TRADE SECRETS: Not So Secret On The Internet

By JULIE HILDEN


julhil@aol.com
----
Monday, May. 14, 2001

Although trade secrets are carefully guarded in the offline business world, it is proving extremely difficult to protect them online. To see the contrast, it's helpful to look at one famous offline example, and one recent, less famous online example.

Trade Secrets in the Offline World

Offline, the consequences of trade secrets claims strike fear into the hearts of men. Take one famous example — chronicled in the movie "The Insider."

In 1995, CBS pulled a segment that featured an interview with Jeffrey Wigand, a former Brown & Williamson executive, just before the segment was scheduled to air. Wigand wanted to say, in essence, that the tobacco company knew nicotine was addictive. CBS believed him, but feared that a lawsuit might be filed by the tobacco company over his disclosure of confidential information could cost the network millions. (Specifically, lawyers feared the company would claim, among other things, that CBS had "tortiously interfered" with Wigand's confidentiality contract by airing the interview).

The segment finally ran — after some embarrassing publicity by other media outlets of CBS's decision to kill it due to legal risks. But before the segment aired, Wigand, because of his decision to talk, was sued by Brown & Williamson, which successfully obtained a restraining order against him for a time.

In the end, as a consequence of speaking out, Wigand lost everything: his marriage, his family, and his career. The decision to talk was one of the gravest and riskiest of his life. Given the liability risk CBS took, its decision to run the segment was one of the network's gravest and riskiest, too.

Trade Secrets on the Internet

Trade secret law has an important exception: If something is no longer a secret, but rather, is public, it is no longer legally protected. It turns out that this exception, important but burdensome to claim in the real world, is an easy-to-claim safe harbor for many Internet publishers.

Prior to the advent of the Internet, to show an alleged trade "secret" was actually public knowledge was often an uphill battle. One would usually have to present evidence that the alleged "secret" had appeared in the print media (unlikely, as how many times has the Coca-Cola formula or its equivalent graced the pages of a major newspaper?), or was well-known throughout the industry (time-consuming to prove; you'd have to conduct depositions far and wide).

With the Internet, however, showing that a claimed trade "secret" is public knowledge can be child's play. If the alleged "secret" has appeared anywhere on the Internet (no matter how obscure its placement) prior to its publication by the defendant, then one can argue in court that it was effectively public knowledge, because it was retrievable through a search by an interested party.

While few Internet trade secrets claims have been litigated, at least one trial court has accepted this argument. And given that most Internet users frequently like to avail themselves of search engines geared to the topics in which they are interested, the argument must be taken seriously.

If this argument is accepted widely — and it is hard to see a strong ground for rejecting it — then the upshot may be to force the plaintiff to sue the very first poster of the information at issue, and only that poster.

So suppose numerous disgruntled employees post the confidential intra-company e-mails that notified them of their firing all over the Internet. The mere information that they were fired would be public knowledge by then. But the e-mails might well, also, summarize the company's financial woes in order to try to justify the firing, thereby leading to a trade secret (and/or contract breach) claim.

Theoretically, though, only the first employee to post could be liable, since the first posting would make the information public.

A Website Takes Advantage of Internet Trade Secret Law

It was only a matter of time before a website took advantage of this legal twist.

As the second — not the first — to post the information, Fuckedcompany probably fell within the "public knowledge" exception to trade secret law. Viewed another way, however, it played CBS to the original poster's Wigand — providing a large audience for an individual's disclosure of confidential corporate information.

The link was accompanied on the site by the following message:

Wouldn't it suck if you were the CEO of an evil dot-com, and a disgruntled employee stole your private Instant Messenger logs and posted them on the Internet? Wouldn't it suck even more if you were discussing your evil plot to ripoff your affiliates?

A link to the Instant Messenger logs revealed that they contained some appalling comments. One participant suggested, for example, that a female webmaster should be punished for "want[ing] to play hard ball." Another agreed: "yeah rape her and spit on her."

The logs also contained a fair amount of confidential corporate strategy — albeit strategy filled with expletives, failed attempts at humor, and one-word, grunt-like responses such as "heh."

