Lost: One iPhone, Thousands of Trade Secrets

Can Gizmodo get into trouble for posting photos of the new iPhone?

iPhones. Click image to expand.
The new iPhone, on the left, next to an older model

The techie blog Gizmodo published photos and reviews of an unreleased version of the iPhone over the weekend, after the prototype device was apparently left on a barstool at an alehouse in Silicon Valley. The famously secretive Apple has demanded the phone back. Can Gizmodo get into legal trouble for disclosing Apple’s trade secrets?

Yes. California’s Uniform Trade Secrets Act prohibits the theft or disclosure of legitimate commercial secrets. The state law does not distinguish between rogue employees, corporate spies, and the media, all of whom can be liable under the act. Nor does it matter that Gizmodo obtained the information secondhand—what’s important is the fact that the prototype was a secret and the tech blog either knew or should have known that it was acquired improperly. Both of these conditions seem to be satisfied, according to Gizmodo’s own account of what happened.

There’s no question that the iPhone was obtained unlawfully. California law requires that finders of lost property inform the owners and return the property, minus “a reasonable charge for saving and taking care of [it].” If the materials are worth more than $100, and the owner is unknown or makes no attempt to claim it, then the finder must turn the item over to the police, who hold it for 90 days before giving it back to the finder. The prototype iPhone was discovered a little over a month ago, and there is no indication that the police were ever contacted. So the guy who found the phone on a barstool broke the lost-property law, even though he says he tried calling Apple to no avail. (Even if the company failed to respond, he would still have been required to turn the device over to the authorities for that mandatory waiting period.)

When it comes to the disclosure of trade secrets, it doesn’t matter that Gizmodo bought the phone from a secondary source. Purchasing lost property isn’t that different from purchasing stolen property in that what matters is whether the buyer knew (or should have known) that the item was obtained unlawfully. Gizmodo wouldn’t have paid $5,000 for the device unless they suspected it was a valuable prototype. And if that were the case, they had an obligation under the Trade Secrets Act to check with Apple before publishing.

Gizmodo’s primary defense would be that Apple didn’t take reasonable efforts to keep the phone under wraps. (You don’t get protection for your trade secrets if you’re lazy about keeping them.) The fact that an employee was allowed to carry a top-secret prototype around in public—while drinking, even—might suggest that Apple wasn’t that concerned about secrecy. On the other hand, the fact that Apple disguised the experimental device to make it look like an ordinary iPhone 3GS would likely be enough to convince a judge that the company intended to keep their new toy hush-hush.

The relationship between civil trade secrets law and the First Amendment is not entirely settled, but it is unlikely that the Constitution would rescue Gizmodo. The First Amendment protects the right of the press to publish improperly obtained information, like leaked Pentagon secrets. No one can stop a blog from speaking, but you can sue that blog for harmful speech, such as defamation or disclosure of private information, after the fact. In this case, the First Amendment would have made it impossible for Apple to stop Gizmodo from publishing the iPhone story. But it probably wouldn’t prevent them from seeking compensation for the loss of competitive advantage, especially since the story served no significant public interest like making public the name of a murderer.

The lawsuit might not be worth Apple’s while. The information is already all over the Internet, so an injunction from further disclosure would be futile. (Slate’s Farhad Manjoo weighed in on the new iPhone Monday.) At best, the company could try to recover some monetary damages from Gizmodo. They could recover the advertising revenues that the blog earned as a result of its scoop—that’s more than 1 million hits in one hour on Monday—but that would be peanuts to the computing giant. They could raise the stakes by saying that their competitors are now racing to copy the new features, and the disclosure will result in a significant loss of sales. If a court bought that argument, the damages might be so large that Gawker Media (which owns Gizmodo) wouldn’t be able to afford to pay. Apple sold more than $4 billion worth of iPhones last year. Gawker Media is worth $170 million in total.

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Explainer thanks Eric Claeys of George Mason University School of Law and Elizabeth A. Rowe of the University of Florida Levin College of Law.

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