Who owns your friends? PhoneDog v. Kravitz and business claims of trade secret in social media information.

Author:McNealy, Jasmine E.
 
FREE EXCERPT
  1. INTRODUCTION II. SOCIAL MEDIA AND TRADE SECRET A. TRADE SECRET LAW 1. SECRECY 2. THE CUSTOMER LIST CONUNDRUM 3. THE CASE OF DEPARTING EMPLOYEES III. TURNING SOCIAL MEDIA INFORMATION INTO PROPERTY A. EAGLE V. MORGAN B. CHRISTOU V. BEATPORT, LLC IV. PARSING TRADE SECRETS AND SOCIAL MEDIA V. ON PROTECTING SOCIAL MEDIA TRADE SECRETS I. INTRODUCTION

    In April 2006, PhoneDog, a technology news and review web site, hired Noah Kravitz to review products, create video blogs, and use other social media outlets to connect current and potential PhoneDog customers to the PhoneDog web site. (1) To connect with customers, PhoneDog tasked Kravitz with maintaining and updating the Twitter account @PhoneDog_Noah, from which he would tweet links to newly posted information and reviews. (2) By all accounts, Kravitz was successful in his employment, as "the @PhoneDog_Noah account generated nearly 17,000 Twitter followers," (3) and Kravitz became a contributor on CNBC's "Street Signs" and "Fox Business Live" representing PhoneDog. (4) In October 2010, Kravitz left PhoneDog, but instead of relinquishing the @PhoneDog_Noah account as PhoneDog requested, he changed the account handle to @noahkravitz, which he continued to use. (5) In December 2010, Kravitz began working for TechnoBuffalo, a PhoneDog competitor, (6) where he writes product reviews, creates video blogs, and connects with customers, much as he did with PhoneDog. (7)

    In 2011, PhoneDog initiated a lawsuit against Kravitz claiming that the @PhoneDog Noah Twitter account, renamed @noahkravitz, along with its 17,000 followers, was a trade secret. (8) PhoneDog argued that Kravitz's continued use of the account to communicate with followers and connect them to a competing service is misappropriation of that trade secret. (9) According to PhoneDog, Kravitz's misappropriation of trade secrets has caused damage to the company's business and a loss of advertising revenue. (10) As such, the company claims it is owed $340,000 for the industry value of the Twitter followers as well as punitive damages for both intentional and negligent interference with prospective economic advantage and conversion. (11) The federal district court in California granted Kravitz's motion to dismiss on the interference with prospective economic advantage claims. (12) The trade secret and conversion claims will go to trial. (13)

    Although yet to be decided, the PhoneDog case raises a novel issue with regard to social media and intellectual property. In an era when businesses are attempting to use new media to gain customers, what does it mean for an employee tasked with maintaining and maximizing the company's social media presence? Will every connection that an employee makes belong, as property, to the company, or will some connections be considered to belong to the employee? Also, should companies be able to claim as a trade secret information that is publicly available to anyone browsing a social media site? PhoneDog is not the first case to deal with these issues, yet, very few others do.

    This article will examine these issues and related questions. First, this article examines social media, how social media is used to make connections, and business use of the new media platforms. Next, section three explores trade secret and the rules surrounding misappropriation of trade secrets and employee mobility. Section three also offers an analysis of claims of social media as trade secret. Section four analyzes the few other cases found in which a company has asserted an ownership right over a former employee's social media information. Finally, this article will analyze the principles that courts should examine in these cases, and concludes with suggestions on how to avoid these kinds of conflicts.

