Commercial Division Blog

Posted: September 16, 2014 / Categories Commercial, Injunctions Attachments and Other Preliminary Remedies, Unfair Competition

Customer Lists Readily Ascertainable from Sources Outside Employer's Business not Trade Secrets

On August 21, 2014, Justice Ramos of the New York County Commercial Division issued a decision in Chaos Commerce, Inc. v. Khaimov, 2014 NY Slip Op. 32377(U), refusing preliminary to enforce a non-compete clause.

In Chaos Commerce, the plaintiff sued the defendants for theft of trade secrets and breach of an employment agreement. The court denied the plaintiff's motion for a preliminary injunction "to enforce non-competition, non-disclosure and non-solicitation covenants," explaining:

Under New York law negative covenants restricting competition are enforceable only to the extent that they satisfy the overriding requirement of reasonableness. In order to be enforceable, a covenant's terms must be reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee.

In Reed, Roberts Associates, Inc. (40 NY2d 303), the Court of Appeals interpreted the reasonableness standard, and determined that a restrictive covenant will only be enforceable if it serves a legitimate interest of the employer: (1) to the extent necessary to prevent the disclosure or use of trade secrets or confidential information, or (2) where an employee's services are unique or extraordinary.

In Reed, Roberts Associates, Inc. (Id.), the Court denied injunctive relief to an employer complaining of the theft of a customer list because it failed to demonstrate that the restrictive covenant at issue served a legitimate interest of the employer. The Court reasoned that the contact information of current and potential customers that is easily ascertainable from public sources is not a protectable trade secret.

. . .

Defendants argue that the supplier list does not contain confidential information, and that [the plaintiff] has not demonstrated that Khaimov has or will use or disclose any information to his new employer []. Khaimov represents that the supplier list contains contact information that is readily available in public sources such as the internet.

According to Khaimov, the same information is obtainable by Googling various items to purchase, searching for potential sources for those respective items, and then contacting the various companies found in the search to inquire about the products offered that he can then sell on the website. Khaimov also states that the supplier list at issue only contains the name of the supplier without any contact information.

Customer lists that are readily ascertainable from sources outside an employer's business do not qualify for trade secret protection, and thus, Khaimov's forwarding of the list to his home email address likely does not constitute misappropriation of trade secrets. Under the first prong of the Reed standard, [the plaintiff] fails to persuade that the restrictive covenant serves any legitimate interest.

(Internal quotations and citations omitted) (emphasis added).