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Whose interests prevail when balancing the First Amendment with company trade secrets? From the Summer 2006 issue of The News…

Whose interests prevail when balancing the First Amendment with company trade secrets?

From the Summer 2006 issue of The News Media & The Law, page 16.

By Hannah Bergman

When Apple Computer subpoenaed Web site operators who published information about upcoming products in an attempt to identify who inside the company leaked, the big question seemed to be whether the online journalists could claim protection under the reporter’s privilege.

But the trial court in San Jose surprised observers, deciding the case based only on Apple’s interests in protecting trade secrets, and did not address the reporters’ interests in keeping information confidential.

A California appeals court overturned the decision in May and told judges they must grapple with a thorny legal issue: how to balance the competing interests when the First Amendment and intellectual property law butt heads.

“When two public interests collide, it is no answer to simply point to one and ignore the other,” Presiding Justice Conrad L. Rushing wrote in the Apple case for a unanimous three-judge panel of the California Court of Appeal in San Jose.

While First Amendment law is well-established, trade secret law is ill-defined, governed by state laws that vary across the country, said Peter Scheer, the executive director of the California First Amendment Coalition.

“We’re talking about things that are not special enough and original enough to have patent protection,” Scheer said. “We’re talking about things that are not necessarily copyrighted.”

In this case, the trade secret Apple claimed was news of its upcoming release of an audio device that can be connected to an analog musical instrument allowing recording in conjunction with Apple software called GarageBand.

“This case involves not a purely private theft of secrets for 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,” Rushing wrote.

Apple has decided not to appeal.

The dispute began in December 2004, when Apple sued 25 unknown individuals, presumably Apple employees, suspected of leaking information about the Apple product. The information was published on Jason O’Grady’s PowerPage, Monish Bhatia’s Mac News Network and Kasper Jade’s Apple Insider, all online publications focusing on the latest products to come out of Apple Computer.

Apple subpoenaed the Internet service providers that hosted the journalists’ e-mail accounts and the journalists themselves in an attempt to find the source of the information. The journalists lost initially when the trial court ruled that trade secret interests trump the news media’s confidentiality interests, but the appeals court ruled they did not have to disclose their sources because they are covered by the California reporter’s shield law.

Apple’s position was that reporters violated trade secret laws by publishing confidential information. The journalists, arguing that the information is not a trade secret, maintained that they were protected by the First Amendment and California’s shield law. The Reporters Committee filed a friend-of-the-court brief in the case.

In ruling that the journalists also were protected by a qualified, federal constitutional privilege, the appeals court discussed trade secrets in the context of the role of the reporters in the lawsuit and the importance of preserving confidentiality.

Apple accused the reporters of misappropriating trade secrets but at the same time refused to name the reporters as defendants in the case, according to the ruling.

“Apple cannot have it both ways,” Rushing wrote.

If the reporters had misappropriated trade secrets, then they should be defendants, he wrote. If Apple would not name them as defendants, then the company could not argue, as a reason for forcing the reporters to their reveal sources, that they had misappropriated trade secrets, the court said.

Apple also argued the reporters should have to reveal their sources because there is no legitimate public interest that justifies revealing a company’s trade secrets. Publishing trade secrets does not serve the public interest because the public interest behind trade secrets law is that companies should be able to keep them private, Apple argued.

Calling Apple’s position a “false dichotomy,” Rushing wrote that merely labeling information “confidential” cannot remove the public interest from disclosure of that information.

Scheer agreed. The court is “saying, correctly, if we’re going to take seriously at all a claim of trade secrets as a way to trump First Amendment protections then it’s incumbent on courts to scrutinize the alleged secret,” he said.

Kurt Opsahl, a staff attorney at the Electronic Frontier Foundation, which represented the journalists, said the three-judge panel that heard the case was well-equipped to balance the concerns of the computer giant against the First Amendment.

Two of the three judges in the Apple case were on the appellate panel that decided one of the few cases where a similar trade secret claim was made, DVD Copy Control Association Inc. v. Bunner. There, in 2003, the California Supreme Court in San Francisco upheld a preliminary injunction against a Web site, prohibiting the site from publishing a program and information that cracked encryption on DVDs, because the encryption information was a protected trade secret.

The preliminary injunction did not violate the First Amendment, assuming the trial court correctly applied the trade secret law, the state’s highest court ruled. The court returned the case to the trial court to determine if the law had been correctly applied. The appeals court found it had not and lifted the injunction. By the time the DVD association sued, the appeals court said the secret had been so widely disseminated that it no longer warranted protection.

The California cases together mean the First Amendment does not always trump a trade secret, but in a balancing test it often will. Scheer said this is a bit troublesome — he’d rather have a bright-line rule.

“I worry a little bit about any test for freedom of speech that depends on such an ad hoc balancing of values,” he said.

May’s ruling showed that the appellate panel highly valued “First Amendment interests and were not intimidated or wowed by the fact that the trade secret protections were being asserted by Steve Jobs, and by a powerful company in the court’s back yard,” Scheer said, noting that may not always happen.

Apple also sued the Web site in 2005 for disclosing information about an upcoming Mac Mini computer. Oral arguments at the trial court, rescheduled several times, are slated for October. Web site operators did not return repeated phone calls.

Outside of California, there have been a handful of cases, all in the 1990s, which raised similar issues to the Apple suit.

In 1994, Federal Beef Processors Inc. asked a South Dakota state court to prevent CBS News and “48 Hours” from airing footage it had obtained with the help of an employee wearing a hidden camera. As part of its argument, Federal claimed CBS would violate the state’s trade secret law. The state court ruled that “public dissemination of Federal’s confidential and propriety practices and processes would likely cause irreparable injury.”

On emergency appeal, U.S. Supreme Court Justice Harry Blackmun, stayed the injunction as an invalid prior restraint. Blackmun said if CBS were to breach a state law in airing the tape, then that should be dealt with after the actual airing. Federal did not pursue the case.

In 1996, the Supreme Court of Oregon overturned a lower court order prohibiting Sports Management News Inc., publisher of a weekly trade newsletter, from publishing information about soon-to-be-released Adidas shoes in violation of the trade secret law.

The court ruled that a section of the state’s trade secret law — allowing a court to order “any person involved in the litigation not to disclose an alleged trade secret without prior court approval” — violated the state Constitution.

In 1999, the U.S. District Court in Detroit refused to prohibit the publisher of from disclosing Ford Motor Co. trade secrets. “Ford’s commercial interest in its trade secrets and Lane’s [the defendant’s] alleged improper conduct in obtaining the trade secrets are not grounds for issuing a prior restraint,” Judge Nancy Edmunds wrote.

Despite the favorable court opinions for journalists, Scheer said he is concerned there will be more rulings affecting the news media with trade secrets and other intellectual property concerns, such as a 2004 Florida case in which a county appraiser refused to release maps to a company that requested them as public records because he thought they were copyrighted. A state appellate court ruled they were not copyrighted.