North Carolina Business Court Revisits When Customer-Related Information is a Trade Secret

By Isaac Linnartz

The North Carolina Business Court recently revisited the question of when a business’s customer-related information can be considered trade secrets. In Southern Fastening Systems, Inc. v. Grabber Construction Products, Inc., 2015 NCBC 40 (April 28, 2015), an employee who sold wood construction supplies for the plaintiff company signed a non-disclosure agreement agreeing not to disclose confidential information regarding the company’s customers, sales, products, markets, revenue, expenses, marketing plans and financial condition. The employee later left that company and joined a competing company that sold similar wood construction products. The plaintiff company subsequently sued the employee and his new employer for various claims, including misappropriation of trade secrets under the North Carolina Trade Secret Protection Act (TSPA).

Under the TPSA, a plaintiff must identify the trade secrets at issue with particularity and describe how those trade secrets were allegedly misappropriated. To qualify as a trade secret, business or technical information must (i) derive “independent actual or potential commercial value from not being generally known or readily ascertainable” and (ii) be the “subject of efforts that are reasonable under the circumstances to maintaining its secrecy.”  N.C. Gen. Stat. § 66-152(3). In Southern Fastening, the plaintiff identified its trade secrets as including “confidential customer information such as customer contact information and customer buying preferences and history . . . confidential freight information, sales reports, prices and term books, sales memos, sales training manuals, commission reports and information concerning [plaintiff’s] relationship with its vendors.” As is often the case, the defendants argued that the plaintiff had not adequately identified its alleged trade secrets and that the misappropriation claim should be dismissed. Judge Bledsoe disagreed, however, concluding that the plaintiff’s identification of its customer-related trade secrets was sufficiently specific to survive a motion to dismiss under Rule 12(b)(6).

The defendants also contended that the alleged trade secrets were public information that were readily available from the plaintiff’s vendors, customers and potential customers, and that the plaintiff had not identified any measures it had taken to keep that information secret. Again, the court disagreed, concluding that the plaintiff had adequately alleged that its alleged trade secrets constituted “specific, detailed, non-public information regarding [plaintiff’s] current and potential customers that was not generally known within [plaintiff],” was not “capable of reverse engineering,” and was not distributed to plaintiff’s employees until they executed non-disclosure agreements restricting disclosure of the information and requiring that it be returned to the plaintiff upon request or at termination of employment.

The decision in Southern Fastening highlights the importance of pleading trade secrets with specificity and shows that confidential customer-related information can meet this standard when such information and the methods used to keep it secret are clearly identified.


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