Designer Skin LLC v. S & L Vitamins, Inc., et al.
O'Grady v. Superior Court
139 Cal. App. 4th 1423, 2006 WL 1452685 (Cal. App. , 6th Dist., May 26, 2006)
Apple Barred From Obtaining Source Of Blog's Article
Reversing the court below, the California Court of Appeals holds that the Stored Communications Act prohibits an ISP that hosted a blog's email account from disclosing e-mails sent to the blog in response to a subpoena issued in a civil litigation. The subpoena sought production of e-mails that would permit Apple Computer ("Apple") to identify the individual(s) who transmitted trade secret information about an as yet unreleased Apple product to the blog/website Power Page, which information was the source of articles Power Page subsequently published on its blog/website.
The Court further held that petitioners, who acted as publishers of, and/or editors or reporters for, the news blogs that published the stories at issue about this Apple product, were entitled to a protective order against their disclosure of the confidential sources of their stories. Notwithstanding Apple's claim that the information petitioners received from these services constituted trade secrets disclosed in violation of confidentiality agreements each of its employees had signed, the Court held such disclosure barred by both California's Reporter's Shield Law and the First Amendment. The Court held that the Shield Law, which prohibits a court from holding in contempt a publisher, editor or reporter of "a newspaper, magazines or other periodical publication" for failing to disclose the source of a published story, protected petitioners, publishers and/or reporters of news blogs, from having to disclose the sources of the stories at issue. The First Amendment similarly provided protection, given Apple's failure to fully exhaust other avenues of disclosure before pursuing discovery from petitioners.
Blogs Publish Articles Based On Apple Confidential Information About Unreleased Apple Product
Information concerning a new Apple product code-named "Asteroid" not then on the market, including a detailed drawing and technical specifications, was posted in several articles that appeared on the blog/website Power Page. Based on an in camera presentation made by Apple, it appeared that the source of a significant portion of this information was an Apple electronic presentation file or slide stack, each slide of which was labeled "Apple need to know - Confidential." This was particularly true of the detailed product drawing that appeared in Power Page, which mirrored a drawing found in the Apple "slide stack." After information concerning this Apple product appeared on Power Page, a second blog/website, the Apple Insider, also published information concerning this yet unreleased product.
Apple Seeks Identity Of Source
Claiming this information constituted its trade secrets, Apple commenced suit against various John Doe defendants, individuals allegedly involved in improperly disclosing these trade secrets. To assist in identifying these individuals, Apple served subpoenas on Nfox. Nfox provides e-mail service to the Power Page blog. The subpoena sought, inter alia, e-mails that would permit Apple to identify the John Doe defendants who transmitted the trade secret information to Power Page. Apple also applied for, and obtained, permission from the trial court to serve subpoenas on the blogs/websites which had published this information - both Power Page and Apple Insider. Apple did not, however, serve subpoenas on either blog/website.
The Power Page blog/website has been published daily since 1995. Petitioner Jason O'Grady serves as its publisher. The site has nine editors and reporters, and publishes articles 15 to 20 times a week. The website receives an average of 300,000 unique visits per month.
Apple Insider has been published "daily or near daily" since 1998. It publishes seven to fifteen articles per week, and received 438,000 unique visits in July 2004. Petitioner "Kasper Jade," an alias, claims to be its principal editor and reporter.
The publishers of both Power Page and Apple Insider moved for a protective order, quashing the subpoenas issued to Nfox, and prohibiting Apple from serving subpoenas on them. The court below denied petitioners' application, holding they were not entitled to quash the subpoena issued to Nfox, and that that branch of their motion for a protective order prohibiting service of subpoenas that had not yet been served on them was not ripe for adjudication.
Petitioners filed a writ of mandamus with the Court of Appeals. The Court of Appeals determined that the motion for a protective order should be granted, and directed the trial court to issue an appropriate order quashing the subpoena served on Nfox, and prohibiting Apple from serving subpoenas on the blogs/websites.
Stored Communications Act Bars ISP From Disclosing Email Sent To Blog That May Identify Source
The Court held that the Stored Communications Act prohibited Nfox from producing the e-mails in question in response to a subpoena issued in a civil action. Part of the Electronic Communications Privacy Act, the Stored Communications Act ("SCA"), 18 U.S.C. §§ 2701-12, provides that "a person or entity providing an electronic communication service to the public shall not knowingly divulge to any person or entity the contents of a communication while in electronic storage by that service…..". The court held that Nfox was a provider of an electronic communication service, because it supplied email services to Power Page. The Court further held that the e-mails in question, found in Power Page's email account, were electronic communications held by Nfox in electronic storage. As a result, the Court held, Nfox's disclosure of these e-mails fell squarely within the prohibitions of the SCA.
Apple argued that the SCA permitted such disclosures, urging the Court to read an implied exception into the Act for civil discovery requests.
The Court rejected this argument. The statute enumerated five explicit exceptions to its prohibition on the disclosure of stored communications by those providing electronic communication services. Importantly, however, these exceptions did not authorize production of stored communications in response to a civil subpoena. Applying the principle of statutory construction that the enumeration of things to which the statute applies is presumed to exclude things not mentioned, the Court held that this omission strongly indicated that Congress did not intend to permit discovery in such circumstances.
The Court found further support for its decision in the fact that prohibiting such disclosure would place e-mails on a par with telephone calls and written letters. Given the nature of those communications, discovery of their content, after transmission, cannot be sought from those involved in their transmission, such as the Post Office or telephone company. Rather discovery of such communications must be sought from the parties involved in the communication. The Court's decision would cause e-mails to be treated in a similar fashion. The Court also found support for its determination in the burdens such discovery would impose on Internet Service Providers involved in the transmission of email, and the potential such burdens may have to retard the use and development of this mode of communication.
