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Art of Living Foundation v. Doe: Identity of Anonymous Blogger Accused of Misappropriating Trade Secrets May Be Protected by the First Amendment

 
by John Marsh 21. November 2011 10:10

As many of you know, the challenges posed by the Internet and the potential for abuse by self-styled whistleblowers are two things near and dear to my heart.  A thoughtful but potentially troubling decision on November 9, 2011 by the U.S. District Court for the Northern District of California in Art of Living Foundation v. Doe, Case No. 5:10-cv-05022-LHK, may make it more difficult for trade secret plaintiffs to litigate against anonymous bloggers who post trade secrets on a website.

The Art of Living Foundation (AOLF), a religious group based in Bangalore, India with chapters in more than 140 countries, was accused of being a cult by the Doe Defendant, a blogger who uses the pseudonym "Skywalker." As a result, AOLF sued Skywalker last November, claiming that two of his posts misappropriated some of its trade secrets, infringed its copyrights, and defamed it.  AOLF claimed that Skywalker and other defendants published AOLF's copyrighted Breathe Water Sound manual and trade secret teaching methods in his blog and also made numerous false and disparaging remarks about AOLF and Ravi Shankar, who apparently holds himself out as an "enlightened being" and leader of this movement.

AOLF issued various subpoenas on several Internet Service Providers to discover Skywalker's identity, and Skywalker moved to quash those subpoenas on First Amendment grounds. The Magistrate denied the Motion to Quash, but that decision was subsequently overturned by District Court Judge Lucy H. Koh, who balanced the rights of Skywalker against the needs of AOLF to discover Skywalker's identity.  Using a practical approach, Judge Koh ultimately concluded that discovery of the blogger's identity was premature because motions for summary judgment and to strike AOLF's claims were fully briefed and ripe for decision. This part of the decision makes sense, since Judge Koh had already dismissed the defamation claim on First Amendment grounds on June 15, 2011.

My Concerns About The Ruling:  I think addressing the First Amendment question on the identity of the blogger was unnecessary.  AOLF may or may not be a cult, Skywalker may or may not be a disgruntled former member, and it is hard to argue against a blogger's First Amendment right to criticize a large religious institution on what appears to be a genuine issue of public interest. That being said, in its desire to reach the First Amendment issues, the district court ended up engaging in circular reasoning. For example, Judge Koh recognizes that the nature of the underlying speech (is the speech political, religious or literary, or is it merely commercial?) will trigger the rigor of the standard to be applied to the speech in question. 

For this reason, the district court distinguished decisions ordering the identity of defendants in copyright cases where unidentified defendants are alleged to have illegally downloaded and distributed a plaintiff's copyrighted songs using a "peer to peer" file copying network. Judge Koh reasoned that the individual's motivation in those cases was commercial (i.e., to obtain music for free) as opposed to trying to communicate an idea or thought. This analysis is consistent with Ninth Circuit's 2010 decision in In re Anonymous Online Video, which ordered the identity of the speakers because the speech was commercial and directed to the commercial and business practices of the plaintiff. (For a fine analysis of that decision, see this post from the IP Law Blog).

However, how can a party adequately determine whether the speaker in question is motivated by commercial interests if he can hide behind a veil of anonymity? After all, as the Second Circuit has recently held, a Doe defendant's arguments may raise "questions of credibility and plausibility that cannot be resolved while [a Doe Defendant] avoids suit by hiding behind a shield of anonymity." Arista Records LLC v. Doe, 604 F.3d 110, 124 (2d Cir. 2010). By foreclosing discovery regarding the defendant's identity, a plaintiff may be precluded from determining whether there is in fact a commercial component to the speech in question. 

The second problem that I have with the district court's reasoning was its willingness to readily accept Skywalker's protestations of harm.  Holding that "to the extent that Skywalker's anonymity facilitates free speech, the disclosure of his identity is itself an irreparable injury." (Opinion at p. 13). The problem with this reasoning is that any disclosure of a blogger's identity is equated with irreparable injury. Mark my words, we will see this language again in some other opinion in the future. Similarly, Judge Koh acknowledged that the blogger's claims of potential retaliation were "not particularly reliable." (Id. at p. 14). Yet on this weak record, she found that it still outweighted AOLF's right to discover the blogger's identity.

