns into a renewal buyer, and MSM generates a “renewal lead,” which accommodates the shopper’s title and deal with.

MSM says it treats gross sales leads and renewal leads as confidential and maintains the data in a safe database. Gross sales reps are given arduous copies of gross sales leads, and the copies are collected and destroyed on the finish of a specific gross sales run.

The character of the enterprise, nevertheless, requires MSM to ship its bought gross sales lead listing to radio stations for approval as a result of the stations have restricted prospects who don’t need MSM to contact them. Additional, after a sale, MSM additionally sends the shopper data to the radio station. Notably, whereas MSM requires its staff to signal confidentiality and nondisclosure agreements (NDAs), it doesn’t enter into NDAs with prospects or the radio stations.

Business Break

Three gross sales reps (William Marzullo, Thomas Genovese, and Tom O’Connor) left MSM to go to work for Radio Promoting, Inc. (RAI)—a competitor within the radio promoting enterprise. MSM sued the three former staff and RAI alleging, amongst different issues, violations of the ITSA. Particularly, MSM claimed the three former gross sales reps improperly took its gross sales leads lists and renewal leads lists and used them to solicit MSM prospects and encourage them to maneuver their enterprise to RAI.

Remarkably, the previous staff didn’t deny taking and utilizing the data on RAI’s behalf to solicit MSM’s prospects. For instance, in his deposition, Marzullo admitted about 70 to 75 p.c of his gross sales at RAI got here from former MSM prospects. Armed with the data, one would possibly suppose MSM had an open-and-shut case for misappropriation of commerce secrets and techniques. Assume once more.

Inform and Educate

To recuperate below the ITSA, MSM needed to show the data at situation was (1) a commerce secret (2) misappropriated and (3) used within the former staff’ enterprise, i.e., at RAI. As a preliminary matter, the appellate court docket rejected the staff’ argument that MSM’s buyer and lead lists weren’t eligible for defense below the Act. On the contrary, as a result of they contained the shopper’s title, contact data, and buy historical past, the data might qualify as a commerce secret warranting safety.

By definition, a commerce secret is data sufficiently secret to provide its proprietor a aggressive benefit and about which the proprietor took applicable measures to stop others from buying or utilizing it. MSM’s downside was that it didn’t present it saved the data sufficiently secret or made cheap efforts to take care of its secrecy, as required below the legislation. MSM acknowledged it offered buyer names to radio stations—certainly, it says it was required to take action.

Public Consciousness

MSM argued the data shouldn’t lose safety simply because the radio stations and prospects are conscious of each other and cited a 2009 federal court docket resolution (SKF USA, Inc. v. Bjerkness) to help the purpose. However that case turned on an enforceable restrictive covenant in an employment settlement as the idea for shielding the data. Right here, in distinction, the Illinois Appellate Courtroom noticed MSM didn’t have enforceable postemployment restrictive covenants to guard its data, and so the SKF case was distinguishable.

Not solely did MSM fail to require its gross sales reps to enter legitimate restrictive covenant agreements, as famous above, but it surely additionally didn’t require the radio stations to enter NDAs to guard the shopper data. As a result of the previous employer couldn’t present it saved the shopper data secret, judgment was correctly entered in favor of the three former gross sales reps and RAI.

Attorneys’ charges. So as to add insult to harm, the court docket additionally upheld the trial court docket’s resolution to award the defending events greater than $71,000 in attorneys’ charges. Part 5 of the ITSA permits a court docket to award cheap attorneys’ charges to the prevailing social gathering when a “declare of misappropriation is made in unhealthy religion.”

Right here, the decrease court docket discovered the depositions of MSM’s personal witnesses confirmed the data in query wasn’t saved confidential. The appellate court docket discovered the trial court docket didn’t abuse its discretion in awarding the charges. So not solely did MSM lose on its bid to guard the shopper data, but it surely additionally should pay the attorneys’ charges of the events whom it claims misappropriated the information. Multimedia Gross sales & Advertising and marketing, Inc. v. Marzullo, 2020 IL App (1st) 191790 (Dec. 21, 2020).

Security Tip: Solely You Can Forestall Misappropriation

MSM’s case is an effective reminder of the very best practices to comply with whenever you’re attempting to guard enterprise data. You could preserve the main points confidential to have any viable declare below the ITSA that they had been misappropriated. Listed here are some greatest practices:

  • Preserve the data in a safe database, and don’t share it with others (together with exterior events) until they’re certain to take care of its confidentiality below an NDA.
  • For workers given entry to make use of the confidential data, don’t rely solely on the ITSA to guard it. Additionally require them to signal legitimate restrictive covenant agreements, which, because the court docket acknowledged, could afford broader safety of confidential enterprise particulars that don’t qualify as commerce secrets and techniques.

Seek the advice of with employment legislation counsel to make sure your restrictive covenant agreements are enforceable within the jurisdictions during which you use.

Steven L. Brenneman is a accomplice with Fox, Swibel, Levin & Carroll, LLP, in Chicago, Illinois. You’ll be able to attain him at [email protected].

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