Nonprofit organizations rely heavily on funding from donations, gifts, and the like to make an impact in the communities they serve. Such resources are relatively scarce, and fundraising in the nonprofit world is a highly competitive endeavor. Accordingly, carefully guarded donor and participant lists may be considered trade secrets. N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 44 (2d Cir. 1999). Under the Uniform Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836 et seq., a trade secret is information that derives economic value from not being generally known that is subject to reasonable measures of secrecy by its owners. But how does a nonprofit charitable organization sufficiently plead the economic value of its donor and participant lists?
A comparison of two recent cases is illustrative. In Brain Injury Ass’n of Cal. v. Yari, Case No. CV 19-5912-MWF (JCx), 2020 WL 3643482 (C.D. Cal. Apr. 30, 2020) (“BIACAL”) and JCorps Int’l, Inc. v. Charles & Lynn Schusterman Family Found., Case No. 20-CV-35-GKF-SH, 2021 WL 2371233 (N.D. Okla. June 9, 2021) (“JCorps”), the plaintiffs, both nonprofits, sued former volunteers who had access to the organizations’ respective donor and participant lists and left to start competing organizations of their own. While both cases involved the alleged theft of trade secret donor and participant lists, the BIACAL court concluded that BIACAL sufficiently pleaded that its lists derived independent economic value while the JCorps court concluded JCorps had not sufficiently pleaded the existence of a protectable trade secret.
To state a claim for trade secret misappropriation under the DTSA, a plaintiff must allege the (1) existence and ownership of a trade secret and (2) misappropriation of the same. 18 U.S.C. § 1836 et seq. For the donor and participant lists to constitute trade secrets, they “must not be readily ascertainable through proper means,” must “derive independent economic value,” and the plaintiff must have taken “reasonable measures to keep [the lists’] information secret.” 18 U.S.C. § 1839(3).
The court in BIACAL considered the measures the plaintiff had taken to keep its “Master List” confidential and analyzed the economic value of the alleged trade secrets, focusing on the specific dollar amounts BIACAL expended to protect its Master List and the dollar amounts raised through the Master List. JCorps, however, fell flat by failing to attribute a specific dollar amount to either its efforts to protect its participant and donor lists or the revenues directly linked to the lists.
The comparison below demonstrates the narrow distinction in the factual pleading in these cases and emphasizes the importance of specificity in pleading the economic value of alleged trade secrets.
- Value associated with the lists
- BIACAL specified that its Master List was a compilation of data of about 100,000 members of the traumatic brain injury community. The data included its members’ interests in traumatic brain injury topics and speakers; historical attendance at similar events; involvement in other community groups; and relationships with other members of the community.
- BIACAL further alleged that significant time and effort was spent amassing the Master List. In addition, it raised about $500,000 through its annual conference, owing a large part of that success to “the data compiled through the Master List.”
- JCorps described its lists as participant and donor lists with “personal and contact information associated with noted philanthropists, academics, executives, and high-ranking domestic and foreign government officials.” In addition, JCorps’ founder “developed an internal technology platform configured to notify participants of upcoming volunteer opportunities and commitments.”
- JCorps described its participant and donor lists as the “secret sauce” of its organization, of immense value, and central to its operations and success. In addition, substantial effort was expended to develop, create, and maintain the lists.
- Reasonable measures taken to keep information secret
- BIACAL spent $30,000 in one year to maintain and store the Master List in a “secure password-protected CRM database,” with access limited to two members of the team who agreed in advance to use the Master List only for BIACAL-authorized communications and purposes.
- JCorps’s safeguarded its lists by having volunteers review and acknowledge JCorps’ rules and guidelines, agreeing to use the lists only for JCorps-authorized communications and purposes.
While these cases were differently decided on the thinnest of factual distinctions, it is clear that the key to a nonprofit’s ability to sufficiently plead a derived independent economic value in its donor and participant lists is specificity. Nonprofits will have a greater chance of surviving the pleading stage of their trade secret suit if, in their allegations, they specifically delineate (1) dollar amounts linked to efforts taken to keep the lists secret, (2) dollar amounts actually raised as a result of the lists, (3) the number of individuals on the lists, and (4) the type of information contained in the lists.