Fair Competition Law

From Wikimedia Commons

The United States District Court for the District of New Jersey recently issued a decision (Syncsort Incorporated v. Innovative Routines, International, Inc.) providing one more piece in the puzzle of how courts are likely to treat trade secrets that have been published briefly on the Internet. In short, the court adopted a rule of reason, finding that brief postings on obscure websites do not necessarily vitiate trade secret status.

To put this in context, the sine qua non (Latin (and lawyer) for “without not which,” i.e., an essential or defining element) of a trade secret is secrecy. But, contrary to its implication, the secrecy requirement is not absolute. “The rule . . . requires only secrecy sufficient to confer an actual or potential economic advantage on one who possesses the information.” Restatement (Third) of Unfair Competition, § 39, comment f. “Even limited non-confidential disclosure will not necessarily terminate protection if the recipients of the disclosure maintain the secrecy of the information.”  Id.

Some of the early (and still leading) cases on this issue came from the United States District Court for the Northern District of California. Although starting with an initial hardline, absolutist ruling, the court in Religious Technology Center v. NetCom On-Line Communication Services, Inc. later softened its approach, explaining the issue as follows:

[T]he court believes that its statement in its September 22, 1995 order that “posting works to the Internet makes them ‘generally known’ to the relevant people” is an overly broad generalization and needs to be revised. The question of when a posting causes the loss of trade secret status requires a review of the circumstances surrounding the posting and consideration of the interests of the trade secret owner, the policies favoring competition and the interests, including first amendment rights, of innocent third parties who acquire information off the Internet.

A later leading decision on the issue was from the California Court of Appeal in DVD Copy Control Ass’n Inc. v. Bunner. In that case, dvd encryption/decryption information was widely published in an unlawful effort to make it publically available. Although the court took a reasoned approach, the publishers had accomplished their goal, and the information was widely disseminated, thereby eliminating its trade secret status.

The United States District Court of New Jersey took a similar analytical approach in Syncsort Incorporated v. Innovative Routines, International, Inc. Like the Northern District of California and the California Court of Appeal, the District of New Jersey applied a rule of reason, recognizing the realities of publication on the Internet. In particular, adopting the analysis from the DVD Copy Control case, the District of New Jersey viewed the issue as follows:

Information “in the public domain cannot be removed . . . under the guise of trade secret protection.” But, publication on the Internet may not destroy a secret if it is “sufficiently obscure or transient or otherwise limited so that it does not become generally known to the relevant people, i.e., potential competitors or other persons to whom the information would have some economic value.” The guiding “concern is whether the information has retained its value to the creator in spite of the publication.”

In the end, one of the things that makes this case so interesting is that notwithstanding substantial publication, the court found that the information retained its status as a trade secret. For a more in-depth discussion of the court’s decision, see John Marsh’s “The Trade Secret Litigator” blog.

It bears mention that these cases are similar to, but different from, cases like Sasqua Group, Inc. v. Courtney in the Southern District of New York, in which LinkedIn, Facebook, Google, and other Internet sites were used to demonstrate that the information could be easily obtained online. The difference is that, in those other cases, the trade secrets themselves were not posted to the Internet; rather, the information constituting the trade secret could simply be replicated from information available on the Internet. (More on compilations of public information in a later blog post.)