One Bad Apple Can Ruin it for Everybody April 01, 2005

Introduction

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Recently, Apple Computer successfully sued a number of “bloggers” running Apple rumor websites, forcing them to divulge their source of leaked Apple information. In this precedent-setting lawsuit, it was determined that posting leaked information was in effect theft of protected trade secrets. This ruling has significant reprecussions beyond leaked rumors and may be a major setback for online journalism.

Summary of the Case

I’ll start by summarizing the case as briefly as I can for all of us non-lawyers. Keep in mind that this is designed to just highlight the important points of discussion and is not a comprehensive discussion.

In December, several Apple enthusiast online magazines such as AppleInsider and PowerPage published information on Apple's upcoming Firewire audio interface for GarageBand, then codenamed “Asteroid.” The information included a diagram from a confidential Apple slide presentation and contained a list of specifications taken verbatim from the slide. Apple filed a lawsuit against 25 “John Does” for leaking confidential trade secrets and in doing so, violating California’s Uniform Trade Secret Act.

However, Apple had no clue who they were actually suing. Literally. They were suing 25 hypothetical individuals for leaking information and not the journalists themselves. While this appeared to be a pointless lawsuit to some, assuming that it was simply Apple trying to save face, this was actually only the first step. With the formal lawsuit in the system, Apple then issued subpoenas to the journalists running those websites demanding that the operators of those websites divulge their sources. The teams running the websites argued that as journalists, they were entitled to a journalist’s right to preserve the anonymity of their sources and the first amendment rights of free speech. Consequently they filed to have protection under the law from Apple’s subpoenas.

Apple’s lawyers responded forcefully. They took a two-pronged attack. First, they contended that the information being leaked was a trade secret and hence publishing the information was a criminal act. Using the DeCSS case from 2003 as prior case law, Apple indicated that free speech protection did not provide refuge for the theft and dissemination of trade secrets.

The second attack was that websites did not qualify for the protections normally associated with journalists. In order to invoke the shield law, the websites had to represent “investigative reporting.” Apple claimed that these websites did not qualify because they regularly published information without fact checking and were simply systematically disseminating trade secrets. According to Apple, these websites were not even “legitimate members of the press.” That is, even if Apple could not prevent the websites from staying quiet from the first prong, Apple claimed that the bloggers didn’t even qualify for journalistic protection.

You see, there are legal precedents that have tried to help define a journalist. The federal courts have already indicated that journalistic protection isn’t automatic. To date, in addition to the traditional media, courts have ruled that documentary film makers, authors of technical publications, and professional investigative books qualify under the protective laws for journalists. In California, a freelance writer who had not even signed a contract to publish his work counted. Apple quoted a federal appeal court ruling citing that “any person with a manuscript, a web page or a film” was not automatically a journalist. (This was a case of selective quoting, since the original quote should read a journalist wasn’t “any person with a manuscript, a web page or a film, but [required] an intent at the inception of newsgathering process to disseminate investigative news to the public.”)

The websites countered that they were legitimate journalists and that Apple’s so-called trade secrets were consistently at risk for being leaked. They argued that there was a public demand for information about Apple products and that it was really wasn’t a trade secret after the informant had already leaked the information.

The case was heard by the Superior Court of California, County of Santa Clara, and after a review of the facts, the Honorable Judge James P. Kleinberg ruled in favor of Apple and determined that the websites had no rights to a protective order against Apple’s subpoena. This meant that the bloggers did not have protection under Shield Laws and potentially could be held in contempt of court if they did not fulfill subpoena. This ruling was based upon the fact that leaking of Apple’s upcoming product announcements qualified as a trade secret, thus the distribution of the information was itself a criminal act. In doing so, Apple’s first prong of their legal attack was successful – there was no need address Apple’s second contention. Whether or not they were journalists didn’t matter, the websites would automatically lose the case because it was a leak of trade secrets.

Since the issue of whether bloggers are journalists was not going to be a deciding factor, the
judge remained ambiguous about this issue, and said that it “it is far from clear” whether or not the websites reflected true journalists because the websites simply “took the information and turned around and put it on the [website] with essentially no added value.” In his closing paragraph, the judge wrote that “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.”



SIDEBAR: Apple paid McIntosh Laboratory, Inc (the audio guys) a license fee to use the name Macintosh.

