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In a rare appellate decision involving injunctive relief to protect trade secrets, the California Court of Appeal recently held that a defendant could not be enjoined from posting plaintiff DVD Copy Control Association's ("DVD CCA") formerly secret anti-DVD copying code information on a website. The Court reversed the trial court's grant of a preliminary injunction, because the information was already widely available to the public at the time of the posting, there was only "sparse" evidence that the information had been improperly obtained, and "the preliminary injunction burden[ed] more speech than was necessary to protect the DVD CCA's property interest." DVD Copy Control Assoc. Inc., v. Bunner, 2004 Cal App. LEXIS 234, *17, *20, *26 (February 27, 2004).

The appellate court had already determined, in a prior proceeding, that the trial court's injunction was an unconstitutional restraint on free speech. Id. at *2. However, the California Supreme Court granted review, and held that "assuming the trial court properly issued the injunction under California trade secret law," the preliminary injunction would not violate the free speech clauses of the United States and California Constitutions. Id. On remand, the appellate court determined that the preliminary injunction was not warranted under California's Uniform Trade Secrets Act ("UTSA") and therefore reinstated its holding that the preliminary injunction violated free speech. Id. at *2, *28.

This case involved technology developed by the motion picture industry to protect DVDs from being "pirated" or copied without authorization. The technology, known as "CSS" scrambles the data on a DVD disk. This "scrambling" prevents the DVD's content from being copied, and only allows the DVD to be played on a "compliant DVD player," i.e. a player equipped to unscramble the security code.

The appellate court indicated that the motion picture industry took reasonable steps to keep the CSS technology secret, including devising a restrictive licensing scheme that required all licensees to agree to strictly maintain the confidentiality of the technology. Id. at *4-5. The appellate court also noted that once manufacturers started using the DVD-security technology to prevent copying, "a number of people became interested in unraveling the CSS security system." Id. at *7. In particular, users of Linux (an alternative operating system to Windows) were interested in decoding the CSS technology, because computers using Linux were incapable of reading the CSS-encrypted DVDs, as the DVD CCA had not licensed the CSS technology to anyone making DVD drives for computers that run Linux. Id. The Court noted "CSS was widely analyzed and discussed in the academic cryptography community . . . [and] on websites popular with computer programmers," such as www.slashdot.org. Id. at 8.

As a result of reading and participating in discussions on slashdot.org, the defendant in this case, Andrew Bunner, got wind in October 1999 that the CSS code had been cracked, and that "DeCSS" code technology was available on the web and could be used to read or copy DVDs that were CSS-encrypted. "Bunner thought DeCSS would be useful to other LINUX users" and therefore posted information about DeCSS, and links to the DeCSS code on his website. Id. at *9.

The DVD CCA brought suit against anyone it could identify that was posting or disseminating information about DeCSS, including Bunner. "The lawsuit outraged many people in the programming community." Id. at * 11. Proponents of DeCSS wore "tee shirts with parts of the code printed on the back" and held "contests encouraging people to submit ideas about how to disseminate the [DeCSS] information as widely as possible."

The DVD CCA sought a preliminary injunction from the trial court. The trial Court issued a preliminary injunction, finding that:

1. "trade secret status should not be deemed destroyed merely because the information was posted on the Internet, because 'to hold otherwise would do nothing less than encourage misappropriaters [sic] of trade secrets to post the fruits of their wrongdoing on the Internet as quickly as possible and as widely as possible thereby destroying a trade secret forever.'" Id. at *12 (quoting the trial court).
2. "the evidence was 'fairly clear' that the trade secret had been obtained through a reverse engineering procedure that violated the terms of [the] license agreement and, based upon some defendants' boasting about their disrespect of the law, it could be inferred that the trade secret had been obtained through improper means." Id.
3. "The balancing of the equities favored DVD CCA." Id.

The trial court found that unless the defendants were enjoined from disseminating DeCSS, DVD CCA would be irreparably harmed as it would "lose the right to protect CSS as a trade secret and to control unauthorized copying of DVD content." Id.

The California Court of Appeal reversed, holding that the preliminary injunction was not proper. The Court stated that for a preliminary injunction to be proper, there must be a showing of a likelihood of success on the merits and of "relative interim harm" to the party seeking the injunction if the injunction does not issue. Id. at *16. The Court stated "the test for a trade secret is whether the matter sought to be protected is information (1) that is valuable because it is unknown to others and (2) that the owner has attempted to keep it secret." Id. at *17. The Court held that by the time the defendant posted the information, the DeCSS was already widely available to the public. "[I]f the allegedly proprietary information contained in DeCSS . . .had become public knowledge by the time the trial court granted the preliminary injunction, the injunction (which only prohibits disclosure) would have been improper because DVD CCA could not have demonstrated interim harm." Id.

The Court delineated that "misappropriation of a trade secret requires "(1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) Disclosure or use of a trade secret of another without express or implied consent by a person who . . . At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it." Id. at *18.

The Court held that DVD CCA could not demonstrate a likelihood of success on the merits because there was only "sparse" evidence that "the offending program was actually created by improper means. Reverse engineering alone is not improper means." Id. at *20-21. Furthermore, the Court held that even if DeCSS had been obtained by improper means "it does not necessarily follow that once the information became publicly available everyone else [who distributed the information] would be liable under the trade secret laws for republishing it simply because they knew about its unethical origins." Id. at *21.

The Court also held that "the balance of the harms" did not favor DVD CCA because before "DVD CCA first took legal action to stop publication of DeCSS, the technology had already become available to those most interested in obtaining it." Id. at *26. Therefore, DVD CCA could not show that a preliminary injunction would prevent "more or different harm" than the plaintiff had already suffered. Id. Additionally, the Court noted that, in balancing the relative hardships, the trial court had failed to take into account the defendant's First Amendment rights. The Court held that the preliminary injunction was not proper under the UTSA, and therefore "burden[ed] more speech than necessary to protect DVD CCA's property interest and was an unlawful prior restraint upon Bunner's right to free speech." Id. at *28 (citing DVD Copy Ctr'l Assn. Inc. v. Bunner, 31 Cal. 4th 864, 889 (2003)).

This decision evidences the complicated issues involved in attempting to protect valuable trade secret technology. When faced with large segments of the public interested in circumventing secret security technology, companies may not find the refuge they hope for in UTSA. Rather than going after mere "re-publishers" of already publicly available former secrets, companies will need to focus on greater measures to keep their information secret, and on targeting the original people responsible for any misappropriation.