FuckedCompany Laughs at the Law

By the next day, Slashdot.com had reported that the information was "all over the place already" — posted not only on FuckedCompany but also on numerous other message boards and forums.

Two days later, Philip Kaplan, who seems to virtually run Fuckedcompany single-handedly, received an e-mail from eFront.com's legal department, titled "Final Warning." The letter demanded that Kaplan de-post the eFront documents because "a former employee of eFront hacked into the personal computer of the owner" to obtain the e-mails and Instant Message conversations.

Rather than de-posting the eFront material, however, Kaplan forthwith posted the legal e-mail itself — describing it as "hilarious." Above the "Final Warning" caption, Kaplan added a second caption: "Scully and Moulder [sic] are on the case."

In short, as much as CBS feared law-violation, Kaplan glories in it. Indeed, his desperado mixture of irreverence, contempt, and sarcasm is what has earned him a devoted following among both soured dotcommers and spectators of the dotcom downfall.

By comparison, a site like Thesmokinggun.com is far more careful and (at least purportedly) law-abiding, claiming that while it offers "exclusive documents — cool, confidential, quirky," the papers are also properly public, the result of Freedom of Information requests and court-file searches.

Why FuckedCompany Laughs

How does Kaplan get away with it, one might ask? The trade secret "public knowledge" exception" mentioned above probably gives him a great deal of comfort. And it probably helps that he generally chooses to skewer already-ailing companies that are more concerned with the bottom line than with filing expensive lawsuits.

But Kaplan targets healthy companies and their affiliates, too. Consider New York Times Online, for example, and its "goofy little memo." All that may be protecting Kaplan from a suit from that site is that the paper is likely disinclined to sue another journalist, however gonzo he may be.

It may also help that Fuckedcompany sometimes simply links to other sites — as with the eFront e-mails and logs — rather than actually hosting the documents at issue.

The contrast between using a link and actually hosting a document is probably a distinction without a difference, given the porous borders of the Internet. (Is it fair, for example, to give a site composed entirely of links a free pass, deeming it inherently liability-free no matter how well-trafficked it may be?)

The site's survival is even more impressive given that Fuckedcompany is hardly judgment-proof. The site carries ads, and Kaplan himself, who had initially proclaimed that that he wouldn't make money from the site, has struck out that comment and replaced it with the remark "I could maybe make money doing this."

He may be right: After all, his prank auction of the site on eBay garnered some apparently serious bids of $3 million plus. Nevertheless, the site is, at least, not favored with pockets as deep as, say, CBS's — another factor that may work in its favor.

Kaplan's attitude — and the survival of his site — seem to signal not just a trade secret principle, but a general Internet trend: The first to put his head up (for example, the original poster to whose information Kaplan linked) risks getting it shot off, becoming a flash point for lawsuits. But everyone else can rest easy — they are only reporting, commenting, or repeating, after all.

The trend goes far beyond journalism: All of Napster's woes, for example, seem only to have blazed an easy path for its competitors. On the Internet, it seems, what doesn't kill me, makes my imitators stronger.

Another interesting, Internet-only twist is that even the first poster may never actually face a trade secrets lawsuit — for the first poster may not be a wealthy company, but rather, a lone, judgment-proof (or pseudonymous) individual, or even a small, virtually judgment-proof site that receives the confidential information from an anonymous source.

Today, Jeffrey Wigand could simply have given his confidential documents anonymously to an individual Internet publisher willing to post them, and then waited for a Fuckedcompany link to make them famous.

He would not have had to face career loss, nor a lawsuit, nor a wrecked marriage. Indeed, had he chosen to do so, he could have continued to work in the tobacco industry. Moreover, no publisher would have to lose sleep about publication, the way CBS did in the Wigand case.

And interestingly, we would not have had to wait for someone with the courage of a Wigand to step forward — or for a network like CBS to be prodded into having the courage to publicize Wigand's disclosure.

In short, the price of integrity is much lower these days, and the vulnerability of companies that want to keep secrets, much greater.


Julie Hilden, a FindLaw columnist and a graduate of Yale Law School, is a freelance writer and the author of the memoir "The Bad Daughter." She practiced First Amendment law as an associate at the Washington, D.C. firm of Williams & Connolly from 1996-99.

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