jonathan ballerano
@jballerlaw student / nerd / ?

Apr 22

Gizmodo’s Trade Secret Liability

A number of sources have turned to Ian Betteridge’s thoughtful analysis of the Gizmodo saga. I believe that, because he failed to address California law, Ian was too quick to dismiss the possibility of trade secret claims by Apple. As Ian points out, Federal law requires “reasonable measures” to protect a trade secret, and he readily concluded (based mostly on analogy) that allowing the iPhone out in public is unreasonable per se.1

California, however, only requires measures that are reasonable under the circumstances. While the model UTSA would only protect information that is “not… readily ascertainable by proper means by other persons,” California struck this wording from in its version. Cal. Civ. Code § 3426.1(d). Apple needed to field-test these phones, and arguably met this burden by placing the testers under NDA’s comparable to Top Secret clearance. 

If the owner accidentally or mistakenly reveals a trade secret to X, and X knows that it’s a trade secret, X is liable for disclosing it publicly. § 3426.1(b)(2)(C). Therefore, Apple would only have to show that Gizmodo knew or reason to know, before publication, that the prototype was a trade secret.

If Gizmodo is found liable, Apple would recover its own losses as well as any gain that Gizmodo received as a result of the disclosure. § 3426.3(a).

However, Gizmodo’s entire purpose was to discover and disclose as much as they could (read: maximize the damage) before posting a single word. They didn’t pay $5000 to buy the phone, they paid $5000 for the ability to convert Apple’s secrets into their profit. They went out of their way to document everything before saying anything so that, upon the expected demand for its return, they could “immediately” and publicly act like they were doing Apple a favor. Given that these are the facts according to Gizmodo, I expect that a court would find their actions willful and malicious and award up to 2x the original damages. § 3426.3(c).

In any event, I expect court could get past the question of whether a trade secret exists by simply applying equitable estoppel. This would tell Gizmodo, in essence, “you acted like this was a trade secret, don’t try to tell us that it’s not.”

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