Pushing The Envelope: Eight Circuit Seals The Fate Of Envelope Company’s Trade Secret Claims

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On December 8, 2017, the Eighth Circuit rejected trade secrets and other claims related to allegedly stolen customer lists.  Applying Missouri state law, the federal appellate court continued the Show-Me State’s tradition of looking at customer list trade secrets with a jaundiced eye.

The case, Tension Envelope Corp. v. JBM Envelope Co., involves two companies that manufacture and sell envelopes, Tension and JBM.  Tension began buying a specialty small, open-ended envelope (often used for hotel key cards) from JBM in the early 2000s.  According to Tension, JBM made assurances that it would not sell directly to Tension’s customers.  Tension asked JBM to sign a non-compete agreement on three separate occasions, and each time JBM refused.  Nonetheless, Tension kept ordering envelopes from JBM until 2014 when Tension learned that JBM had been selling directly to Tension’s customers.

Tension filed suit in June 2014, alleging various causes of action including breach of contract, unfair competition, and trade secrets misappropriation.  The U.S. District Court for the Western District of Missouri granted JBM’s motion to dismiss the trade secrets claim.  And, following discovery, the district court granted JBM’s motion for summary judgment on all the remaining claims. Tension appealed to the Eight Circuit.

The Eight Circuit affirmed summary judgment in favor of JBM on the non-trade secret claims, pointing to the damning evidence that “Tension voluntary outsourced its manufacturing to a company that repeatedly refused to sign a non-compete agreement.”

Tension’s trade secrets claim met a similar fate, as the Eighth Circuit affirmed the lower court’s ruling on the motion to dismiss.  Tension had alleged that JBM misappropriated two trade secrets:  the “identity of its customers and their unique requirements.”

With respect to customer identities, the Eighth Circuit dismissed this argument, pointing to Western Blue Print Co. v. Roberts, a 2012 Missouri Supreme Court decision that concluded that while “customers contacts” were “protectable, they are not protectable under a theory of … trade secret.”

As for the alleged trade secrets in the form of customer requirements, the court looked to Walter E. Zemitzsch, Inc. v. Harrison, a 1986 Missouri appellate court case that concluded that information about customer requirements was not a trade secret, because it was “information obtainable without recourse to misappropriation.”  Put differently, the customers’ requirements couldn’t be a trade secret of Tension because the requirements were the customers’ information, not Tension’s.

But businesses should not abandon all hope of protecting customer lists as trade secrets.  Every case turns on its unique facts.  And, as we’ve observed over the years, courts are all over the place on this question.  Companies interested in defining their trade secrets and developing strategies for protection should reach out to counsel for help navigating this process.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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