A very significant ruling has just been issued by Judge William H. Walls of the U.S. District Court for New Jersey in a topic of great concern in the trade secret community — namely, whether trade secret information that has been posted on the Internet loses its trade secret status forever.  Forgive the length of this post, but I think the importance of this decision merits a thorough discussion.  (A copy of the opinion is attached below).

On August 18, Judge Walls applied a fact-based analysis and concluded that various postings on the Internet in that case were not sufficient to waive trade secret protection. I believe this case, Syncsort Incorporated v. Innovative Routines, International, Inc., 2011 U.S.  Dist. LEXIS 92321, (D.N.J. August 18, 2011), will be the first of a series of important rulings demarcating the protection of trade secrets disclosed on the Internet. (A quick “thank you” to my colleague Lorraine Hernandez for bringing this important decision to my attention).

In the lawsuit, Syncsort alleged Innovative Routines had improperly developed a software to translate documents written with Syncsort’s command language to Innovative Resource’s command language. According to Syncsort, Innovative Routines could not perform this translation without Synchsort’s trade secrets. Innovative Resources secured the trade secrets from a source in breach of a confidentiality agreement; after the lawsuit was filed, it appears that Innovative Resources then scoured the Internet to try to show that the information was already available on the Internet.

Innovative Resources identified 6 postings that it believed caused the loss of trade secrecy: (1) a 2-page “Technical Specification” for an earlier version of the software; (2) a “Technical Bulletin” posted on a university website in violation of Syncsort’s license agreement with that school; (3) an employee’s posting of Syncsort’s “Application Guidelines” on his personal website; (4) a handful of “very brief discussions” of the software on a website called IT Toolbox; (5) a copy of Syncsort’s UNIX Reference Guide that was posted on a Korean website; and (6) another copy of that same Reference Guide that was posted on a Japanese website.

In response, Syncsort emphasized that the posts had been taken down quickly (in particular, the Reference Guides) and that most of those posts only included minimal portions of the command language. It forcefully made the classic “combination” argument — that even if bits and pieces of the command language were publicly available, they were not enough to negate trade secrecy because those pieces did not provide enough information to be useful to Innovative Resources in creating its translator.

In his opinion, Judge Walls looked at each post, the circumstances surrounding each post, and the response by Syncsort upon learning of each post. Judge Ward then found that “the public posting of parts of the command language did not destroy the trade secret because the information contained in those postings was insufficient to develop the translator.” Although there were 2 occasions where an entire copy of Syncsort’s UNIX Reference Guide was posted on the Internet, once each in Korea and Japan, Judge Walls concluded that even though “[t]hese Guides could be used to develop [Innovative Resource’s] ssu2scl translator” the “posts were “sufficiently obscure or transient or otherwise limited” so that it was not made “generally known to the relevant people” (like potential competitors)”. He noted that in both of those instances, the information was quickly removed and there was no evidence that information became widely available, or that competitors or other unauthorized persons accessed or even attempted to access the information. As a result, Judge Walls concluded that Syncsort’s information remained a trade secret and that Innovative Resources should be enjoined.

As some of you may recall, the issue of the impact of posts on the Internet was addressed in a previous post of mine that discussed the holding in Silicon Image, Inc. v. Analogix Semiconductor, Inc., 2007 U.S. Dist. LEXIS 96073 (N.D. Cal. Jan. 17, 2008) and the risk of disclosure presented by third parties like WikiLeaks. However, the analysis in Silicon Image was not as extensive nor were the Internet posts as significant to the trade secrets in that case.  

There are four reasons why I think this ruling will be important in other future trade secret cases. First, Judge Walls wisely avoided an absolutist view that once anything appears on the Internet, it is lost as a trade secret. Instead, Judge Walls’ looked carefully at the circumstances surrounding the posts and their context in the trade secret claims as a whole. This is the correct approach, as it mirrors the analysis used in other instances of “public disclosure” alleged in trade secret cases (i.e., disclosure to customers, sharing with vendors, publication by the government, disclosure in a patent application).  

Second, a subtle but equally important aspect is the ruling’s implicit recognition of the vastness of the Internet. Simply because some data inadvertently makes its way into the information ocean that is the Internet does not mean that everyone surfing, floating or swimming in that ocean has seen it or used it. In this respect, Judge Wall’s practical ruling effectively requires the defendant to show that a competitor has truly accessed or used the information posted on the Internet. An intermittent or transient post by a third party on his/her own website or on a message board should be distinguished from a broad, longstanding and widespread post that might be found, for example, on a company’s own website. To use a metaphor, if an employee improperly shoutsa out his employer’s trade secrets at a busy, noisy corner on a Friday night at Times Square, but no one hears it, records it or is aware of it, has the trade secret really been lost? 

Third, Judge Walls recognized the limited and transient nature of some of the disclosures in question due to the efforts of Syncsort to remove the information from the Internet. Like all trade secret cases, it shows the importance of diligence and moving quickly to stem a breach. It also serves to reinforce a plaintiff’s claim that the information was truly valuable and important in the first place.  

Finally, Judge Walls found that some of the information posted on the Internet was insufficient to provide development of a translation utility; in other words, he applied the bedrock principle of trade secret law that while some elements of a trade secret may be publicly available, the combination of those public elements with other confidential information, may still qualify as a trade secret, particularly where the trade secret cannot be replicated. This point is sometimes lost in cases where there has been a disclosure of information on the Internet. 

Companies and lawyers should celebrate this thoughtful and reasoned ruling which is really the first ruling to truly consider the reality of the Internet today.

Syncsort v. Innovative Routines.pdf (84.06 kb)