Re: customer list offset

On Thu, 4 Nov 1999, Patrick Begos <begos[_at_]ibm.net> wrote:
>
> I have a client (call him A) who did some work for a customer of his
> (B) involving B's customer list. Maintaining and massaging the list
> for direct mail purposes. A didn't sign anything regarding the list.
>
> B has stiffed A on its bill, and A still has a copy of B's customer
> list. Putting IP issues aside, I think that A clearly has the right
> to offset B's property against B's debt, and sell or rent the list to
> others.
>
> Under the circumstances, I don't see any copyright, trademark or trade
> secret issues that would lead to a contrary result. That is, A concedes
> that the list is B's property, but is keeping that property (and using
> it) in lieu of the payment B owes (In reality, we would write a letter
> to B saying this is what A is going to do unless you pay up). No
> different than a watch repairer keeping the watch and selling it if
> the customer doesn't pay for the repairs. At least IMO.
>
> Does anybody see anything I'm missing?

Responding to Patrick Begos and his hypothetical about a service provider (called A) selling a customer list to "offset" an outstanding bill, I do see a problem although I couldn't point to a case offhand to back it up. The customer list is likely a trade secret; customer lists usually are so treated. By selling the customer list to a third party who is not under an obligation of confidentiality to B (the owner of the customer list), A is arguably destroying the trade secret status of the list, which may cause damage to B of a nature and scale going well beyond the monetary value of the list qua list to any third-party purchaser. This seems inequitable, so I would probe further: is there no contract here defining the legal status of A's possession of the list? If not, what rights of ownership can A claim to have in the list and what sort of title could A pass? Would a reputable third-party purchaser who was not motivated by a desire to injure B in its business be likely to buy the list under these circumstances? In some states, obtaining another's trade secret from a third party knowing or having reason to know that the third party did not have the right to convey the trade secret can be both a civil and criminal violation of the UTSA, and the Economic Espionage Act (a sort of Federal trade secret law) would also have to be examined -- if I'm representing the purchaser, I tell her, don't touch it. If I'm representing B and I find out about this, I'm in court in a flash to restrain A from ruining my business just because A doesn't think I'm paying him fast enough, and I would bet I have a good chance of finding a sympathetic judge. If I find out about it after the fact, I sue A for the grievous damages he's caused my client exceeding the value of anything he says my client may owe him, which of course I dispute, and I chase the purchaser to get the list back.

Put this in a software context. A company hires a consultant to work on the source code for one of its core programs, and the consultant takes the code off-site to do his work. The company and the consultant get into a contract dispute, and the company withholds payment. Are you saying the consultant can just sell the source code to satisfy his claim? I hope not.

I don't usually put in the disclaimer, but this situation seems to call for it: this response is not intended as legal advice upon which Patrick or his undisclosed client can (or need to) rely, it is not based upon the particular facts of any particular situation, and neither Patrick nor his client should have any reason to believe that they have entered into an attorney-client relationship with me as the result of my responding generally to Patrick's public posting of the hypothetical.

Kerry L. Konrad
<k_konrad[_at_]stblaw.com> Received on Fri Nov 05 1999 - 16:34:07 GMT