Key Takeaway

• Plaintiffs suing to protect their customer lists as trade secrets must plead specific descriptions of the confidential customer information, including why it is valuable to the business, how the information was acquired, and why the information would be difficult to duplicate.

Two recent federal court decisions in New York illustrate the criteria that courts apply in determining whether a company’s Complaint in a customer list trade secret case will survive a motion to dismiss.

In Aira Jewels, LLC v. Mondrian Collection, LLC, 1:23-cv-04510, 2024 WL 1255798 (S.D.N.Y. Mar. 25, 2024), a family-run jewelry business claimed that its customer information was a legally protectible trade secret. The federal District Court in New York City stated that trade secret protection could apply to a customer list “where it would be difficult to duplicate a customer list because it reflected individual customer preferences,” or if “the customers are not known in the trade or are discoverable only by extraordinary efforts and the customers’ patronage had been secured by years of effort and advertising effected by the expenditure of substantial time and money.” The court said that trade secret protection is not available when “the customers are readily ascertainable outside the employer’s business as prospective users or consumers of the employer’s services or products.” The court dismissed the company’s federal trade secrets claim at the pleading stage because the company’s Complaint did not specify the information that was included in its customer lists, instead merely describing generic categories of information such as “customer lists, client contacts, supplier contacts,” and also did not explain how the company acquired that information. The court, however, granted the company leave to amend its Complaint to add the required specifics.

On the other hand, in Japna, Inc. v. SELFX Innovations Inc., 22-cv-10753, 2024 WL 1250269 (S.D.N.Y. Mar. 22, 2024), decided just three days before Aira Jewels, the same court determined that a clothing company’s Complaint adequately alleged facts showing that its customer lists could be protectible trade secrets. The clothing company’s Complaint stated that its customer lists included “customer and vendor order preferences and price history.” It also stated that the lists were “difficult to replicate, and [are] not readily ascertainable to the public.” The company also alleged that the list “affords JAPNA a significant advantage in the market,” was developed over 18 years, “and [was] extremely difficult for a competitor to replicate without inside information.” The court held that these allegations were sufficient to permit the company’s customer list trade secret claim to proceed.

While both cases are in early stages, these holdings highlight factors courts consider in determining whether customer lists can constitute protectible trade secrets.

If you have any questions regarding the information covered in this blog, please contact Daniel Hoffman, John Baranello, Michelle Cho, Rebecca Zittell Green, or your primary attorney at Moses Singer.