The Court rejected the argument of amicus Genentech that disclosure was mandated by the fact that the SCA permitted disclosure of "a record or other information pertaining to a subscriber or customer of such service (not including the contents of communications)" as well as by fact that the SCA only prohibited disclosure of "contents of a communication" and not the identity of its sender. The Court easily turned aside the first argument, noting that what was sought was not the identity of Nfox's customer - which was Power Page - but rather, of the sender of the e-mails to Power Page.
The Court also rejected Genentech second argument, on the ground that the disclosure sought here - the identity of parties who sent e-mails to Power Page concerning the Apple product at issue - perforce required disclosure of an important aspect of the content of the communications at issue, namely that they concerned that product.
As such, concluded the Court, " the outstanding subpoenas to Nfox and Kraft cannot be enforced without compelling them to violate the SCA. Since this would offend the principle of federal supremacy, the subpoenas are unenforceable and should be quashed."
Reporter's Shield Law Protects News Blogs
The Court further held that Apple could not obtain the information it sought directly from the blog/websites themselves. Disagreeing with the trial court, the Court of Appeals held that this issue was ripe of adjudication, particularly in light of the fact that (i) Apple had already obtained court approval to serve such subpoenas, (ii) the information Apple would seek was well known, and (iii) the court had rejected Apple's attempts to obtain this information from the third party Nfox.
The Court held that Apple was barred from obtaining this information from the blog/websites by application of California's Reporter's Shield Law ("Shield Law"). The Shield Law is found in both California's Constitution and Section 1070 of California's Evidence Code. As set forth in the Constitution, the Shield Law prohibits holding "a publisher, editor [or] reporter" connected with or employed by "a newspaper, magazine or other periodical publication" in contempt "for refusing to disclose the source of any information processed … for publication" therein.
The Court held that petitioners qualified for the protection of the Shield Law. Based on their own declarations, the Court found that Petitioners qualified as publishers, editors and/or reporters within the meaning of the statute. The Court further found that the requested information - the source(s) of the stories petitioners published in their blog/websites - also qualified for the statute's protections.
First Amendment Bars Disclosure Of Blog's Sources Because Apple Failed To Exhaust Other Potential Sources
Finally, the Court found that these blog/websites constituted "newspapers, magazines or other periodical publication(s)" entitled to the protections of the statute. The websites in question were "news oriented websites." Power Page gathers and reports on news and information about Apple Macintosh computers and compatible software and hardware. Apple Insider reported on technology news. Both published regularly, though not a set intervals, since at least 1998, often over once a week. Articles were published when ready.
The Court held that both blogs fell within the ambit of the statute, even though they neither appeared in print, nor were published at any set intervals. Said the Court:
In reaching this result, the Court rejected Apple's argument that petitioners were not entitled to the protection of the Shield Law because the information at issue constituted "trade secrets" improperly disclosed to petitioners in violation of confidentiality agreements. The question, for the purpose of the Shield Law, was whether the information was gathered and disseminated as part of the process of disseminating news. Finding that it was, the Court held that the means employed to gather that information would not compel the disclosure of the source of the information, even if it did expose the publisher to potential liability arising out of its publication. Said the Court:
Finally, the Court held that the First Amendment and the correlative provisions of the California Constitution barred petitioners from being compelled to disclose their source(s). As interpreted by the California Supreme Court in Mitchell v. Superior Court, 37 Cal.3d 268, 208 Cal. Rptr. 152 (1984), "in a civil action, a reporter, editor or publisher has a qualified privilege to withhold disclosure of the identity of confidential sources … The scope of that privilege in each particular case will depend upon the consideration and weighing of a number of interrelated factors." These factors include:
The Court held that petitioners, as publishers, editors and/or reporters for the blog/websites at issue, were entitled to the protections afforded by the First Amendment. Said the Court:
That protection barred Apple from pursuing petitioners for discovery of their sources due to Apple's failure to demonstrate to the Court's satisfaction that the requested information could not be obtained from other sources. This failure, held the Court, was "dispositive."
In support of its motion, Apple had shown that it had, through investigators, interviewed all 29 of its employees who had accessed or received a copy of the "slide stack" or electronic file which was presumed to be the source of the information contained in petitioners' articles. Each employee was obligated to cooperate at the risk of losing his job. Each denied being petitioners' source. Apple also submitted evidence that its investigators examined Apple's email servers, again without locating the source of the leak.
The Court held this showing failed to demonstrate that Apple had adequately exhausted all alternative sources.
In this regard, the Court noted that Apple had failed to question its employees under oath. Similarly, Apple had failed to disclose to the Court the manner in which it had internally distributed the "slide stack," or to discuss what forensic computer investigation it had undertaken of such things as work station logs or file transfer protocol logs, to ascertain the source(s) of its internal leaks. The Court was also critical of Apple's failure to pursue two sources of information identified in the stories themselves, to ascertain their source(s) of information concerning "Asteroid," as well as Apple's failure to address the possibility that a "hacker" had obtained the data at issue from Apple's computer network.
As a result, the Court found petitioners entitled to the protections of both California's Reporter Shield Law, and the First Amendment, and directed the trial court to issue an appropriate protective order.
It should be noted that throughout the Court's extensive decision, the Court relied on its determination that the petitioners were engaged in journalistic activities implicating important First Amendment concerns to override Apple's desire to ascertain the identity of those involved in the misappropriation of its trade secrets. While the Court indicated it might be unwilling to afford those involved in publishing such trade secrets similar protections if they were published in an open forum such as a newsgroup, chatroom, bulletin board or discussion group, such was not the case here, where there was an "open and deliberate publication on a news oriented website of news gathered for that purpose by the site's operators."