Analysis: Apple's incomplete legal victory

Search through the coverage of Apple’s two lawsuits involving Mac rumors sites, and you're bound to come across commentary about the First Amendment and freedom of the press. But a closer examination of the actual judge’s ruling that Nfox, the e-mail provider for Jason O’Grady of O’Grady’s PowerPage, must turn over information O’Grady received about an unreleased Apple audio product reveals that court considers this case really an issue of property rights.

The Story so Far

Apple has two lawsuits pending that involve rumor-tracking Web sites. In Apple Computer v. Doe No. 1, et al. (or Apple v. Does for short), the company is suing up to 25 unnamed individuals for misappropriation of trade secrets—specifically, leaking Apple’s confidential information about an unreleased audio product code-named “Asteroid” to Think Secret, AppleInsider, and Jason O’Grady’s PowerPage.

As part of the discovery process, Apple obtained subpoenas for all three sites for any and all information related to “Asteroid,” including the identity of all people who leaked the information, or communications that might reveal said identities. None of the sites is a defendant in the Does suit, though Apple has made clear that they could be named as defendants if evidence shows that they knowingly published Apple’s trade secrets (and Think Secret is a defendant in a second lawsuit not related to “Asteroid”).

Both Think Secret and AppleInsider have their own e-mail service, so obtaining information about their e-mail records and messages would require subpoenaing the sites themselves, invoking difficulties about journalist privileges. When Apple learned that PowerPage used an external e-mail provider, the company’s legal team found its path of least resistance. Nfox has gone beyond refusal to contest the subpoena—the ISP refused to promise O’Grady that it would not comply with the subpoena before appeals were exhausted. That’s when the Electronic Frontier Foundation, representing the three sites, went to court seeking a protective order on O’Grady’s behalf to prevent Nfox from turning over the information to Apple.

On March 4, lawyers for Apple and for the three subpoenaed sites met in the San Jose courtroom of Superior Court Judge James P. Kleinberg. They were arguing over the sites’ motion for a protective order barring Nfox from honoring Apple’s subpoenas. It was an uphill battle, because one day earlier, Judge Kleinberg tentatively ruled in Apple’s favor.

On March 11, the Judge formalized his preliminary decision, denying the motion for the protective order, leaving Nfox free to honor Apple’s subpoenas and turn over all information from O’Grady’s e-mail related to “Asteroid,” including that which may identify the person who sent it to the sites. In the 13-page ruling, Kleinberg essentially told the three sites (the ones who moved to have the subpoenas quashed, hence their reference as movants in the decision) that their status as journalists does not matter—if they had Pulitzer Prizes, they’d still have to honor the subpoenas.

Trade Secrets

The law in question—one that nearly all the heated coverage of Apple’s lawsuits has managed to ignore—is the California Uniform Trade Secrets Act, or UTSA. California is one of seven states that adopted the 1979 version of UTSA drafted by the National Conference of Commissions on Uniform State Laws. Thirty-seven other states and the District of Columbia adopted the amended 1985 version, and it’s pending in the 2005 New Jersey legislature. Only New Jersey, Massachusetts, North Carolina, New York, Texas, and Wyoming don’t have the UTSA in state law.

Common law recognizes the existence of trade secrets that are, in the NCCUSL’s words, “basically, information of commercial value.” The group continues, “Key to the need for protection is the fact that the information is not generally known to others and is not readily ascertainable by proper means. A trade secret, generally, would be exclusive knowledge, of economic value, which has been generated by the labors of a specific person or persons who have an interest in protecting its value.”

Although the US Supreme Court has ruled that facts cannot be copyrighted, both common law and the UTSA firmly establish that trade secrets are property. Specifically, trade secrets are information, and information is property. Ironically, for this discussion, the Supreme Court affirmed that information is property in Carpenter v. United States , the case in which the court upheld the conviction of Wall Street Journal reporter R. Foster Winans for fraud.

Winans had written the Journal’s influential “Heard on the Street” column, and had been secretly leaking the contents of upcoming columns before they were published. Those who received the leaks could act on the news before the rest of the market, gaining an advantage. Winans had argued that his own knowledge of his columns was an “intangible right,” but the Journal—the press, mind you—testified that it considered everything in an unpublished article confidential until it was published. The courts found that Winans had “misappropriated” the Journal’s property, and that was the foundation for upholding the fraud convictions.