This is a pet peeve of mine. When issues of the First Amendment are raised, some federal courts are too eager to race to embrace them, particularly when public interest groups like the ACLU or First Amendment Coalition fan the flames. In this case, the district court could have easily punted based on the procedural posture of this case alone, the position that it ultimately settled on in deferring discovery. Unfortunately, the district court unnecessarily engaged in an involved First Amendment analysis that may prove problematic when applied later in another case to a less worthy defendant.

Finally, should the mere fact that a motion to dismiss or summary judgment is filed be enough to prevent discovery on the issue of the identity of the blogger? Again, the cloak of anonymity may frustrate the ability to meaningfully respond to such a motion.  One would hope that, under different facts, that the balancing test used by a district court would yield a different result.

I am a big believer in transparency and, as a result, I am always skeptical of those who claim that they should be free to criticize or do anything else under the cloak of anonymity.  We all know this is especially true given the potential harm that the Internet can cause.  Courts sometimes are too willing to accept the narrative of the noble but at-risk whistleblower, when the story may turn out just as easily to be that of someone who has an axe to grind or is simply unhinged.  Yes, AOLF is hardly a sympathetic plaintiff, and yes, AOLF probably wanted the identity of the blogger for reasons other than service of process.   However, another court may now take this reasoning and apply it to a situation where the identity of the blogger is simply not worthy of First Amendment protection.

As WikiLeaks' funding has dried up and as the federal government presses ahead in its prosecution of those behind it, the risk posed by that once-dangerous phenomenon appears to be waning.  Throw in the recent SyncSort v. Innovative Resources decision holding that mere publication on the Internet does not destroy trade secrecy, and a trade secret plaintiff should feel better about its chances of prevailing these days in these cases.  However, the unnecessary First Amendment reasoning used in this case could lead to mischief later.

 

Syncsort v. Innovative Routines: Landmark Ruling Protects Trade Secrets Posted on the Internet

 
by John Marsh 27. August 2011 10:00

A very significant ruling has just been issued by Judge William H. Walls of the U.S. District Court for New Jersey in a topic of great concern in the trade secret community -- namely, whether trade secret information that has been posted on the Internet loses its trade secret status forever.  Forgive the length of this post, but I think the importance of this decision merits a thorough discussion.  (A copy of the opinion is attached below).

On August 18, Judge Walls applied a fact-based analysis and concluded that various postings on the Internet in that case were not sufficient to waive trade secret protection. I believe this case, Syncsort Incorporated v. Innovative Routines, International, Inc., 2011 U.S.  Dist. LEXIS 92321, (D.N.J. August 18, 2011), will be the first of a series of important rulings demarcating the protection of trade secrets disclosed on the Internet. (A quick "thank you" to my colleague Lorraine Hernandez for bringing this important decision to my attention).

In the lawsuit, Syncsort alleged Innovative Routines had improperly developed a software to translate documents written with Syncsort’s command language to Innovative Resource’s command language. According to Syncsort, Innovative Routines could not perform this translation without Synchsort's trade secrets. Innovative Resources secured the trade secrets from a source in breach of a confidentiality agreement; after the lawsuit was filed, it appears that Innovative Resources then scoured the Internet to try to show that the information was already available on the Internet.

Innovative Resources identified 6 postings that it believed caused the loss of trade secrecy: (1) a 2-page "Technical Specification" for an earlier version of the software; (2) a "Technical Bulletin" posted on a university website in violation of Syncsort's license agreement with that school; (3) an employee's posting of Syncsort's "Application Guidelines" on his personal website; (4) a handful of "very brief discussions" of the software on a website called IT Toolbox; (5) a copy of Syncsort's UNIX Reference Guide that was posted on a Korean website; and (6) another copy of that same Reference Guide that was posted on a Japanese website.

In response, Syncsort emphasized that the posts had been taken down quickly (in particular, the Reference Guides) and that most of those posts only included minimal portions of the command language. It forcefully made the classic "combination" argument -- that even if bits and pieces of the command language were publicly available, they were not enough to negate trade secrecy because those pieces did not provide enough information to be useful to Innovative Resources in creating its translator.

