On May 26, 2006, the California Court of Appeals, Sixth District, issued a unanimous decision striking down subpoenas to Internet "news" sites seeking the source of leaked trade secret information. See O'Grady et al. v. The Superior Court of Santa Clara County, Case No. H028579 (Cal. App. May 26, 2006).
The 69-page opinion, which has been certified for publication, is significant because it extends the same constitutional protections to online "news" reporters, editors and publishers, including amateur bloggers, that have traditionally been reserved to print publications, such as newspapers, magazines, radio and television broadcasters. In so doing, the court dealt a blow to efforts by trade secret owners to protect proprietary and confidential information. The court did not view this simply as a trade secrets case:
"[t]his case involves not a purely private theft of secrets of venal advantage, but a journalistic disclosure to, in the trial court's words, 'an interested public.' In such a setting, whatever is given to trade secrets law is taken away from the freedom of speech... it seems plain that where both cannot be accommodated, it is the statutory quasi-property right that must give way, not the deeply rooted constitutional right to share and acquire information."
The decision demonstrates the importance of strictly enforcing and auditing compliance with company policies, practices and procedures to guard against the unauthorized disclosure of confidential and trade secret information. It also shows the need to review current policies to ensure that they adequately deal with the unique dangers presented by the proliferation of electronic information and the ease of disclosure over the Internet. Finally, the opinion highlights the need for trade secret owners to conduct an extremely thorough internal computer forensics analysis as a precondition, or indeed alternative, to civil discovery.
Apple Computer, Inc. brought an action in California Superior Court alleging that unknown persons caused the wrongful publication of Apple's trade secret product information related to a device code-named "Asteroid" or "Q97." Asteroid was an add-on device that would allow users to plug musical instruments into Apple computers and create digital audio recordings. Two Internet "news" sites devoted to Apple products posted verbatim excerpts of technical specifications and a reproduction of a copyrighted rendering of the product design.
Suspecting that some of its own employees had disclosed the alleged trade secrets to these Web sites, Apple conducted an internal investigation led by its corporate security department to determine the source of the leak. The investigation led Apple to believe that the documentary source of the leak was a particular set of electronic slides. However, the identity of persons responsible for the leak remained a mystery, despite interviews of approximately 29 employees and forensic searches of Apple's e-mail servers for communications regarding the disclosed product information. In an effort to identify the source of the leak, Apple sought and obtained authority to issue civil subpoenas to the operators of the two Web sites where the information appeared and to the e-mail service provider for one of the publishers. Nfox, the e-mail service provider, later confirmed that it in fact had in its possession copies of e-mails sent to the Web site operator about Asteroid. The operators of the Web sites sought a protective order to prevent Nfox from handing over any e-mail records to Apple.
The appellate court issued a writ of mandate directing the trial court to grant the motion for protective order for the following reasons.
The court initially held that the subpoenas for e-mails sent to the third party Web sites were unenforceable under the federal Stored Communications Act ("SCA"). (18 U.S.C. §§ 2701-2712.) The SCA prevents an electronic communications service provider from knowingly disclosing the content of an e-mail stored by the service provider. The court rejected Apple's primary argument that there was an implied exception under the Act permitting the limited civil discovery at issue. The Act aims to encourage innovative forms of communications, like e-mail, by granting them the same protections from unwanted disclosure as the more traditional means.
The court distinguished this case from so called "John Doe" lawsuits in which litigants are permitted to subpoena Internet service providers to obtain the identities of subscribers who posted anonymous defamatory messages on Web sites. Here, the source of the leaked information did not post the information directly himself or herself, but rather provided the information to the operators of the blog, who in turn made the disclosure. The specific content of the e-mails being subpoenaed therefore remained private and protected from disclosure under the Act.
The court next determined that the operators of the Internet "news" sites qualified under California constitutional protections afforded to traditional media. The California reporter's shield provides an "absolute protection to nonparty journalists in civil litigation from being compelled to disclose their information sources or any unpublished information obtained in the course of gathering information." The court refused to set forth any test or principle for drawing a line between "legitimate" versus "illegitimate" journalism. The court held that the shield laws are intended to protect the gathering and dissemination of news and that is exactly what the Web site operators did in this case. The sole purpose of the Web sites was to provide its readers with information and news about a particular type of information. The fact that the Web sites simply reprinted "verbatim copies" of Apple's internal information instead of distilling or editing the information in any way did not justify a denial of the reporter's shield protection.
The court also held that operators of news oriented Web sites fall within the ambit of "publishers" and thus the reporter's shield extends to such Web site operators. Finally, the court determined that digital media sources like Web sites are equivalent to newspapers and magazines and thus covered by the law. The court reasoned that the shield is intended to protect the gathering of news for dissemination to the public. Limiting this shield only to traditional print media would not advance this basic purpose of the law. Indeed, the law explicitly covers two non-print sources of news: television and radio. However, the court did indicate that the shield likely does not cover non-recurring publications such as books, pamphlets, or flyers.
Finally, the court determined that the operators of the Internet user sites could invoke a qualified constitutional privilege, which protects news reporters, editors, or publishers from compelled disclosure of the identities of confidential sources and unpublished information supplied by such sources. Such reporter's privilege is lost where there is a need sufficient to outweigh the inhibitory effect of such disclosure upon the free flow of ideas and information. See Mitchell v. Superior Court, 37 Cal.3d 268 (1984). The court balanced the following five factors and concluded that the reporter's privilege was not overcome in this case:
This decision has substantial implications for trade secret owners trying to protect their proprietary and confidential information. The appellate court has made it extremely difficult to obtain discovery against third party Internet "news" providers that have published the trade secret information. Thus, it is imperative for trade secret owners to institute and adhere to strict internal controls to prevent such disclosures in the first place. They should also review current policies to ensure they adequately address the proliferation of electronic information and the ease of its transmission.
This decision also highlights the increasingly important role of computer forensics to determine the source of the leaked information. Fenwick & West's Electronic Information Management Group specializes in computer forensic preservation and analysis. It has extensive in-house experience in such analysis, which often includes review of firewall logs, e-mail servers and any Web or instant messaging monitoring devices. Such forensic analysis can be far less disruptive than the interrogations under oath of company employees proposed by the court in its opinion. Oftentimes, it is also far more effective at isolating the source of the disclosure.
For further information, please contact:
Patrick E. Premo, Partner, Litigation and Electronic Information Management Groups
Gaurav Mathur, Associate, Litigation Group
This alert is intended by Fenwick & West LLP to summarize recent developments in the law. It is not intended, and should not be regarded, as legal advice. Readers who have particular questions about these issues should seek advice of counsel.
© 2006 Fenwick & West LLP. All Rights Reserved.