Since trade secrets are property whose value is tied to their secrecy, the courts have ruled that people who possess trade secrets that they do not own do not have a constitutional right to share those secrets. Normally, activities like speaking or printing what you know would be constitutionally protected as freedom of speech or freedom of the press. In this case, however, revealing (or misappropriating) a trade secret is essentially theft—the taking or destroying of property—and the courts have consistently held that you have no constitutional right to perform criminal acts.

Back to San Jose

Under the law, information can only be a “trade secret” if the owners protect it—you can’t use next year’s product plans as reading material in the reception area and then be upset if competitors read it. That’s not what happened with the “Asteroid” information in Apple v. Does, as Judge Kleinberg’s decision reveals (we’ve eliminated most citations in quotes from the ruling for readability):

The posting by Mr. O’Grady contained an exact copy of a detailed drawing of “Asteroid” created by Apple. The drawing was taken from a confidential set of slides clearly labeled “Apple Need-to-Know Confidential.” In addition, technical specifications were copied verbatim from the confidential slide set and posted on the online site.… The Court is convinced by Apple’s presentation, including the materials produced in camera that this action has passed the thresholds necessary for discovery to proceed.

The ruling strongly implies that someone who had access to an Apple presentation, “clearly labeled ‘Apple Need-to-Know Confidential,’” packed it up and e-mailed it to O’Grady. The subpoena in question is to Nfox, and although the ISP does not object to the subpoena (and, in fact, already informed Apple that it has “many” O’Grady e-mail documents containing the term “Asteroid”), O’Grady and the other rumor sites do object. They probably wouldn’t waste the effort if the information hadn’t arrived via e-mail.

O’Grady received the information and then posted it “verbatim” on his site, including an “exact copy” of a drawing from the presentation. If O’Grady indeed received an unmodified copy of the presentation, complete with the confidential tags, then either he believed the presentation he received was Apple’s confidential information and he posted it anyway, or he didn’t know or care whether the information was true or accurate before slapping it up as “news” for PowerPage readers.

The Reporter’s Shield

This is where Apple’s secondary argument that O’Grady (and perhaps his fellow movants) are not “journalists” showed up, allowing the media to fixate on it and reshape the story line. In response to movants’ claims that they are journalists and therefore protected from subpoena by both the First Amendment and California’s reporter shield law, Apple rebutted that O’Grady’s report was not “journalism”—just the dissemination of stolen or misappropriated trade secrets. There was nothing resembling analysis or interpretation, and no sign that O’Grady uncovered facts and placed them in context—just repeating of Apple’s clearly-labeled private information.

Why would Apple step on this hornets’ nest? Because in its petition for the protective order, EFF asked the court to extend California’s reporter’s shield to cover O’Grady and the other rumor sites. California’s law specifically restricts its privilege to journalists “connected with or employed upon a newspaper, magazine, or other periodical publication, or by a press association or wire service,” or people who were so employed or connected in the past if that’s when they produced the work in question. It also applies to radio and television stations and reporters. Normally, the courts will find that a statute written to include specific groups by default excludes other groups that are not named.

EFF argues that both the Second and Ninth Circuit Courts of Appeal have said that the test is “whether the person seeking to invoke the privilege had ‘the intent the use material—sought, gathered or received—to disseminate information to the public and [whether] such intent existed at the inception of the newsgathering process.’ If both conditions are satisfied, then the privilege may be invoked.” That’s from a Ninth Circuit decision extending the privilege to a book author, a job definitely not included in California’s statute. EFF argues that if you apply this test, then O’Grady clearly qualifies as a journalist because the PowerPage is a “periodical publication,” and his activities meet this test.

However, in its brief opposing the protective order, Apple’s attorneys said, “Although the law has been repeatedly amended to include new forms of media, it has never been enlarged to cover posting information on a website. Persons who post such information, moreover, are not members of any professional community defined by standards and common practices. Indeed, anyone with a computer and Internet access could claim the Shield if O’Grady’s arguments were accepted. The language of the statute, however, forecloses such claims.”