In his opinion, Judge Walls looked at each post, the circumstances surrounding each post, and the response by Syncsort upon learning of each post. Judge Ward then found that “the public posting of parts of the command language did not destroy the trade secret because the information contained in those postings was insufficient to develop the translator.” Although there were 2 occasions where an entire copy of Syncsort's UNIX Reference Guide was posted on the Internet, once each in Korea and Japan, Judge Walls concluded that even though “[t]hese Guides could be used to develop [Innovative Resource's] ssu2scl translator” the “posts were "sufficiently obscure or transient or otherwise limited" so that it was not made "generally known to the relevant people" (like potential competitors)”. He noted that in both of those instances, the information was quickly removed and there was no evidence that information became widely available, or that competitors or other unauthorized persons accessed or even attempted to access the information. As a result, Judge Walls concluded that Syncsort’s information remained a trade secret and that Innovative Resources should be enjoined.

As some of you may recall, the issue of the impact of posts on the Internet was addressed in a previous post of mine that discussed the holding in Silicon Image, Inc. v. Analogix Semiconductor, Inc., 2007 U.S. Dist. LEXIS 96073 (N.D. Cal. Jan. 17, 2008) and the risk of disclosure presented by third parties like WikiLeaks. However, the analysis in Silicon Image was not as extensive nor were the Internet posts as significant to the trade secrets in that case.  

There are four reasons why I think this ruling will be important in other future trade secret cases. First, Judge Walls wisely avoided an absolutist view that once anything appears on the Internet, it is lost as a trade secret. Instead, Judge Walls' looked carefully at the circumstances surrounding the posts and their context in the trade secret claims as a whole. This is the correct approach, as it mirrors the analysis used in other instances of "public disclosure" alleged in trade secret cases (i.e., disclosure to customers, sharing with vendors, publication by the government, disclosure in a patent application).  

Second, a subtle but equally important aspect is the ruling's implicit recognition of the vastness of the Internet. Simply because some data inadvertently makes its way into the information ocean that is the Internet does not mean that everyone surfing, floating or swimming in that ocean has seen it or used it. In this respect, Judge Wall's practical ruling effectively requires the defendant to show that a competitor has truly accessed or used the information posted on the Internet. An intermittent or transient post by a third party on his/her own website or on a message board should be distinguished from a broad, longstanding and widespread post that might be found, for example, on a company's own website. To use a metaphor, if an employee improperly shoutsa out his employer's trade secrets at a busy, noisy corner on a Friday night at Times Square, but no one hears it, records it or is aware of it, has the trade secret really been lost? 

Third, Judge Walls recognized the limited and transient nature of some of the disclosures in question due to the efforts of Syncsort to remove the information from the Internet. Like all trade secret cases, it shows the importance of diligence and moving quickly to stem a breach. It also serves to reinforce a plaintiff's claim that the information was truly valuable and important in the first place.  

Finally, Judge Walls found that some of the information posted on the Internet was insufficient to provide development of a translation utility; in other words, he applied the bedrock principle of trade secret law that while some elements of a trade secret may be publicly available, the combination of those public elements with other confidential information, may still qualify as a trade secret, particularly where the trade secret cannot be replicated. This point is sometimes lost in cases where there has been a disclosure of information on the Internet. 

Companies and lawyers should celebrate this thoughtful and reasoned ruling which is really the first ruling to truly consider the reality of the Internet today.
 

Syncsort v. Innovative Routines.pdf (84.06 kb)

 

Highlights from the July 13 PLI "Trade Secret Theft" Seminar

 
by John Marsh 28. July 2011 11:30

For those of you who were able to join the recent PLI presentation on "Trade Secret Theft: Effective Tools for High Stake Disputes," I hope you enjoyed it as much as Victoria Cundiff and I did. For those that were not, here are some of the highlights:
 
Hiring Employees with Non-Competes:  This remains a real source of concern for employers who do not want to get ensnared in litigation over a hire.  Victoria discussed the recent holding in IBM v. Visentin, 2011 WL 672025 (S.D.N.Y. 2011), where the Southern District of New York modified a non-compete to permit a former IBM employee to work for Hewlett-Packard because of steps the employee and Hewlett-Packard took to protect IBM's proprietary interests.  Visentin is similar factually to the recent Aspect Software case about which I wrote last month.  In Aspect Software, the District Court of Massachusetts arrived at a different result despite similar efforts by the former employee and Avaya.  Although the holding in Aspect Software may be the exception, it reinforces the importance of selecting the right forum. 
 
