Wait, what?
LinkedIn burst onto the social network scene in 2003 and has quickly become an essential tool for the modern professional. Over 300 million individuals and 4 million businesses have jumped on board so far. And why not? LinkedIn lets you connect with and stay in touch with the people that matter most in your professional life. Your colleagues, your clients, your business partners and other members of your professional network.
But what if the connections you add are contacts you make whilst working in your current position? So what, you might say. That’s the point of LinkedIn, right? To connect with people to build business? But what if you leave your current role and move to a new role for a direct competitor. Might your now former employer be slightly miffed that you take your connections with you? Again, you might say, so what? They’re my connections. They’re people I know.
Well, your employer may be able to point to your employment contract and prevent you from maintaining those connections, that’s what. Or at least, that’s what one company in the US is arguing in a case involving a former employee who set up a directly competing business.
And the judge hearing the matter thinks that the company may just have a case.
Net-working or not working?
The company in question is California-based Cellular Accessories for Less, Inc, who sell, you guessed it, accessories for mobile phones (focusing on the business market). One of their sales account managers, David Oakes, was terminated in 2010 and started his own competing company, Trinitas, LLC in Texas.
When Oakes initially started with Cellular, he was required to sign a contract in which he agreed that Cellular’s “proprietary information” would not leave the company “physically or electronically”. Later, he was also required to sign a confidentiality agreement with respect to Cellular’s “proprietary information”. In his job as sales account manager, Oakes was encouraged to network with employees of prospective clients, particularly the procurement officers who would most likely make the decision to purchase accessories from Cellular. He was given no leads or customer lists, so his success depended on his ability to network and develop relationships in his role. All the contacts he made while in the position were noted in an electronic contacts list he maintained at work. In 2010, before being terminated, Oakes emailed himself this contact list.
Cellular, like many other companies today, encouraged its employees to create and use LinkedIn accounts to connect with potential customers. Many of Oakes’s connections were contacts in his computer file. When he was forced to leave, Oakes maintained those connections, like you would assume anyone would do (at the very least, we’re not aware of anyone who has proactively removed all their connections made in one job following a career move).
Cellular brought an action for damages and injunctive relief on the grounds of, among other things, trade secrets misappropriation.
Oakes argued for a summary dismissal of the trade secrets claim on the basis that neither the computer file nor his Linkedin connections could be considered a trade secret. This argument was rejected by US District Court Judge Pregerson, who found that the electronic contact list was a trade secret under Californian law and that the LinkedIn connections may also potentially be a trade secret, leaving the matter for a jury to decide.
In California, a “trade secret” is defined as information that derives its value from not being generally known to the public or to other persons and is the subject of reasonable efforts to maintain its secrecy. Judge Pregerson recognised that customer lists may be considered protectable trade secrets but noted that this could not be assumed and that a determination would depend on the effort and time expended by an employee in developing the list.
Judge Pregerson easily found that the electronic contact list was a trade secret because of the effort and time expended by Oakes in developing it. However, he could not determine how much effort had been expended in developing the LinkedIn connections, as he refused to take judicial notice of the functions of LinkedIn (such as the automatic suggestion feature of LinkedIn, which would suggest less effort on the part of Oakes) and because it was not clear whether Oakes’ LinkedIn contacts were made public (and whether this was done with Cellular’s explicit or implicit permission).
But that’s just California right?
Maybe. However, like California, lists of customers are capable of being considered trade secrets (or confidential information) in Australia.* Whether your LinkedIn connections are likely to be considered trade secrets though will depend on a range of facts and circumstances such as:
- the details of any employment, confidentiality and/or restraint of trade agreement in place;
- the privacy settings of an employee’s LinkedIn profile during their period of employment;
- the instructions given to the employee by the employer;
- whether the employer pays for the employee’s Premium LinkedIn account;
- what notes the employee may have made in relation to each contact on LinkedIn; and
- the skill and effort required to collect the connections.
The issue has come before the courts before. In the UK in 2013, a company sought and was granted an injunction against ex-employees who used the company’s LinkedIn group contacts, which one of the employees had maintained on behalf of the company, to market the launch of a rival business. The difference in that case was that the group was explicitly maintained on behalf of the company and was not the employee’s own connections.
In a 2008 case, the UK High Court ordered the disclosure to an employer of a former employee’s LinkedIn connection for the purposes of litigation in a similar matter involving the establishment of a rival company.
And in 2010, a New York court came to the opposite conclusion and found that in the circumstances of that case, the connections were not trade secrets.
It remains to be seen whether Australian courts will consider LinkedIn connections to be trade secrets (but we think it’s not out of the realm of possibilities). In fact, we understand that the issue is currently before the NSW Supreme Court: see Naiman Clarke Pty Ltd v Tuccia [2012] NSWSC 314.
What should you do?
Employers should make sure that your employment agreements satisfactorily cover LinkedIn, the confidentiality of their customer lists, who owns what, and who pays for what (like an employee’s Premium LinkedIn account). A robust social media policy is also a must.
Employees would also be well-advised to read their contracts and their employer’s social media policies closely as well to remind themselves of their obligations.
We’ll be watching the cases in NSW and California with eagle-eyes and will let you know of any developments.**
Notes
* See, for example, Robb v Green [1895] 2 QB 315; (1895) 73 LT 15; and NP Generations Pty Ltd v Feneley [2001] SASC 185; (2001) 80 SASR 151; 52 IPR 563.
** You can view my profile at linkedin.com/in/damienmacrae.
Photo credit: TheSeafarer / Foter / CC BY