Apple argued that O’Grady was not engaged in what the California courts have defined as journalism, namely, being “engaged in legitimate journalistic purposes, or [having] exercised judgmental discretion in such activities.” Apple says this because it wants to win, but also because it has long been O’Grady’s habit to publish whatever people send him. Apple wrote, “An examination of [PowerPage] shows that its general practice is to publish information without the verification and investigation that are the essential hallmarks of journalism.”

Apple quotes several passages from PowerPage encouraging people to send in anonymous information and assuring them that their anonymity “has no effect on whether we will accept or reject a story.” The company notes, “If O’Grady does not commonly know the identities of his sources, he has severely limited his ability to ascertain the truth of the information submitted. This directly contravenes ethics codes applicable to legitimate journalists.”

In other words, if EFF wants the courts to extend the reporter’s shield to online journalists, Apple says those people must meet minimum professional standards for journalists, and O’Grady does not. That’s more restrictive than the court’s stated requirement to be “engaged in legitimate journalistic purposes, or have exercised judgmental discretion in such activities,” but as long as EFF is asking the court to create new law, Apple can do the same.

Unfortunately for the sites, Judge Kleinberg found that even if O’Grady and his fellow movants are journalists, it wouldn’t be grounds to quash the subpoenas. The movants cited lots of cases in which the courts ruled against prior restraint, or requests for injunctions to bar further publication of secret material. Kleinberg found this to be irrelevant, because Apple was seeking discovery in its lawsuit against the John Does, not injunctions against Nfox or Jason O’Grady.

That was bad enough for the sites, but Kleinberg then shredded the claim of reporter’s privilege:

Movants contend they are journalists. They make this claim because they seek the protection of the privilege against revealing their sources of information. Defining what is a “journalist” has become more complicated as the variety of media has expanded. But even if the movants are journalists, this is not the equivalent of a free pass. The journalist’s privilege is not absolute. For example, journalists cannot refuse to disclose information when it relates to a crime. As the Supreme Court in Branzburg stated:

“The preference for anonymity of those confidential informants involved in actual criminal conduct is presumably a product of their desire to escape criminal prosecution, and this preference, while understandable, is hardly deserving of constitutional protection."

Judge Kleinberg acknowledged the movants’ claims that there must be some balance between a reporter’s privilege and Apple’s broad right of disclosure. Again to the dismay of O’Grady, the California Supreme Court already established a five-part test for whether discovery should outweigh privilege, and the court found that it favored discovery in this case.

Reporters and Public Interest

One part of the five-part test can relate to the “public good.” The movants also cited cases like the Pentagon Papers to invoke the nobility of the shield laws, noting that without a free press, a democratic society ceases to function. However, Judge Kleinberg repeatedly asked movants in court what “public good” this disclosure had. It’s not like the story was “iPods are poisonous and Apple is hiding it,” or “Final Cut Pro HD causes infertility in lab rats.” Issues of wide public welfare were never under discussion—just the specifications for a relatively small-market unreleased product. As noted in the Apple v. Think Secret case, the Web sites tried to claim the “public good” or “public interest” because Apple fascinates lots of people. Kleinberg similarly eviscerated that sidestep:

Much of the movants’ papers and their oral argument stressed the public’s interest in Apple and its products. Movants miss the point. Of course the public is interested in Apple. It is a company which has achieved iconic status.… But an interested public is not the same as the public interest .

At the hearing the Court specifically asked what public interest was served by publishing private, proprietary product information that was ostensibly stolen and turned over to those with no business reason for getting it. Movants’ response was to again reiterate the self-evident interest of the public in Apple, rather than justifying why citizens have a right to know the private and secret information of a business entity, be it Apple, HP, a law firm, a newspaper, Coca-Cola, a restaurant, or anyone else. Unlike the whistleblower who discloses a health, safety, or welfare hazard affecting all, or the government employee who reveals mismanagement or worse by our public officials, the movants are doing nothing more than feeding the public’s insatiable desire for information.