"Procedural" Safeguards:  One question highlighted concern about the effectiveness of written agreements and other safeguards that are, at the end of the day, dependent upon the good faith of the employee or business partner receiving the confidential information.  Although there are measures to protect trade secrets that minimize or counteract this human element (encryption, monitoring data usage and access, etc.), those safeguards cannot completely eliminate the human component. 

I had the privilege of speaking on a panel in May with Malcolm Harkins, Intel's Chief Information Security Officer, on the challenges of protecting sensitive data in the age of WikiLeaks.  While Malcolm addressed a number of procedures and techniques available to an employer, I was struck by how much he stressed the creation of a vigilant and proactive culture to protect that data.   At the end of the day, that culture, along with the reinforcment and training necessary for instilling that culture, remains the best defense.

This dovetails into another issue that arose as a result of a question, the importance of annual training and certifications/acknowledgements for the protection of confidential information.  As Victoria noted, it's a good idea to have execution of the certifications coincide with other annual events, such as open enrollment for health insurance and annual reviews.  
 
Challenges for Multi-Jurisdictional Clients:  "One-state-fits-all" agreements may be difficult to enforce because of the differences in non-compete and trade secret law from state to state.  A forum selection clause may not solve that problem, as out-of-state courts may disregard the forum selection clause under choice of law principles and apply their own law if they see fit.  Victoria noted that when selecting choice of law for an agreement, it may be worthwhile to factor in where your competitors are located (for example, California) in anticipation that any dispute with a former employee make take place there.
 
WikiLeaks, the Internet and Trade Secrets:  Not surprisingly, this remains an issue of real concern, particularly the question of whether a trade secret claim is lost once the trade secret makes its way to the Internet.  As some may recall, I addressed this issue in a post in May; there is some authority allowing for a claim for a trade secret that has made its way to the Internet, provided one can demonstrate, among other things, that steps were taken to remove it from the Internet, that it was posted only briefly, etc.  I am going to dig deeper to see what other courts have said and put together a future post on this topic.

 

WikiLeaks and Trade Secrets: The First Amendment Challenge

 
by John Marsh 13. May 2011 16:30

Does the First Amendment provide complete protection to a whistleblower like WikiLeaks that attempts to post trade secrets on the Internet?  That may be the key question in any whistleblower trade secrets case.
 
Following up on my recent post on the Julius Baer v. WikiLeaks case, and my presentation at the AIPLA's Spring Meeting later today, one of the issues -- if not the issue -- that presented the greatest concern to the district court in that case was that its order might qualify as a "prior restraint" in violation of the First Amendment.  
 
Federal courts are very attuned to constitutional issues, and, I would respectfully submit, especially amenable to a claim that their order might present a prior restraint in violation of the First Amendment. See Procter & Gamble Co. v. Bankers Trust Co., 78 F.3d 219, 225 (6th Cir. 1996); Ford Motor Co. v. Lane, 67 F. Supp. 2d 745 (E.D. Mich. 1999).  State courts, on the other hand, may be more sensitive to the policies underlying trade secret law, as decisions by the California Supreme Court and the Ohio Supreme Court have shown.  In those cases, those courts have rejected broad prior restraint arguments and recognized that policies underlying the protection of trade secrets must be balanced as well.  American Motors Corp. v. Huffstutler, 61 Ohio St. 3d 343, 575 N.E.2d 116 (Ohio 1991);  DVD Copy Control Assoc., Inc. v. Bunner, 31 Cal. 4 864, 4 Cal. Rptr. 3d 69 (2003).
 
In the Julius Baer case (see my earlier post), the intervention of the media and the arguments that they presented in that case influenced the court's decision to dissolve the injunction.  While they properly noted that some First Amendment protections that would be implicated (i.e., the impact that a shutdown of WikiLeaks website would have on news-gathering efforts), their arguments of course overlooked the important governmental and private interests in protecting confidential information (in that case, the privacy rights of the bank's clients).
 
