Two recent cases may make it more difficult for companies to prevent their trade secrets from being publicly disclosed after they are obtained by third parties. In DVD Copy Control Association v. Bunner1 and Ford Motor Company v. Lane,2 a California Court of Appeal and a federal district court in Michigan denied trade secret holders injunctive relief that would have required website operators to remove postings of trade secrets on their websites. In both cases, the courts held that First Amendment interests in avoiding prior restraints on speech outweigh the trade secret holder's commercial interests in its trade secrets. Trade secret holders may have to seek other remedies once their trade secrets have been published. This update will summarize the two recent cases and discuss some avenues trade secret holders can pursue to remedy lost property rights.
DVD Copy Control Association v. Bunner
The case arose from an action brought pursuant to the California Uniform Trade Secrets Act3 by plaintiff DVD Copy Control Association (DVD CCA) against Andrew Bunner and numerous other website operators. The DVD CCA licenses the Content Scrambling System (CSS), which is an encryption scheme that restricts the playback of encrypted DVDs to CSS-equipped DVD players. A Norwegian teenager developed code known as "DeCSS" that allows users to play CSS-protected DVDs on any machine. Bunner posted DeCSS on his website, as did many other website operators around the world. The DVD CCA sued Bunner and other defendants, claiming that they misappropriated the DVD CCA's trade secrets by posting the DeCSS program on their websites. The Superior Court issued an order preventing the defendants from continuing to post the DeCSS on their sites, and Bunner appealed.
The Court of Appeal accepted the allegation that Bunner had misappropriated DVD CCA's trade secrets. Nonetheless, the court found that the First Amendment protects Bunner's publication as an exercise of free speech. The court noted that it was not disputed that "computer code is speech," and it concluded that the Superior Court's preliminary injunction could be characterized as a prohibition of "pure" speech. It then held that the Superior Court's order was a prior restraint on speech, which is not allowed under the First Amendment.
The appellate court said that the fact that DeCSS may improperly use or disclose trade secrets does not defeat Bunner's First Amendment free speech rights. The court specifically rejected DVD CCA's argument that courts routinely enjoin trade secret misappropriation, even over a First Amendment defense. The court suggested that injunctive relief may be available only when the person publishing the information has a contractual or fiduciary duty to the trade secret holder to keep the information confidential, since a voluntary agreement not to disclose a trade secret will ordinarily waive any First Amendment defense for disclosures. In this case Bunner apparently obtained the DeCSS code from third parties, and he did not have any relationship with the DVD CCA.
Ford Motor Company v. Lane
This case came before the court on plaintiff Ford Motor Company's ("Ford") motion for a preliminary injunction for violations of the Michigan Uniform Trade Secrets Act.4 Defendant Robert Lane maintained a website with the domain name "fordworldnews.com," where he published information that he received from Ford's press release website about Ford and its products. Upon learning that Lane's domain name incorporated the word "ford," Ford blocked Lane's access to the press release website. In response, Lane changed his domain name to "blueovalnews.com" and posted an article on the site that discussed and quoted confidential information that Lane received from an anonymous source. Lane subsequently published additional confidential documents, including many with high competitive sensitivity. Lane was aware of the confidential nature of the Ford documents. As such, Ford filed for injunctive relief, alleging that Lane misappropriated trade secrets.
Although the district court found that Ford provided sufficient evidence to conclude that Lane likely violated the Michigan Trade Secrets Act, the court nevertheless held that issuance of the requested injunction would run afoul of the First Amendment. The court concluded, "in the absence of a confidentiality agreement or fiduciary duty between the parties, Ford's commercial interest in its trade secrets and Lane's alleged improper conduct in obtaining the trade secrets are not grounds for issuing a prior restraint." The court did not foreclose the possibility of a legal remedy for Ford due to Lane's unauthorized dissemination of confidential materials.
What Can Trade Secret Holders Do To Remedy Lost Property Rights?
In light of the cases mentioned above, the following are some remedies that a trade secret holder can seek once such information is published over the Internet:
The policies behind trade secrets and free speech are directly in conflict with one another. The recent cases suggest that the First Amendment may trump trade secret protection in many instances and prevent trade secret holders from obtaining preliminary injunctions. However, courts have upheld such injunctions where First Amendment rights have been waived by contract or legal relationship. Finally, trade secret holders may bring actions for damages, criminal sanctions, or assert violations of other intellectual property rights.