Can they stop Frank from stealing "their" customers?

A salesman named Frank has been working for the same commercial linen company for nearly forty years. He was, in fact, one of the first employees hired by his high school friend Sal, the owner of City Linens. Frank's ability to find and secure new clients is legendary in the industry. He has played a key role in making City Linens one of the largest linen services in the area. Over the years, Frank has developed his sales territory into the most profitable one in the company. It accounts for almost half of the company's business and provides Frank with a princely sales commission check every week.

As it happens, Sal passes away and leaves his two sons in charge of the company. The sons are eager to take over Frank's lucrative sales territory. Within a week of Sal's demise, they tell Frank to retire or accept reassignment to another less profitable territory. Fortunately, Frank had been expecting this maneuver. He surprises his new bosses by walking to his desk, emptying his client files into a box, and walking out the front door with the declaration "I quit!"

Well, over the next few weeks City Linens' business begins to fall sharply. Clients that the company had served for decades call to cancel their contracts and take their business elsewhere. The brothers finally discover that Frank has taken a job with their main competitor, Cleantex Linen. As it turns out, Frank has been busy visiting every one of his long-time clients and convincing them to switch to Cleantex!

The brothers are in a panic.

Expert Answers

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The brothers cannot control what Frank does because he already has the ability of using his own skills, in his spare time, and under the condition that it is the client’s ultimate choice whether they want to give their business to Frank or not. Under these circumstances, they cannot control Frank.

However, they can use a different approach by bringing a criminal action against Frank for the misappropriation of Trade Secrets. This is a punishable conduct that may deter Frank from continuing to find clients.

Sections 757 and 758 of the Restatement of Torts (1939) describe three factors that determine whether you can claim an illegality in the use of a trade secret:

  • That Clean Linens had the client’s list protected and that Frank has committed a breach of confidence in obtaining it without permission.
  • That Clean Linen’s has a policy of protection of the information of the clients. In other words, that the information is meant to remain secret, and that the list is not to be removed by Frank or anybody else except with permission.
  • That Clean Linen must demonstrate that it has not given any rights or exceptions to Frank to print out and use the client’s list.

 If Clean Linen is able to prove beyond any doubt that Frank directly committed a breach of confidence and that he misappropriated the list, then they can go after him in a court of law.  Moreover, the Economic Espionage Act of 1996 ("EEA") found in 18 U.S.C. §§1831-1839 is directly responsible for the meaning of the word misappropriation. If the brothers can show documentation that Frank has, in fact, done that, Frank can definitely be prosecuted for committing and Unfair Competition act and for conducting, in fact, economic espionage when he went down the list of a company for whom he no longer works for his own business advantage.

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Are the files Frank took a trade secret? A salesman named Frank has been working for the same commercial linen company for nearly forty years. He was, in fact, one of the first employees hired by his high school friend Sal, the owner of City Linens. Frank's ability to find and secure new clients is legendary in the industry. He has played a key role in making City Linens one of the largest linen services in the area. Over the years, Frank has developed his sales territory into the most profitable one in the company. It accounts for almost half of the company's business and provides Frank with a princely sales commission check every week. As it happens, Sal passes away and leaves his two sons in charge of the company. The sons are eager to take over Frank's lucrative sales territory. Within a week of Sal's demise, they tell Frank to retire or accept reassignment to another less profitable territory. Fortunately, Frank had been expecting this maneuver. He surprises his new bosses by walking to his desk, emptying his client files into a box, and walking out the front door with the declaration "I quit!" Well, over the next few weeks City Linens' business begins to fall sharply. Clients that the company had served for decades call to cancel their contracts and take their business elsewhere. The brothers finally discover that Frank has taken a job with their main competitor, Cleantex Linen. As it turns out, Frank has been busy visiting every one of his long-time clients and convincing them to switch to Cleantex! The brothers are in a panic.

The World Intellectual Property Organization (WIPO) operates under the mandates of the United Nations with the mission of protecting and regulating the ownership and use of intellectual property. This organization categorizes trade secrets as part of the intellectual property that, by law, should be protected from misuse.

In more detail, WIPO concedes that

…any confidential business information which provides an enterprise a competitive edge may be considered a trade secret… The unauthorized use of such information by persons other than the holder is regarded as an unfair practice and a violation of the trade secret

 In this case, Frank’s trade secret is his ability to find and secure clients. This practice gives his business an edge and a fair chance of moving one step ahead in a competitive market. This is a completely acceptable practice.

Unfortunately, Frank used his ability to find clients as well as the company’s client list (confidential information that is safely kept in the company files -- another trade secret) to help himself. He is also purposefully and intentionally using the information contained in the client’s list to physically visit the other competitor’s clients and give a bad reputation to the competitor in order to get more clients. Not only did he misappropriate the list, he is also using it against the company that owns it.  

The Uniform Trade Secrets Act (UTSA), and the Economic Espionage Act of 1996 gives City Linens the assurance that they can press charges against Frank, for misappropriation of trade secrets. Therefore, what Frank took with him is certainly a trade secret and his act is punishable by law.

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