Trade Secret Litigation Over Social Media: Is It Worth The Cost?

by CMCP - California Minority Counsel Program
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With the continually increasing popularity of social media websites like Facebook, Twitter, and LinkedIn, where members can be connected to friends, family members, co-workers, clients, and potential clients all by logging in to one account, it is understandable that companies and employers are concerned about the security of their trade secrets.  However, the distinction between what is part of an employee’s personal profile and what portion may belong to the employer is not an easy one to establish.  In the past few years, a number of lawsuits have been filed, by both employers and employees, alleging misappropriation of social media accounts under trade secret law.  However, a court or jury has yet to find at trial that a LinkedIn profile or a Twitter account contains protectable trade secrets capable of being quantified into recoverable damages.  This article summarizes a few of the recent cases involving social media and discusses some of the issues to consider when litigating these kinds of trade secret actions.

Recent Cases Alleging Misappropriation of Social Media

Christou, et al. v. Beatport, LLC, et al. was filed in December 2010 by Regas Christou, the owner of several nightclubs with national reputations as venues for electronic dance music. A former employee of Mr. Christou, Bradley Roulier, booked well-known DJs to perform at the clubs.  He also created, with financial and promotional support from Mr. Christou, Beatport, a popular online marketplace for electronic dance music.  After Mr. Roulier stopped working for Mr. Christou, he founded his own competing club.  Mr. Christou alleged that Mr. Roulier threatened DJs that their tracks would not be promoted on Beatport if they performed at Mr. Christou’s clubs.  In his cause of action for trade secret misappropriation, Mr. Christou alleged that Mr. Roulier and other defendants misappropriated the log-in information for his clubs’ profiles on MySpace, lists of friends and customers, and lists of cell phone numbers and email addresses for DJs, agents, and promoters.

On March 14, 2012, the court denied the defendants’ motion to dismiss the trade secrets causes of action.[1]  The court first noted that whether the plaintiffs’ MySpace friends list was a trade secret was a question of fact.   After considering all the factors for determining trade secret status, the court then held that the plaintiffs had alleged sufficient facts to maintain their trade secret claim at the motion to dismiss stage.

On March 26, 2013, the plaintiffs dismissed their claims against Beatport due to an informal resolution and voluntarily dismissed the claims of all but the two clubs that featured electronic dance music.[2]  The case remained set for a jury trial beginning June 24, 2013.

Another lawsuit, PhoneDog v. Kravitz, filed in July 2011, involved the claims of PhoneDog, an interactive web resource that reviewed mobile products and services, against its former employee, Noah Kravitz.  While Mr. Kravitz worked as a product reviewer and video blogger for PhoneDog, he was given use of and maintained the Twitter account “@PhoneDog_Noah,” which generated approximately 17,000 Twitter followers during the course of Mr. Kravitz’ employment.  When his employment ended, PhoneDog requested that Mr. Kravitz surrender the Twitter account and Mr. Kravitz, in response, changed the account handle to “@noahkravitz” and continued to use the account.  In its complaint, PhoneDog alleged misappropriation of trade secrets, intentional and negligent interference with prospective economic advantage, and conversion.

On November 8, 2011, the court denied Mr. Kravitz’ motion to dismiss, finding that PhoneDog had sufficiently alleged a claim for misappropriation of trade secrets.[3]  Like the court in Christou v. Beatport, the court in Phone Dog v. Kravitz noted that to the extent that Mr. Kravitz challenged whether the password and account followers are trade secrets and whether Mr. Kravitz’s conduct constitutes misappropriation raised evidentiary issues more properly raised on a motion for summary judgment.  Id.  However, no motion for summary judgment was ever decided as the case settled on December 3, 2012 and Mr. Kravitz was allowed to keep both the Twitter account and its 17,000 followers.[4] 

One of the few trade secret lawsuits involving social media information that proceeded all the way through a bench trial is Eagle v. Morgan, a case brought by Linda Eagle, the co-founder of Edcomm, Inc., a banking education company that provided on-line and in-person services.  In May 2009, Dr. Eagle created a LinkedIn account with her Edcomm e-mail and used it for sales and marketing purposes.  However,  after her termination following the buyout of Edcomm by another company, Dr. Eagle’s LinkedIn password was changed and she was locked out of the account.  After Dr. Eagle filed suit in July 2011, alleging, inter alia,  unauthorized use of her name, misappropriation of name and publicity, identity theft, and conversion, Edcomm filed counterclaims for misappropriation, unfair competition, and conversion.