Life as an online journalist

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There’s not much to say about the decision itself – if the websites indeed divulged trade secrets, they were inherently a party to a crime and hence not protected. They were doomed to begin with. The fundamental issue is then the definition of a trade secret. There were several factors that go into this: is the information widely known outside the corporation? How much information was known by the corporation’s employees? What measures were taken to guard the secrecy? What is the value of the information to the competition? How much money was involved in developing the information? The websites clearly faced an uphill battle here because what was published was not merely a vague description of an upcoming product, but a copy of a detailed drawing of Apple’s products taken from a slide labeled with Apple Need-to-Know Confidential.

The Big Picture

The relationship between journalists and corporations has always been a Cold War. It’s the threat of mutually assured destruction that keeps everyone working together. On the one hand, corporations would love to be able to control everything that is published. They could ensure that only positive reviews and news were released. In their perfect world, if you published a negative review they could sue your for libel! In fact, this happened in 1984 when the Bose Corporation sued Consumer Reports for libel and actual malice. The complaint was that the reviewer wrote that Bose loudspeakers caused sounds of individual music instruments to “wander about the room” when Bose insisted that they merely wandered “along the walls.” By claiming that the sounds wandered about the room, Bose claimed that Consumer Reports was perpetuating a lie that would hurt their brand-identity. The scary part is that Bose won their case. It was only after the Court of Appeals reviewed the case was the decision reversed.

At the same, in order to survive, journalists are dependent on manufacturers. Publications need readers and this means writing the best stories and being first out with the story. When a company launches a new product, FiringSquad is there with a launch-day report. We’re able to do this because both companies provide information to our team prior to the public announcement, giving us time to prepare our work. We wouldn’t get nearly the same circulation if we only published our overviews a month later. Even then, most journalists feel like they have a higher calling to bring The Truth to readers with unbiased analysis, after all, we’ve got big egos.

So there’s always an underlying antagonism between the two sides – you will rarely find a marketing manager who doesn’t claim that his product is the greatest thing on this planet or a journalist who won’t jump at the chance to break the story on something big, or call foul on a company cheating on benchmarks. It’s almost like the movie, The Sum of All Fears, where the Russian and US intelligence agents share information when it is appropriate but are still looking for ways to out do the other.

It’s clear to see how reviewers have control over companies. They are the ones who directly address the reader and they are the ones who put words down onto paper and describe and judge products. However companies can control the review websites by controlling who reviews products. Although you would hope it to be true, review websites simply don’t have the financial resources to purchase every product needed to review – banner ads simply don’t generate enough click-throughs and revenue – when was the last time you read a FiringSquad article? How much did you pay for it? Compare that to the last time you clicked on a banner ad at FiringSquad? Do you even let ads show through? Don’t feel bad – no one ever clicks on the ads. The way magazines can work around the manufacturers and to deal directly with retailers – the arms dealers of this cold war.

However, it isn’t even about being cheap and getting “free” hardware, but it’s about getting products on time, and in this profession, “on time” means before retail release. After all, if you’ve already read half-dozen reviews of a particular video card, you’re not likely to be interested in reading a 7th a few weeks later...



SIDEBAR: My speaker of choice is the Sonus Faber Cremona line.

The ramifications

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The Apple ruling has potentially significant ramifications on reporting of products prior to the actual ship date. It’s very tempting to tell yourself that this only deals with rumors, and even the judge himself declared that his ruling was not intended to prevent the exchange of ideas or speculation of the future.

However, consider this “doomsday” scenario. Suppose I’m the big-bad company now and I provide journalists with pre-release information about my product under a NDA so that writers will have time to prepare their articles. No, that’s not the doomsday scenario – that’s the modus operandi for the industry. However, in my presentations not only do I detail all the strengths and advantages of my product, but I also have a hundred slides detailing the weakness of my product in hundreds of different benchmarks. This information has not been divulged to the public – anyone viewing this slide presentation will have signed a NDA recognizing that the information contained within my slides are trade secrets. My launch date approaches, and so I then retract the NDA so that journalists can publish their stories, but I only retract the NDA for slides detailing the positives elements of the product, leaving the NDA intact for all my negative aspects.