It is important to remember that the First Amendment issues -- and there were plenty -- were briefed extensively over an incredibly short period of time and on issues that were the "bread and butter" of the intervening media and public interest parties.  This ultimately provided them with what proved to be an overwhelming procedural advantage.  
 
In Julius Baer, the California First Amendment Coalition (“CFAC”), a non-profit public interest organization composed of large daily newspapers in California, and the ACLU both sought to intervene on February 26, 2008.  On that day, both submitted extensive briefs not only extolling the importance of WikiLeaks to its members’ news-gathering efforts, but vigorously arguing that the First Amendment protects the right to gather and receive information and that the injunction in question had prevented the public’s access to the information previously contained on that website.  The CFAC then filed yet another brief, challenging the jurisdictional basis of the case and arguing that diversity of jurisdiction was lacking because Julius Baer and WikiLeaks were both foreign citizens.  Three days after the appearance of the CFAC and the ACLU (February 29, 2008), the district court issued its order dissolving the injunction, based on those arguments.
 
The reality is that many trade secret and commercial litigators may not be conversant in the wide-ranging law concerning the First Amendment.  Given the speed of an injunctive proceeding, and the fact that counsel for the plaintiff is expected to be prepared to respond to whatever obstacle is thrown in his/her path, the intervention by the media in this kind of case can be devastating. 
 
Arguing that the requested injunction is "content neutral" is probably the best argument that can be made in these circumstances because it triggers lesser scrutiny from the court.  It is worth noting that this argument appears to not have been made in Julius Baer, either because of the lightning speed of the briefing on this issue or because the substantive basis for the injunction was rooted in constitutional and statutory privacy interests (as opposed to trade secrets).  The DVD Copy Control case, cited above, provides a superb template for understanding and ultimately making this argument; in that opinion, the California Supreme Court very methodically reasoned that a narrow trade secret injunction would qualify as a content neutral injunction.  The California Supreme Court further held that such an injunction was supported by a number of equally important policy considerations -- preserving incentives to innovate, protecting investment in research and development, and the promotion of commercial and business ethics, among others.
 
In short, if you are faced with a sophisticated whistleblower with access to the Internet, First Amendment issues will be front and center in any litigation that tries to restrain him.  Allaying a court's concerns that you are protecting an important private property right, and not seeking to muzzle an important issue of public safety or concern, will be critical.
 

WikiLeaks and Trade Secrets: The Perfect Storm

 
by John Marsh 10. May 2011 07:45

The WikiLeaks scandal has generated widespread concern about how to manage a crisis where a disgruntled employee seeks to post confidential information or trade secrets on the Internet. This scandal arose when PFC Bradley Manning allegedly stole hundreds of thousands of classified diplomatic files and documents and delivered them to the Internet organization, WikiLeaks. WikiLeaks holds itself out as a tool for helping individuals “safely get out the truth” about government and other institutions, and it posted those classified documents on its website for the world to see.

WikiLeaks has not confined its efforts to government information and has also posted confidential information taken from large banks and other private companies that it deemed newsworthy. For example, WikiLeaks has published internal information from Bank of America documenting its internal dialogue on confronting the unique threats posed by WikiLeaks. 

An unsuccessful attempt by the Swiss bank, Julius Baer, to restrain WikiLeaks from posting information on its website in 2008 has now received renewed attention because of the recent scandal [See Bank Julius Baer & Co. Ltd., et al. v. WikiLeaks, et al., Case No. 3:08-cv-0824-JSW, U.S.D.C., N.D. Calif]. Side Note: For those who are interested, I will be speaking on this issue at the American Intellectual Property Law Association's Spring Meeting on Friday, May 13, 2011

The Julius Baer case is worth re-examining in several respects because of the renewed interest in the harm that WikiLeaks or a similar self-styled whistleblower can cause by attempting to post information on the Internet. According to Julius Baer's complaint, a disgruntled former employee, Rudolf Elmer, took client records and data in violation of a confidentiality agreement he signed with Julius Baer. After Elmer’s termination, Julius Baer discovered that Elmer had begun posting hundreds of those records on WikiLeaks’ website. The district court was initially receptive to Julius Baer’s claims and granted Julius Baer’s request for a TRO, enjoining WikiLeaks from further posting or displaying that information and directing WikiLeaks to remove all copies or images from the websites under its control. 

