Former Timeshare Company Employee Enjoined From Sharing Company's Trade Secrets

A Federal district court in California has issued a preliminary injunction in a case involving the alleged misappropriation a customer list. The plaintiffs in the case develop, finance, manage, market and sell timeshare properties. The defendant was a former employee who had worked for one of the plaintiffs, at various times, as a sales representative, sales manager, and director of site sales, and who was responsible for selling upgrades to existing customers.

Following the employee's termination, the president of another timeshare company contacted one of the plaintiffs to advise that a "past executive" of the plaintiff tried to sell him 40,000 names of plaintiff's timeshare owners. The employee had signed a written agreement concerning the plaintiff's confidential and proprietary information, including its client lists and client or customer contact information.

To be protectable as trade a trade secret, customer list must have economic value, which has been interpreted to mean that the secrecy of the information must provide a “substantial business advantage” to the employer. Under the California Uniform Trade Secret Act, Cal. Civil Code § 3426 et seq. a prima facie claim for misappropriation of a trade secret requires a plaintiff to demonstrate that (1) the plaintiff owned a trade secret; (2) the defendant acquired, disclosed or used the plaintiff's trade secret through "improper means", and (3) the defendant's actions damaged the plaintiff.

Courts are generally reluctant to protect customer lists that merely embody information that is readily available through public sources, such as business directories. However, a customer list may qualify for protection as a trade secret where the employer has spent time and effort identifying customers with particular needs or characteristics. In the appropriate circumstances, courts will prohibit former employees from using this information to capture a share of the market. As a rule of thumb, the more difficult information is to obtain, and the more time and resources expended by an employer in gathering it, the more likely a court will find such information to constitute a trade secret.

In this case, the court found that the plaintiffs had satisfied their burden and were likely to succeed on the merits. Thus, the court enjoined the former employee from disclosing or using any of plaintiffs' trade secrets or proprietary or confidential information.

The case is Wyndham Resort Development Corporation v. Bingham, U.S. District Court Case No. 2:10-cv-01556-GEB-KJM (E.D.Cal. July 9, 2010).