'Trade secret' must be truly secret

AZ firm loses appeal involving ex-worker's use of its client lists
2013-04-29T00:00:00Z 'Trade secret' must be truly secretHoward Fischer Capitol Media Services Arizona Daily Star
April 29, 2013 12:00 am  • 

PHOENIX - Companies that want to sue former workers who have stolen what they say are trade secrets need to prove that what was taken is truly a secret, the Arizona Court of Appeals has ruled.

And they have to prove they made a real effort to keep the information secret.

Judge Patricia Norris, writing for the court, said customer lists can be considered trade secrets. But that, by itself, is not enough.

To gain legal protection for a customer list, a company needs to show it had acquired "specialized, valuable information about its customers," Norris said. In this case, that includes their financial requirements, tax strategies, investment objectives, and risk and investment preferences.

Norris also said a company needs to show it made "substantial efforts to develop its customers and their personal information" and that this information would be difficult for a competitor to duplicate or acquire.

The case involves Michael Calisi, a certified public accountant, who was hired to work in 2006 at United Financial Services. He was the company's only CPA, focusing primarily on corporate accounting, though he sometimes prepared tax returns for individual clients and hoped to develop a practice in financial planning. The following year he was promoted to vice president of operations.

He left the company in 2009, though the record is disputed whether he was fired or quit.

Calisi associated with a mortgage firm, which sent out an email to its more than 2,000 clients, some of whom also were clients of United Financial Services. The email announced Calisi had joined the mortgage firm as its in-house CPA and offered a discount on tax preparation services.

Since that time, Calisi started his own firm and began to provide personal and business tax services.

A trial judge eventually concluded that Calisi had misappropriated United Financial Services' customer lists and personal information, resulting in this appeal.

Norris said the case turns on common law principles of what is a "trade secret."

To qualify, it first has to have independent economic value by virtue of not being generally known and not being "readily ascertainable by proper means" by others.

Second, it must be "the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

Looking at this case, the judge said UFS failed to show that its list was worthy of trade-secret protection.

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