The court then dismissed claims that the sites should be protected by California’s reporter shield law. The court found, “Whether [O’Grady] fits the definition of a journalist, reporter, blogger, or anything else need not be decided at this juncture for this fundamental reason: there is no license conferred on anyone to violate valid criminal laws.” Judge Kleinberg noted that all the patriotic pomp about “freedom of the press” deliberately ignored that Apple’s trade secrets are property, hoping that the court would not notice; it did.

In conclusion, the court found:

Let there be no doubt: nothing in this order is meant to preclude the exchange of opinions and ideas, speculation about the future, or analyses of known facts. The rumor and opinion mills may continue to run at full speed. What underlies this decision is the publishing of information that at this early stage of the litigation fits squarely within the definition of trade secret. The right to keep and maintain proprietary information as such is a right which the California legislature and courts have long affirmed and which is essential to the future of technology and innovation generally. The Court sees no reason to abandon that right even if it were to assume, arguendo , movants are “journalists” as they claim they are.

What It Means

The ruling was bad news all around for the rumor sites, and doubly so for Think Secret because it hints at how a California court might rule in the Apple v. Think Secret case. Rumor sites have published anything they could get their hands on for years, believing that the First Amendment protected it all from Apple’s legal grasp. Had the reports been more like the MacWeek of old, involving actual reporting, and gathering of information that had lost its protection due to public disclosure, they might have grounds to quash the subpoenas.

That’s not what happened here. As the court put in one footnote, “The undisputed facts are that Mr. O’Grady took the information and turned around and put it on the PowerPage site with essentially no added value.” Whoever gave O’Grady that information broke the law, and if that story had appeared in the New York Times, the reporter would still have “no license… to violate valid criminal laws.” A newspaper reporter might be able to avoid a contempt citation if he refused to honor the subpoena, thanks to the shield law, but Judge Kleinberg’s ruling clearly hints that he doesn’t think the shield law protects newspaper reporters from divulging trade secrets.

Having to answer the subpoena is a huge blow to PowerPage and the other rumor sites: if the subpoena stands, it proves that they can’t provide the anonymous protection for leaked information they’ve touted for years. That would dry up the source of such anonymous leaks—one of Apple’s secondary goals—and leave the sites with nothing authoritative to publish. EFF filed court papers last week noting that all three rumor sites named in the litigation have seen fewer anonymous submissions since the subpoenas were revealed. Despite Judge Kleinberg’s statement that “the rumor and opinion mills may continue to run at full speed,” forcing O’Grady and the other movants to comply with the subpoena all but assures those sites will either go away or shrivel into a tiny morsel of their current state.

The Appeals Begin

The EFF has since appealed the ruling. (The March 28 issue of MWJ covers the appeal in much greater depth.) In 55 pages of appeal, supporting memoranda, and points of authority, the EFF makes one of its strongest cases yet that the court should not allow Apple to subpoena O’Grady or Nfox.

The EFF argues that California courts have previously extended the “journalist’s shield” to people other than those specifically named in the law (like book authors), and that Internet journalists should qualify anyway as those who write for a “periodical publication.” EFF also says the trial court ignored a federal statute that would prevent Nfox from turning over O’Grady’s private communications, that it incorrectly added a test about the “public interest” to the rules for determining whether reporters must honor subpoenas, and that the court was wrong in saying that Apple had “exhausted” all other means of finding the information. These are tests that apply only to the reporter’s shield law so EFF is still basing almost all of its argument on the concept that the movants are “journalists.” They certainly meet the popular definition, but it’s far from clear the courts will extend freedom from subpoenas to anyone with a Web site.

Both Apple and EFF have agreed that Nfox doesn’t have to answer the subpoenas until the appellate court rules on the issue, and that’s bought O’Grady a bit more time. He might even get lucky and convince a higher court that the First Amendment provides a blanket exception to trade secret law, or that federal law prohibits any ISP from answering a civil subpoena for someone else’s e-mail. No matter what winds up happening, it’ll be quite a spectacle.

Excerpted with permission from the March 28 issue of MWJ, published by MacJournals.com. Copyright 2005, GCSF Incorporated. For a free trial to MWJ, visit www.macjournals.com.

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