Would reviewers be bound to keep this information private in their final article? It’s hard to say, and at this point it’s worth pointing out that most online journalists covering PC gaming and hardware aren’t lawyers – I can only think of one former gaming journalist. But that’s the point.

Using the traditional trade secret standards, you could argue that the slides capturing the weaknesses of my product were trade secrets. It fits the definition of “information, including a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value from not being generally known and not being readily ascertainable and is subject to reasonable efforts to maintain secrecy." The information is not widely known outside the corporation, or by many of my employees. I have taken extensive measures to ensure that only people with signed NDA’s viewed the slides detailing the negative benchmarks, and obviously the value of the information to the competition is immense.

So on initial survey, such a strategy does seem like it might work. But then you’d say that if journalists were able to independently come to those conclusions from analysis of known facts, that it’d be open game. There’s no way I would be able to prevent an end-user from purchasing my product from a store, and then running benchmark X and showing how poorly my product performs (although I would try a legally-untested end-user license agreement to do that). The problem here is that, a journalist would still have trouble defending himself against a lawsuit.

The journalist, looking to tell the story how it is, would probably review my product and include a discussion of all the negative aspects of my product. As an evil corporation, I could argue that the journalist had been misappropriating trade secrets given to him under the condition of secrecy. Of my 100 benchmarks showing how poorly my product performs, I could point out that journalist has historically only benchmarked a handful of tests. Would the journalist have even thought to run those benchmarks if I didn’t give him the results prior? Would he even think about testing for this negative if I didn’t mention it to him in that presentation? There is no way the journalist can document that he 100.0% came to the information independently because the journalist didn’t even know about the existence of my product until I briefed him on it. It’s automatically confounded.

Interesting thought, no? Common sense would say that protection of trade secrets shouldn’t apply to restricting information, but common sense isn’t how the legal system works. It’s very precise.

Suppose there’s an independent journalist who hasn’t signed the NDA and obtained my product at retail. Could he have independently run benchmarks and come to those conclusions through independent analysis. Well, as the evil corporation I could say “hey, no one would think to test my product using benchmark Y – someone with access to my original NDA’d slides.” I could proceed with a lawsuit against a John Doe and then subpoena that independent non-NDA’d journalist, offering only to retract the subpoena if his article was pulled. Remember, most reviewers aren’t lawyers – they’ll freak out...

The situation with Apple was very different and the above wouldn’t be realistic. The problem is that what the websites did with “leaked” Apple product information isn’t really unusual. This happens ALL the time – it’s like driving faster than the speed limit. Apple just got pissed enough to strike back and sought to change the status quo and they won.

Are Bloggers Journalists?

The media hypes up bloggers as if they’re the next dot.com boom. In truth, bloggers are no different from journalists although they may update more frequently and write with a far more informal style. In fact sites such as Anandtech, started as a blog on Geocities. In terms of investigative reporting, I’m not sure I can argue there’s a difference between someone actively calling up contacts and meeting with inside sources versus someone with a mailbox saying “give me information” such as many rumor mill sites, so long as an effort is made to assess the plausibility and authenticity of the story. Legally, a journalist simply needs to be someone in the “process of investigative reporting or news gathering” and “have the intent at the beginning of the news-gathering process to disseminate [the] information to the public.” Bloggers clearly meet this definition.

The Future

What happens now? No one really knows. Without question, journalists with access to leaked information should tread lightly, and insiders who have leaked information in the past are clearly thinking twice. It goes without question to say that this issue is not resolved. Apple won this round, and as much as I think this ruling will negatively affect the online-press and “second-tier” news sources such as bloggers, I won’t fault Apple for looking out for their short term interests and playing their cards right. Still, I think they’re underestimating the value of the viral marketing available with early information. Even if no appeal is filed, it’s virtually certain that we will see similar lawsuits in the future, but with different parties. Likewise, the lack of legal comment on the definition of a journalist in today’s WordPress and MovableType world doesn’t mean that we’ll be able to ignore that forever. We can only hope that the balance between corporate and reviewer interests returns to its equilibrium.

I’ll end with a quote from The Incredibles: “We’re dead! We’re dead! We survived but we’re dead!” The question of course, is whether this describes the folly of Apple, making a big hullabaloo over a relatively small issue and gaining negative press, or if that’s describing online journalism and the EFF and the worry that every little lawsuit will prevent us from telling the stories and reporting the news we want to tell…