What’s More Secure–Trade Secrets or State Secrets?
posted by Frank Pasquale
At a hearing last month on the proposed Google-Yahoo joint venture, House Judiciary Committee Chairman John Conyers complained that neither he nor other committee members were allowed to inspect the terms of the deal in a practicable manner. Members of the Committee were only permitted to inspect the deal if they viewed its terms “at a law firm, with no notes allowed.” By contrast, the Committee was given “more ready access to documents surrounding the President’s terrorist surveillance program.” Here’s the full clip:
There are sometimes good reasons to suspect government secrecy more than corporate privacy. But few could likely envision a day when a private company’s proposed business arrangements were treated as more sacrosanct than data critical to national security.
August 27, 2008 at 9:24 pm
Posted in: Cyberlaw
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Responses (10)
Michael Risch - August 28, 2008 at 8:21 am
Yeah, but don’t the folks in Congress have a specific duty to keep state secrets secret, but owe no such duty to Google and Yahoo?
After all, Google and Yahoo lawyers have ready access to the supposed sacrosanct information. Perhaps Google should say that Congress can obtain that information if its lawyers can see the state secrets in a room, but no notes.
A.J. Sutter - August 28, 2008 at 11:55 am
Michael Risch: I don’t understand your comment at all.
I’m guessing your point is that the members of Congress would be free to disclose the terms of the Google-Yahoo deal, so therefore the companies’ lawyers are justified in their proposal about the law firm office and no notes. This presupposes that corporate trade secrets are entitled to confidentiality, even if the public interest favors their being disclosed. That begs the question raised by the post. Of course, some libertarians might claim that it could never be in the public interest for business secrets to be disclosed. Are you making such an extreme claim?
One argument against such an extreme position is the observation that corporations aren’t entitled to a 5th Amendment right against self-incrimination. That puts them on a lesser Constitutional footing than individuals and, arguably, the Executive Branch, which is created by the Constitution. Why corporations should enjoy privileges vis-à-vis Congress that the Executive Branch does not seems the nub of the question raised in the post.
It isn’t clear to me whether the full text of the agreement had been subpoenaed by Congress. But without being able to take the 5th, how could Yahoo and Google lawfully refuse to provide it if a subpoena were issued?
former trade secret lawyer - August 28, 2008 at 12:28 pm
A trade secret is property and once revealed is destroyed. There was speculation that the government’s destruction of a trade secret is a taking.
But, there is no question that the federal government can pore over the details. Both the DOJ and FTC have lots of avenues for doing that and it’s basically routine. Of course, there are lots of protections in place, because in evaluating a deal the DOJ and FTC often need competitive trade secrets not just of the deal parties but also of their competitors. Perhaps I’ve missed the point, but isn’t it the case that the federal government can insist that the deal cannot go forward until its economic experts at DOJ and FTC get to pore over the details?
Michael Risch - August 28, 2008 at 12:57 pm
I think former trade secret lawyer has it right. I would respond as follows:
1. I hardly think it extreme or even libertarian at all to require Congress to protect secret information that it seeks via subpoena. The DOJ and FTC do this, and failure to do this might well be a taking under Ruckelshaus v. Monsanto.
2. I’m not a securities person, but my experience with high level proposed deals is that secrecy is extremely important so that securities laws and regulations are not hindered (e.g. insider trading)
3. “This presupposes that corporate trade secrets are entitled to confidentiality, even if the public interest favors their being disclosed.” Well, 50 states have trade secret laws, and the Supreme Court has declared such information property that can be taken. So, I think my presupposition is supported factually.
4. Following point 3, just about every state has a law (statutory under the UTSA in 45 states) that any discovery of trade secret information must be protected by secrecy a confidentiality order. Sure, federal law could preempt this, but I don’t think a subpoena qualifies.
So, I stand by my main point – Congress gets to see state secrets because it has a duty to keep them secret. Google lawyers get to see Google secretes because they have a duty to keep them secret. It is not surprising, absurd, shocking, or otherwise nutty to me that Congress gets to see state secrets but is not entitled to unfettered access to business or personal secrets of the public.
A.J. Sutter - August 28, 2008 at 10:27 pm
Good point about taking; I was looking at the wrong aspect of the 5th. Given my rustiness in Con law, and my unfamiliarity with the taking jurisprudence especially, let me ask a few naive questions:
1. Is the Monsanto case still good law in this matter? If not, then maybe the following questions are moot.
2. Did SCOTUS hold that a taking actually occurred in the Monsanto case, or simply that trade secrets can be subects of a taking?
3. Under Monsanto, does the government action need to interfere with a “reasonable investment-backed expectation” for a taking to occur? If the Google-Yahoo deal is still going through a government approval process, can this reasonable expectation be said to exist?
4. Even where there is a taking, is there a distinction between the purpose being for public use or for private use?
5. Is there anything different about this case being one that involves Congress directly, rather than a different branch? I’m asking in the light of the Court’s remarks in Monsanto such as “The role of the courts in second-guessing the legislature’s judgment of what constitutes a public use is extremely narrow,” and “So long as the taking has a conceivable public character, ‘the means by which it will be attained is . . . for Congress to determine.’” (See Section V of the Court’s opinion; I don’t have page cites available.)
6. Does the Monsanto case hold that if a taking is for a public use, then (i) injunction is not available, compensation being the sole remedy, and (ii) compensation need not be paid before the taking?
7. In the case of Congress and the Google-Yahoo deal, assuming there is a taking, how would you classify the use?
8. If the answers both parts of Q6 are in the affirmative, and the answer to Q7 is “public use,” then what justifies the Yahoo and Google lawyers’ attitude towards Congress?