After a bench trial, the court entered judgment on March 12, 2013 for Dr. Eagle only on her claims for unauthorized use of name and invasion of privacy, finding that Edcomm used Dr. Eagle’s name without her consent for commercial purposes when it changed the content on Dr. Eagle’s LinkedIn page to provide information about Sandi Morgan, the interim CEO of Edcomm, even though the url still contained Dr. Eagle’s name.[5]  However, the court found that the evidence was insufficient to support Dr. Eagle’s request for damages and therefore did not award any compensatory damages to Dr. Eagle.

The court then entered judgment against Edcomm on its counterclaims for misappropriation, unfair competition, and conversion, finding that Edcomm never had a policy requiring that its employees use LinkedIn, did not dictate the precise contents of an employee’s LinkedIn account, and did not pay for its employees’ LinkedIn accounts. Edcomm also failed to put forth any evidence that Dr. Eagle’s contacts list was developed and built through the investment of Edcomm time and money rather than Dr. Eagle’s time and money.

The court’s description of the outcome in Eagle v. Morgan as a “somewhat mixed bag for both sides” highlights the importance of doing a cost-benefit analysis before making the decision to litigate over who owns a social media account.  While the primary lesson to be learned from these cases is that employers should have specific policies in place regarding personal and company social media, a secondary issue to consider is whether it is cost effective to litigate a trade secret case through trial, even if company policies purportedly establish ownership of social media accounts.  Because the issue of whether Twitter followers or LinkedIn connections is a trade secret is a question of fact, courts will not usually sustain a demurrer or grant a motion to dismiss on the ground that social media connections do not constitute trade secrets.  Thus, an employer or employee who files a complaint alleging trade secrets misappropriation should be prepared for the possibility of litigating the case at least through the summary judgment stage, if not through a jury or bench trial.  Further, because of the uncertainty of damages from a misappropriation, there is no guarantee that courts would even award damages because it would require the fact-finder to put a value on each friend, contact or follower.

Establishing a Company Policy Regarding Social Media that Best Effectuates Trade Secret Protection

In response to employers seeking guidance on social media issues, the National Labor Relations Board has issued multiple reports regarding the results of investigations in dozens of social media cases.  The third report, which can be found at http://www.nlrb.gov/node/5078, contains a sample media policy with general guidelines relating to posting content online as well as specific guidelines instructing employees, for example, not to register social media accounts using their work e-mail addresses.  While the sample media policy does not address all the factors discussed in Eagle v. Morgan (e.g. who pays for the account, who is responsible for the content), it provides a good starting point for employers seeking to establish ownership of social media accounts.  It is also a good idea to become more familiar with the options available to companies on social media websites, such as business pages and accounts on Facebook and LinkedIn.  When companies create separate social media accounts and allow their employees to post content and develop business on those accounts, they will not have to be concerned about the commingling of corporate trade secrets with personal social media posts and the possibility of misappropriation of those trade secrets after employees leave.

About the Authors
Ellen P. Liu is an associate at Sideman & Bancroft LLP.  Her primary practice areas include civil litigation and enforcement of intellectual property rights.  Constance J. Yu is a partner of Sideman & Bancroft LLP in San Francisco.  Her primary practice areas include civil litigation and business crimes defense.  Sideman & Bancroft LLP is a certified Women Owned Business Enterprise.  The firm is the largest women-owned provider of legal services in the Western United States, certified through National Association of Minority and Women Owned Law Firm (NAMWOLF) and Women’s Business Enterprise National Council (WBENC).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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