The Facts.

Colorado Supply Co., Inc. sold products. It employed Stewart as a sales representative under a series of independent contractor agreements. Stewart notified the company that he would no longer be working for it. He then began work as a sales representative with Aspen Maintenance Supply, Inc., a competitor of Colorado Supply. Stewart###s new sales territory partially overlapped the territory that he had previously worked for Colorado Supply. After Aspen hired Stewart, it added six new product lines in competition with Colorado Supply.

The Dispute.

Colorado Supply sued under Colorado###s Uniform Trade Secrets Act, alleging that Stewart and Aspen had misappropriated - stolen - its trade secrets by taking and using its customer list and price list, among other things.

The Issue.

Did Stewart and Aspen steal Colorado Supply###s trade secrets?

Colorado Law.

Colorado protects business### ability to compete in the marketplace by protecting trade secrets. The Colorado Uniform Trade Secrets Act recognizes that trade secrets have substantial value in the marketplace. The Act makes it unlawful to misappropriate another###s trade secrets for your own gain. Under the Act, a trade secret is the whole or any part of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to the business or profession, which is secret and of value. To be a trade secret, the owner must have taken measures to prevent the secret from becoming available to persons other than those selected by the owner to have access for limited purposes. Only reasonable efforts are necessary to maintain secrecy; extreme and unduly expensive procedures need not be adopted. Whether or not something is a trade secret is a question of fact.

How the Judge Ruled.

The Colorado Court of Appeals addressed Colorado Supply###s attempt to protect its business in 1990 in the case of Colorado Supply Co., Inc. v. Stewart et al. In this case, the court identified the factors to be considered in determining whether the company###s customer and price lists constituted a trade secret as: (1) the extent to which the information is known outside the business; (2) the extent to which it is known to those inside the business; (3) the precautions taken by the holder of the trade secret to guard the secrecy of the information; (4) the savings effected and the value to the holder in having the information as opposed to competitors; (5) the amount of effort or money expended in obtaining and developing the information; and (6) the amount of time and expense it would take for others to acquire and duplicate the information. The court determined that Colorado Supply###s customer and price lists were not trade secrets because the information was largely developed by Stewart himself while serving as an independent contractor, not an employee; the names on the customer list could be obtained fairly easily by reading through the business section of the telephone directory and by asking prospective customers who their vendors were; and there was no exclusivity as to customers in that they purchased products from more than one vendor. Further, the price lists were published to customers, employees, and independent contractors; there were no fixed prices at which products were sold; and there was no evidence that Stewart knew Colorado Supply###s product costs. Under the circumstances, it did not appear that the company had restricted access to either list or to otherwise take reasonable steps to protect their secrecy. And because the customer list could be readily reconstructed from external telephone book listings, it did not appear that the list was secret at all.

The Lesson.

Businesses that wish to minimize the risk that employees or competitors will utilize the company###s trade secrets to compete directly with them in the marketplace must, first, carefully evaluate what aspects of their business might be considered trade secrets. Second, they must ensure that those trade secrets are, in fact, secret, by adopting reasonable procedures to ensure that secrecy is maintained.

(While important legal rights and duties are established by the legislature by statute, a far larger body of law exists in the reported decisions of judges faced with the real-life disputes of real people. This column examines judicial decisions in Colorado that have involved important principles of law for small businesses. Because of space constraints, the author has not discussed the court###s resolution of a number of auxiliary issues in the case examined.)

What do you think? Send your comments to: bonniew@denver.infi.net.

Joanne Underhill is a principal in Underhill & Underhill, P.C., a law firm specializing in the representation of small businesses and professionals. She has practiced law for 18 years. Joanne is this year###s co-chair of the Colorado Women###s Leadership Coalition, a consortium of over 80 women###s organizations in Colorado and a corporate sponsor of WomenOfColorado.com. Joanne recently concluded a three-year term on the Board of the Colorado Women###s Chamber of Commerce and is a member of the American, Colorado, Women###s, and Arapahoe Bar Associations. She is the public member of the Colorado State Board of Accountancy. Joanne received her undergraduate degree from Yale University and her law degree from Washington College of Law at American University. She has made Colorado her home since 1986. Underhill & Underhill, P.C. is located in the Denver Tech Center. Joanne can be reached at 303.721.7112.