Source: https://www.robinskaplan.com/Resources/Articles/Taking-an-Old-Route-Protecting-Trade-Secrets-By-Applying-the-Route-Cases
Timestamp: 2019-04-24 16:57:34+00:00

Document:
Reprinted with permission from the Los Angeles Lawyer.
California courts have consistently protected the trade secrets of companies from unscrupulous employees who misappropriate those secrets after they quit. At the same time, they also have recognized the rights of former employees to pursue gainful employment, even in competition with their former employers. In order to balance these two competing goals, employees must understand what is and is not a trade secret when they strike out on their own.
Employers, too, must understand what are and are not their trade secrets when training employees or pursuing litigation against them after they leave.
As one court noted, route salesmen “constitute a very small and unique group” of employees.6 Traditionally, they serviced a distinct group of customers using heavily annotated customer lists or customer books.
Ordinarily, information acquired in the course of employment is the property of the employer.10 But before considering what is protected when a former employee solicits the business of a former employer's customers, it should be recognized that an employee can advise former customers of the termination of employment and accept business from them without using the former employer's confidential information.11 It is equally well settled, and often repeated, that employees cannot “be compelled to ‘wipe clean the slate of their memories.'”12 Nowhere is that inability to do so clearer than for sales personnel.
The confidential information at issue can be as minimal as the expiration dates of customers' contracts. In the case of an advertising contract, for example, advertisers will be looking for a new contract shortly before expiration of their old one.27 What matters is how accessible the information is to the company's competitors. In Pasadena Ice Company v. Reeder,28 the court found that customers' “places of residence, their peculiar likes and fancies and other characteristics, a knowledge of which would greatly aid them in securing and retaining the business” constituted a trade secret.
[T]he same friendly relationship exists between a salesman of drugs at wholesale and his customers as that which characterizes the personal relations between a route salesman and the householders who buy his butter and eggs.…There is entirely lacking the friendly and confidential relationship which exists between housewives and laundrymen or dairy salesmen who are privileged to enter homes to pick up or deliver laundry, or fill the refrigerator with the usual requirements of the family.
Although the industries that gave rise to them have long since disappeared from daily life, the route cases remain useful in determining whether customers' identities and information can be protected as a trade secret. With the principles of the route cases in mind, employers and employees should be able to aggressively, fairly, and legally compete in their respective industries, and prevent the former from taking undue advantage of trade secret law.
1These issues frequently arise in several contexts: 1) when assessing the validity of a noncompetition agreement under Business and Professions Code §16600, 2) in an action to enjoin someone from soliciting a former employer's customers, and, of course, 3) in actions for damages for misappropriation of trade secrets.
2See Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134 (2003) (on the Unfair Competition Law) and Advanced Bionics Corp. v. Medtronic, Inc., 29 Cal. 4th 697 (2002) (on noncompetition agreements).
3Some customer lists are given express statutory protection under Business and Professions Code §16606 (telephone answering services) and §16607 (employment agencies).
4See Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1429-30 (2003). Because the facts of Thompson did not permit it, the court did not rely upon the route cases for its decision. But the opinion confirmed the continuing vitality of a doctrine that otherwise has gone the way of home delivery of ice, milk, and bakery goods.
5Uniform Trade Secrets Act (codified at Civ. Code §§3426 et seq.). “By its adoption of the Uniform Trade Secrets Act, California effectively adopted the common law definition.” Vacco Indus. v. Van Den Berg, 5 Cal. App. 4th 34, 50 (1992).
6Reid v. Mass Co., Inc., 155 Cal. App. 2d 293, 302 (1957).
7Mathews Paint Co. v. Seaside Paint & Lacquer Co., 148 Cal. App. 2d 168, 172-73 (1957).
8See Empire Steam Laundry v. Lozier, 165 Cal. 95 (1913) (laundry); Santa Monica Ice etc. Co. v. Rossier, 42 Cal. App. 2d 467 (1941) (ice routes); California Intelligence Bureau v. Cunningham, 83 Cal. App. 2d 197 (1948) (subscriptions to specialized newsletters); Riess v. Sanford, 47 Cal. App. 2d 244 (1941) (cactus phonographic needles).
9Contrast this with the case of a salesman in a commercial field, in which “there is no assurance of an order unless he can satisfy the customer that his merchandise is better, cheaper or more salable than that of his competitor….Each sale is a distinct transaction, not necessarily implying that another will follow.” Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104, 109 (1944). For example, courts have refused to apply the route cases to the real estate setting because each sale of real estate is a “distinct transaction.” Cal Francisco Inv. Corp. v. Vrionis, 14 Cal. App. 3d 318, 322-23 (1971).