  2. SOCIAL MEDIA AND TRADE SECRET

    In general, social media allow users to interact, forming networks and otherwise associating with others that they do or do not know. In fact, searching for friends or acquaintances with whom to connect is one of the norms of social networking. (14) In this way, social media are thought to build social capital through the facilitation of networking, communication, and the creation of trust between users. (15) "What makes social network sites [SNS] unique is not that they allow individuals to meet strangers, but rather that they enable users to articulate and make visible their social networks." (16)

    Most social networking websites require users to create profiles and input identifying information as benign as a name or as specific as location information. (17) Users are able to choose the level of detail and precision in the information they provide. Individuals are then able to connect with "friends," "follow" others, send messages, chat, view user-generated media, and otherwise interact using the website as a medium. Those on the network may disclose and exploit information available from other users. (18)

    It is not surprising, then, that an increasing number of businesses use these platforms to connect with current and potential customers. All of the big three SNS in the U.S., Facebook, Twitter and LinkedIn, provide businesses with the ability to attract consumers. (19) Facebook, for example, allows users to "like" the pages of celebrities and businesses. LinkedIn, likewise, allows companies to create profile pages with which other site users can connect. Twitter, as a micro-blogging site, (20) allows companies to speak directly to their consumers. In all cases, businesses are able to take advantage of the SNS platforms to engage current and potential customers directly, and a company is provided with a tally of SNS users with whom it is connected. (21) The company's connections, likes, followers, or friends are visible on the company's profile page.

    Unless an SNS user takes steps to protect their profile information, all of their postings and connections are available to public scrutiny. (22) But secrecy is one of the main factors in evaluating the existence of a valid trade secret. (23) A question arises, then, as to whether the use of social media to make connections for business purposes can be the subject of a trade secret.

    1. TRADE SECRET LAW

    Trade secret protection, in the United States, has its foundations in state common law. (24) Under the classic Restatement approach, trade secret is defined as "any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others." (25) This very broad definition of a trade secret includes almost any information that can be used for a business purpose to acquire a competitive advantage. According to Milgrim, this makes trade secret unlimited as to the "class [or kind] of matter" that is eligible for protection, unlike information that would be the subject of copyright or patent protection. (26)

    In the mid-1980s, states began adopting the Uniform Trade Secrets Act (UTSA), created by the American Law Institute. (27) Currently 46 states, as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands, have codified the UTSA. (28) The minority of states that have not yet adopted the UTSA maintain the common law approach to trade secret as expressed in the Restatement of Unfair Competition. (29) The purpose of the UTSA was to allow business to protect "commercially valuable" information without having to disclose that information through the patent application process. (30) The UTSA also sought to codify and standardize the basic principles of the common law trade secret, and draws from the principles in the Restatement. (31)

    Under the UTSA, a trade secret is any information that:

    (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and

    (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (32)

    Such information can be in the form of a formula, pattern, process, etc. (33) Courts have examined six factors enumerated in the 1939 Restatement of Torts when considering whether certain information qualifies for trade secret protection under the UTSA:

    (1) the extent to which the information is known outside of the claimant's business;

    (2) the extent to which it is known by employees and others involved in the business;

    (3) the extent of measures taken by the claimant to guard the secrecy of the information;

    (4) the value of the information to the business and its competitors;

    (5) the amount of effort or money expended by the business in developing the information;

    (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. (34)

    No one factor is more dispositive of trade secret protection than the others, and some courts do not examine all of these factors when deciding whether information is subject to trade secret protection. (35) Nevertheless, one of the essential issues for a plaintiff claiming trade secret protection is secrecy. (36)

    1. SECRECY

      The consistent aspect of both the Restatement and UTSA approaches to trade secret subject matter is the requirement that a business' competitors not know the information. (37) Information considered general industry knowledge does not qualify for protection. (38)

      Every part of the subject matter of a trade secret does not, however, have to be secret to qualify for protection. In Metallurgical Industries Inc. v. Fourtek, Inc., for instance, the Fifth Circuit ruled that a company's claim of trade secret was not vitiated because the scientific principles used were generally known. (39) Metallurgical Industries involved the creation of a process and the modification of furnaces that would allow for more efficient reclamation of Tungsten carbide and the recovery of zinc. (40) Metallurgical...

To continue reading

FREE SIGN UP