Law360 Article
Nonprofit Member Lists May Be Trade Secrets
May 6, 2020
By:
Law360
Nonprofit organizations everywhere should be made aware of a little-known secret — their member lists may constitute a trade secret protectable under the Defend Trade Secrets Act.
To state a claim under the DTSA, a plaintiff must allege both the (1) existence and ownership of a trade secret, and (2) misappropriation of the trade secret.
In the ongoing federal district court case, Brain Injury Association of California v. Yari,[1] the U.S. District Court for the Central District of California issued a temporary restraining order against Yari. On Aug. 9, 2019, that court ruled that, based on the facts alleged by Brain Injury Association of California, BIACAL's master list of 100,000 members could constitute a protectable trade secret that may have been misappropriated.
This article analyzes the BIACAL court's decision on why BIACAL's list may be awarded protection under the DTSA and offers guidance about how the DTSA can be implemented to protect your organization's membership lists.
Existence of a Trade Secret
To demonstrate the existence of a trade secret, the purported trade secret must meet the following two criteria:
- The information must derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information; and
- The owner must have taken reasonable measures to keep the information secret.
BIACAL alleged that it spent significant time and effort amassing a master membership list that not only contained contact information of 100,000 members but also contained data such as: (1) its members' interests in certain traumatic brain injury topics and speakers (as indicated by click-through rates in BIACAL emails); (2) historical attendance at traumatic brain injury events; (3) involvement in other community groups; and (4) relationships with other members of the community.
BIACAL claimed that this data helped drive a large increase in its 2019 conference attendance and fundraising, which ended up attracting more than 2,000 attendees. Moreover, as a result of having this data, BIACAL claimed that its conference raised approximately $500,000. The court found these facts were sufficient to demonstrate that the additional BIACAL generated information on the master membership list was not readily ascertainable and had independent economic value.
The court also found that, even though there was a factual dispute as to whether BIACAL limited Yari's access to the master list for limited specific purposes, BIACAL still took measures to keep the information confidential by storing the information on a secure database and restricting access to the database to only two BIACAL members, including Yari. These measures, as determined by the court, were reasonable.
Misappropriation of Trade Secret
Misappropriation of a trade secret is defined as the:
disclosure or use of a trade secret of another without express or implied consent by a person who … at the time of disclosure or use, knew or had reason to know the knowledge of the trade secret was … acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret.
The court found the alleged facts could meet the requirement of misappropriation of a trade secret and that Yari used a list nearly identical to the BIACAL master membership list to attempt to put on a similar competing conference. The court held that, although BIACAL gave Yari access to the master membership list, BIACAL otherwise implemented reasonable precautions to protect the proprietary nature of the master membership list and data.
Moreover, Yari was given access to the master membership list specifically for purposes of migrating that information to a new BIACAL database and had not been authorized to use the list for any other purpose.
For nonprofit organizations, the BIACAL case provides helpful insights into when and how a master membership list may constitute a protectable trade secret. Information that goes beyond mere contact information can help a nonprofit organization demonstrate that a trade secret is not readily ascertainable and has economic value. By including data that is more specific and unique to the organization, that organization's responsible employees will increase the likelihood that the master membership list is a protectable trade secret.
Nonprofit organizations would be well served by keeping unique data on any events or products that make use of the master membership list. This will help to show the economic value of the information.
In addition, as the BIACAL court pointed out, nonprofit organizations should: (1) limit access to the master membership list; (2) have security protections in place to protect against the misappropriation of the master membership list; (3) instruct those with access to the master membership list that the information is confidential and proprietary; and (4) clearly state and specify the scope of allowed use of the information to all permitted users.
In short, the nonprofit organization should make certain that reasonable measures are being taken to keep the information secret and protected.
Not every master membership list is a trade secret. Efforts will need to be made to make certain that the DTSA can be used effectively to guard against the misuse of a master membership list. The more a nonprofit organization can demonstrate that its master membership list is not readily ascertainable, has economic value, and is treated as confidential, the more likely it is that a court will find the existence of a protectable trade secret.
Nearly all nonprofit organizations view their master membership lists as among their most highly valued assets. As a result, the efforts described above are well worth making and will provide both the organization and its members with added necessary protection.
[1] Brain Injury Association of California v. Yari, 2019 WL 4544419 (C.D. Cal. Aug. 9, 2019).