10“Section 2860 of the Labor Code provides that everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment. A customer list built up by the employer over a period of years is [the employer's] property, and its use by a former employee for his own advantage will be enjoined.” Reid v. Mass Co., Inc., 155 Cal. App. 2d 293, 300-01 (1957). Section 2860 “is simply an expression of the familiar principle that forbids an agent or trustee from using trust property or powers conferred upon him for his own benefit.” Burns v. Clark, 133 Cal. 634, 639 (1901).
11Aetna Bldg. Maint. Co. v. West, 39 Cal. 2d 198, 204 (1952). See also Hilb, Rogal & Hamilton Ins. Servs. v. Robb, 33 Cal. App. 4th 1812, 1821 (1995); Rigging Int'l Maint. Co. v. Gwin, 128 Cal. App. 3d 594, 608-10 (1982).
12Moss, Adams & Co. v. Shilling, 179 Cal. App. 3d 124, 129 (1986) (citation omitted).
13Mathews Paint Co. v. Seaside Paint Co., 148 Cal. App. 2d 168 (1957).
15Aetna, 39 Cal. 2d 198.
16Id. at 204-05; see also California Intelligence Bureau v. Cunningham, 83 Cal. App. 2d 197, 202 (1948) (collecting cases).
17Aetna, 39 Cal. 2d at 200.
19Id. (citing Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104, 111 (1944)).
20Reid v. Mass Co., Inc., 155 Cal. App. 2d 293 (1957).
22Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 1521 (1997).
23Id. at 1522 (citing Klamath-Orleans Lumber, Inc. v. Miller, 87 Cal. App. 3d 458, 465 (1978)).
24See Courtesy Temp. Serv., Inc v. Camacho, 222 Cal. App. 3d 1278, 1287-88 (1990).
25Morlife, 56 Cal. App. 4th at 1521-22 (citations omitted).
26Reid v. Mass Co., Inc., 155 Cal. App. 2d 293, 299 (1957).
28Pasadena Ice Co. v. Reeder, 206 Cal. 697 (1929).
29American Loan Corp. v. California Commercial Corp., 211 Cal. App. 2d 515, 523 (1963).
30Id. See also Klamath-Orleans Lumber, Inc. v. Miller, 87 Cal. App. 3d 458, 463-65 (1978).
31Peerless Oakland Laundry Co. v. Hickman, 205 Cal. App. 2d 556, 559-60 (1962) (citations omitted).
32Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal. App. 4th 853, 862 (1994) (citation omitted).
33King v. Pacific Vitamin Corp., 256 Cal. App. 2d 841, 849-50 (1967).
35Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104, 110, 112-13 (1944) (citing New Method Laundry Co. v. MacCann, 174 Cal. 26, 33 (1918)).
36Reid v. Mass Co., Inc., 155 Cal. App. 2d 293, 303 (1957).
37Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1447 (2002). See also id. at 1458-64. But see Electro Optical Indus., Inc. v. White, 76 Cal. App. 4th 653, 660 (1999) (unpublished) (holding that inevitable disclosure does provide a basis for a misappropriation claim). Federal courts have long rejected the application of the inevitable disclosure doctrine in California. See, e.g., Globespan, Inc. v. O'Neill, 151 F. Supp. 2d 1229, 1236 (C.D. Cal. 2001).
38Reid, 155 Cal. App. 2d 293; Klamath-Orleans Lumber, Inc. v. Miller, 87 Cal. App. 3d 458 (1978).
39Reid, 155 Cal. App. 2d at 303 (citation omitted).
40Klamath-Orleans Lumber, 87 Cal. App. 3d at 468.
41Western Electro-Plating Co. v. Henness, 180 Cal. App. 2d 442, 450 (1960). Notably, the court modified the injunction to permit the defendants to accept unsolicited business from customers of the former employer. Id.
42DeLuxe Box Lunch & Catering Co. v. Black, 86 Cal. App. 2d 434, 438 (1948).
43Reid, 155 Cal. App. 2d at 304.
45Continental Car-Na-Var Corp. v. Moseley, 24 Cal. 2d 104 (1944).
46The court concluded that the former employee could use his general knowledge of chemistry to manufacture floor wax and related commodities so long as he did not use the former employer's “trade secrets” or secret formulas. Id. at 108, 113-14.
47Id. at 109. See also American Alloy Steel Corp. v. Ross, 149 Cal. App. 2d 215 (1957).

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