Customer Lists as Trade Secrets in Pennsylvania

My colleague, Jane Lewis Volk, produced this Employment Law Update that I have reproduced below:

In a recent decision, Iron Age Corporation v. Dvorak, the Pennsylvania Superior Court analyzed Pennsylvania’s developing law of trade secrets, with particular regard to customer lists. The Court affirmed an Allegheny County Court’s denial of a request for an injunction by an employer who had a signed agreement with its employee regarding non-disclosure of information including customer lists and pricing practices. The agreement did not purport to prevent the employee from seeking employment with a competitor as do most “covenants not to compete.”

The lesson in this decision is that the most crucial aspect in the issuance of an injunction is not the presence of a confidentiality agreement, but rather, the general availability of the information and the treatment of it during the employee’s tenure. The Court recognized that customer lists can be protectible secrets and set up a checklist of sorts for employers who seek to maintain customer list confidentiality, regardless of whether a non-disclosure agreement was in place. Consider these factors:

-Do you share your customer lists with other suppliers?
-Are your customer lists widely known or readily obtainable?
-Do you obtain your customer lists through public sources such as trade shows or the internet?
-Do you coordinate with competitors regarding shared customers?

Positive answers to a number of such questions could prevent you from obtaining judicial protection of your lists even if your employees sign agreements that purport to protect them. The Court stated, “A non-disclosure covenant does not create a per se right to protection, but is merely indicative of the parties’ agreement as to the information’s confidential nature.”

In affirming the denial of injunctive relief, the Court also found significant that the ex-employee and new employer had acted above board. The employee had returned all materials and there was no evidence that he had engaged in any pre-departure raid of company information or property. Such factors can be extremely persuasive even in the presence of a restrictive agreement.

Iron Age Corporation v. Dvorzak is a reminder of the importance of not only maintaining appropriate written agreements but also of monitoring your treatment of information you wish to protect. It also reminds prospective employers that a confidentiality agreement will not necessarily prevent your new hire from pursuing his trade. We stand ready to assist you on either side of the equation, including in the development of appropriate agreements and practices to protect your business.

Gefsky and Lehman, A Professional Corporation
One PPG Place, Twenty-Third Floor, Pittsburgh, Pennsylvania 15222
Telephone: 412-391-2727; Fax: 412-391-1685 www.geflaw.com