Trilogy of Secrets Part 2 - Keeping Trade Secrets Off the Internet
March, 2007
by G. Brent Sims and Michael W. Goodin
The complete formula for Coca-Cola is the paradigmatic trade secret -- one of the best-kept secrets in the world (see Coca-Cola Bottling Co. of Shreveport v. Coca-Cola Co., 107 F.R.D. 288 (D. Del. 1985).)
Merchandise 7x, the Coca-Cola formula, was developed in 1886, and has been protected ever since. Even today, only two persons at a given time know the contents of the formula. The written version is stored in a security vault at the Trust Co. Bank in Atlanta, which can only be opened by resolution of the board of directors.
Compare this to CSS, the software which encrypts DVDs to prevent unlicensed copying. Not long ago, a trade association of motion picture, computer and consumer electronics industries brought suit to enjoin the spread of their trade secret in DVD Copy Control Association, Inc. v. Bunner (2004) 116 Cal.App.4th 241. At the courthouse, prior to the hearing for the injunction, third parties distributed disks containing the “secret” source code, wore T-shirts with portions of the code printed on them and even sponsored a contest for the most unusual means of publicizing the very information sought to be suppressed.
A far cry from Merchandise 7x.
Trade secret protection does not call for the super security measures implemented by Coca-Cola, but rather only “efforts that are reasonable under the circumstances to maintain secrecy.” Today, practically every work station enjoys Internet access. Information which once would have taken file cabinets to contain, and later a stack of CDs, can now be hung on a key chain. In light of these advances in data transfer, companies must be increasingly vigilant in protecting their trade secrets, or they will see such protection gone for good.
The protection of trade secrets is governed by state law. In California, information can qualify for trade secret protection if it is information that derives independent economic value from not being generally known and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Cal Civ Code § 3426.1 subdivision (d).
In DVD Copy Control Association, Inc. v. Bunner, by the time the court considered an injunction to protect CSS, the information appeared on at least 118 web pages, and had become a cause celebre to certain segments of the computer using public. Thus, when the court considered the injunction, it ruled that the information had become so widely available it was no longer a secret. Id. at 255-256.
Once a trade secret gains sufficient traction on the Internet, it may not only lose trade secret protection, but the owner may have almost no remedy. In a case like DVD Copy Control Association, Inc. v. Bunner, a plaintiff is very unlikely to find a misappropriating party with pockets deep enough to compensate it for the economic damage done. In other Internet cases, it may be simply impossible to discover the misappropriating party.
The recent case of O’Grady v. Superior Court (Apple Computers) (2006) 139 Cal.App.4th 1423, is just such a case. Jason O’Grady owned and operated O’Grady’s PowerPage, an online news magazine devoted to news and information about Apple Macintosh computers and compatible hardware and software. O’Grady released sketches and information regarding Asteroid or Q97, a FireWire breakout box for GarageBand, Apple’s program allowing input of analog sources for digital recording. This release prompted Apple’s attorneys to file suit.
In the suit, Apple sought to enforce discovery subpoenas against O’Grady, as well as another Internet publication, along with records from their email providers uncovering the source of the information. The court of appeals ordered that the subpoenas to the email providers be quashed as violating the Electronic Communications Privacy Act (Pub. Law 99-508 (Oct. 21, 1986) 100 Statutes 1860, et. seq.) and directed that the trial court grant a protective order allowing O’Grady to protect his source. The court ruled that O’Grady was protected by reporter shield laws as contained in the California Constitution and Evidence Code. Apple did not appeal.
So far, for those keeping score, it is the Internet: 2; trade secrets: 0.
Courts have held that reasonable efforts to maintain secrecy may include the following: advising employees of the existence of a trade secret; limiting access to a trade secret on a need to know basis; controlling access to the material; requiring employees to sign confidentiality agreements; and protecting confidential material by contract when dealing with business partners. See, Whyte v. Schlage Lock Co. 101 Cal.App.4th 1443, 1454.
While the bar for reasonable efforts to qualify a trade secret for protection has not been raised, companies in high risk situations may wish to consider additional safeguards for the protection of their interests. Some computer guidelines may include the following:
- Have clear rules regarding company computers. Consider monitoring computer usage of employees, though such a policy should make employees aware that they have no expectation of privacy for time spent with the company computer;
- Consider monitoring or restricting the use of email. External email providers are especially dangerous in that such providers both fall outside of the company’s control, and would be difficult to obtain records from should theft occur;
- Require employees to sign computer use policy statements, as well as confidentiality agreements. Employees should be periodically trained and retrained regarding computer policies of the companies, and an exit interview should be conducted to remind future former employees of commitments to keep material confidential after leaving;
- Companies may wish to review their current computer systems for security from both inside and outside of the company, and may also wish to keep abreast of information posted on relevant Internet news sources and chat rooms.
- The best way to protect yourself from the proliferation of trade secrets is still limiting access to the secret to the fewest persons possible. This provides less chance of disclosure and a smaller pool of suspects should information leak.
Once a trade secret escapes, the cardinal rule to remember is that fast action is vital in seeking to regain control of the secret. Any delay with respect to the Internet could lead to a situation where the trade secret spreads out of control. In such a case, as in DVD Copy Control Association, it would likely be too late to reclaim ownership of the secret. Though you may be able to get a nice T-shirt to commemorate what you have lost.
Back to CM Report: Business Practice Group Report (2007) 2007 Table of Contents
