Arkansas Case Law

Trade Secrets

(Edited Version - Citations Omitted - Heading added)

Jerry ALLEN, Appellant,

v.

JOHAR, INC., Appellee.

Supreme Court of Arkansas.

823 S.W.2d 824 (1992)

GLAZE, Justice.

(The Facts)

This is a trade secret case.  Johar, Inc., appellee, is in the business of grinding extruded rubber into handgrips for sporting equipment, motorcycles and tools.  After working for Johar for approximately nine years, mostly as a sales manager, appellant, Jerry Allen was fired.  Immediately afterwards, the appellant began developing two grinding machines that would allow him to compete with Johar.  Mr. Flowers, a long-time maintenance man for Johar also went to work for the appellant.  At the time the appellant left Johar, Johar claimed that files and lists containing customer names and other information were missing.  Appellant admitted to having contacted as many as ten of Johar's customers, but denied taking any information from Johar's premises.

Johar filed suit alleging that the appellant had used confidential information in designing his production machines and in contacting Johar's customers, and sought to enjoin the appellant's actions. . . .  The chancellor found that the design and process of Johar's machines and customer lists were protected by the Arkansas Trade Secret Law and enjoined the appellant from using his production machines or Johar's customer lists.  Appellant was ordered to dismantle his production machines.  Further, the appellant was enjoined from contacting any of Johar's current customers for eighteen months from the date of the judgment.  The appellant appeals arguing that the chancellor erred in ruling that Johar's machines and customer lists were protected under Arkansas Trade Secret Law.  We find no merit in the appellant's arguments. * * *

(The Law - Production Machines as Trade Secrets)

In ruling that the Johar's machines were protected under . . . the Arkansas Trade Secret Law, the chancellor made detailed findings comparing Johar's and the appellant's machines based upon the testimony and the chancellor's own viewing of the machines.  Johar had entered the handgrip business by purchasing two production machines from a company in California. While these machines in their present form were capable of producing the rubber handgrips, Terry Vienna, the president and owner of Johar, decided to redesign the machines to make them more productive, and therefore more competitive.  (Emphasis added)  * * *

We also find . . . that Terry Vienna met the secrecy requirement under the trade secret law.  Vienna testified that like his other competitors, he did not allow tours of the building.  . . . In short, we cannot say that the chancellor was clearly erroneous in finding that Johar's production machines are protected under the Arkansas Trade Secret Law.  * * *

(The Law - Customer Lists as Trade Secrets)

In the second issue, the appellant argues that the chancellor erred in protecting Johar's customer lists under the Arkansas Trade Secret Law.  We do not agree.  Generally, customer lists obtained through use of a business effort, and the expenditure of time and money that are not readily ascertainable and are kept confidential are given protection as a trade secret. (Emphasis added)  In the present case, Vienna testified that it has taken Johar since 1974 to accumulate its customers, and that Johar's customer lists and files contain detailed information about its customers--personality traits, hobbies and likes, credit history, buying habits and pricing agreements.  Vienna testified that it would take two to three years of work for a company to obtain this kind of information.  * * *

As previously discussed, an important factor in determining whether a customer list is a trade secret is whether the employer took actions to guard the secrecy or preserve the confidentiality of the list.  In this respect, the record supports the trial court's finding that Johar kept its customer lists and files confidential.  Vienna testified that the information was kept confidential and was not to leave the premises. Further, he testified that he ordered old customer printouts destroyed.  The evidence, we conclude, clearly supports the chancellor's holding that Johar's customer lists meet the requirements of protection as a trade secret.

In so holding, we note that the appellant does not really argue that he should be allowed the use of Johar's customer lists and files in his business. Instead, he mainly challenges the chancellor's holding requiring him to erase from his memory the names of Johar's customers.  In other words, the appellant does not admit using Johar's written customer information, but does admit using his memory in contacting ten Johar customers.  We believe that whether the customer information used was written down or memorized is immaterial, and the proper issue is whether the information is protectable as a trade secret.  Under the circumstances of this case, it was.

DUDLEY, NEWBERN and BROWN, JJ., dissent.

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