While Julius Baer did not join Elmer as a defendant, it did join the WikiLeaks domain administrator, Dynadot, LLC,  to ensure that the party responsible for the WikiLeaks’ domain name and/or website would comply with any potential order. Julius Baer and Dynadot reached a stipulated permanent injunction order that Dynadot would, among other things, immediately “lock the wikileaks.org domain name to prevent transfer of the domain name" and "disable the wikileaks.org domain name and account to prevent access to and any changes from being made to the domain name and account information.” 

In the meantime, the district court’s entry of the TRO did not prevent WikiLeaks’ posting of the customer information. While it appears Julius Baer was successful in locking down and disabling the WikiLeaks’ domain name registered through Dynadot, the order did not prevent the posting of that customer information on other “mirror” websites.    

In addition, media and public interest groups immediately moved to intervene in the case, arguing that the stipulated permanent injunction improperly interfered with their news-gathering efforts and amounted to a violation of the First Amendment. The district court, in the face of these concerns and the frustration of the order due to the mirror websites, subsequently dissolved that permanent injunction.

The trade secret implications of this case could fill a law review article and warrant further posts on the First Amendment issues, the use of "mirror" websites, among other important points. However, an increasingly common issue is to what degree a trade secret loses protection if it is posted on a website. 

Milgrim, the key commentator in trade secret law, has noted that at least one court has “cautioned under the basic principles of equity, recognized in the trade secret context, a wrongdoer cannot rely on his own postings to avoid the imposition of an injunction by arguing the works posted have lost their secrecy” [4 Milgrim on Trade Secrets, §17.03 at 17-12 (citing Religious Tech. Ctr. V. Netcom On-Line Commun. Servs., 923 F. Supp. 1231, 1256 (N.D. Cal. 1995), trade secret holding revised (N.D. Cal. Jan. 6, 1997)].  Another court has found that the information is now effectively in the “public domain” and refused to issue an injunction [See American Hearing Aid Assocs., Inc. v. GN ReSound N. Am., 309 F. Supp. 2d 694, 705-706 (E.D. Pa. 2004) (conversion claim rejected because customer lists posted on plaintiff’s website could not qualify as trade secrets)]. 

The law is far from settled and the facts of each case may prove critical. As Milgrim notes, publication on the Internet may not necessarily terminate trade secret status, as the facts and circumstances surrounding each disclosure may differ; for example, if prompt and effective action resulted in the postings being taken down, it can be argued that any disclosure was fleeting in nature and did not become known to the relevant audience, i.e., competitors [4 Milgrim, §17.03 at 17-16]. In addition, to the extent that the wrongdoer participated in the posting, he or she should be equitably estopped from making that argument [Id.; see also id, §15.01[1][a][ii] and authorities cited therein; see Silicon Image, Inc. v. Analogix Semiconductor, Inc., 2007 U.S. Dist. LEXIS 96073 at ** 44-46 (N.D. Calif., Dec. 20, 2007) (finding that source code published on Internet did not destroy the secrecy of information at issue)]. However, in the case of third parties (such as media who intervene and rely upon or cite to the postings), that equitable basis may not apply. Finally, it should be noted that the factual circumstances may vary from case to case and the kind of remedy sought in the case (injunction or damages) may further shape the impact of a defense rooted in this issue. 

In short, the answer is “it depends" on many facts, including the length of time that the information was posted on the Internet, when it was posted, and who may have viewed it while it was there. As a result, if a company moves promptly to take the information down, it should be in a strong position to protect any trade secrets that were improperly posted.

About John Marsh

John Marsh Hahn Law AttorneyI’m a Columbus, Ohio-based attorney with a national legal practice in trade secret, non-compete, and emergency litigation. Thanks for visiting my blog. I invite you to join in the conversations here by leaving a comment or sending me an email at jmarsh@hahnlaw.com.

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