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."

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