Michael Risch - August 29, 2008 at 8:31 am
I hate to hijack the thread, but I will anyway with my take below:
1. Is the Monsanto case still good law in this matter? If not, then maybe the following questions are moot.
***I’ve never heard that it isn’t. It is cited periodically. If someone knows otherwise, please chime in.
2. Did SCOTUS hold that a taking actually occurred in the Monsanto case, or simply that trade secrets can be subects of a taking?
***I think they held half and half. I’ve always considered the holding to be that it was a taking for information submitted before the disclosure rule was put into place, but not a taking for information submitted after the rule was in place, because people would know of the rule before seeking benefits from the government.
3. Under Monsanto, does the government action need to interfere with a “reasonable investment-backed expectation” for a taking to occur? If the Google-Yahoo deal is still going through a government approval process, can this reasonable expectation be said to exist?
**The court looks to state law. If state law (here CA, I think) says that the information is trade secret and that it is property, then it is. (I think CA law would so hold). I think “reasonable investment-backed expectation” is more of a justification of why we would consider trade secrets property in this instance. Also, if the government approval process has secrecy obligations, then the expectation would certainly exist.
4. Even where there is a taking, is there a distinction between the purpose being for public use or for private use?
**No idea on this one – but I think it is clearly public here – discussed below.
5. Is there anything different about this case being one that involves Congress directly, rather than a different branch? I’m asking in the light of the Court’s remarks in Monsanto such as “The role of the courts in second-guessing the legislature’s judgment of what constitutes a public use is extremely narrow,” and “So long as the taking has a conceivable public character, ‘the means by which it will be attained is . . . for Congress to determine.’” (See Section V of the Court’s opinion; I don’t have page cites available.)
**I don’t think so. The subpoena power, as far as I have read, must be based on the legislative function of Congress, and thus there must be a public use of the information.
6. Does the Monsanto case hold that if a taking is for a public use, then (i) injunction is not available, compensation being the sole remedy, and (ii) compensation need not be paid before the taking?
**No idea, though I think that it is compensation. As far as timing, I suspect it works like any other taking, and I have no idea what that is. That said, I’ve read at least one CRS report that says that trade secret objections should be considered by Congress as a defense to producing information.
7. In the case of Congress and the Google-Yahoo deal, assuming there is a taking, how would you classify the use?
**It would have to be public. What conceivable basis would there be to call it private? If it were private, then Congress would not have the power in the first place.
8. If the answers both parts of Q6 are in the affirmative, and the answer to Q7 is “public use,” then what justifies the Yahoo and Google lawyers’ attitude towards Congress?
**See the end of part 6 – trade secrets might be an objection. Further a) we don’t know what the value of the deal is – I suspect congressional leaders would balk at agreeing to pay up front, and since the disclosure destroys the secret then resistance may be the best way to go. Also, the initial post says the Congress COULD have access, but not in a way that would make it public. What about the role of securities law here? Google & Yahoo may have a duty to keep the information secret until the deal is complete and made public. I think that alone justifies the attitude.
All of the above aside, I can say from personal experience that getting secret information out of Google is very, very, very difficult and its lawyers fight tooth and nail to protect every bit of that secrecy. I guess Congress is no exception.
Final note, and I suppose this part is more libertarian: I am skeptical of the broad scope of the subpoena power. I agree that it must be for legislative purpose, but I wonder whether seeking particular details of a single transaction really satisfies the probable cause requirement of the 4th amendment.
Frank - August 29, 2008 at 8:57 am
I really appreciate the conversation here. I’m going to try to look at the debate from the perspective of David S. Levine’s article on trade secrets. It’s extraordinarily tricky here to delimit the public and private elements . . . almost as hard as in defamation/privacy contexts.
But I really do think a lot of Google-Yahoo assertions to the committee depended on a close examination of the terms of the deal itself. They kept saying that the joint venture was not a merger, that their deal would keep three players in the search advertising space as opposed to the two that would be left if MS took over Yahoo. But scrutiny of the deal language may make it clear that, in fact, it is very difficult for Yahoo to cross its partner/sponsor/white knight.
It’s also fascinating to think about what the “baseline” attitude toward the secrecy here will be. Does the Committee end up discounting everything that is said that really ought to be proven with reference to the documents? Or does positive evidence elsewhere lead it to dismiss that worry?
Finally, though this may not be the case for worry, there really are a lot of problems with restrictive access to TS’s in litigation. I know that in at least one voting machine litigation, it was virtually impossible for the plaintiffs to get the access they needed to truly understand the software/hardware at issue, because of a too-restrictive protective order.
A.J. Sutter - August 29, 2008 at 10:29 pm
Michael, thanks for your thoughtful reply. Apropos of some of the answers:
3. The reasonable expectation issue goes to the existence of a taking, not of a property interest; as the Court states in Section III of the opinion:
“The Court, however, has identified several factors that should be taken into account when determining whether a governmental action has gone beyond ‘regulation’ and effects a ‘taking’ Among those factors are: ‘the character of the governmental action, its economic impact, and its interference with reasonable investment-backed expectations.’ PruneYard Shopping Center v. Robins, 447 U.S., at 83; see Kaiser Aetna, 444 U.S., at 175; Penn Central, 438 U.S., at 124.”
6 & 7. I would agree that it’s a public use. Then this part of the Monsanto opinion might be relevant (from Section VI):
“Equitable relief is not available to enjoin an alleged taking of private property for a public use, duly authorized by law, when a suit for compensation can be brought against the sovereign subsequent to the taking. Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 697, n. 18 (1949). The Fifth Amendment does not require that compensation precede the taking. Hurley v.Kincaid, 285 U.S. 95, 104 (1932)” (footnote omitted).
8. As for securities law in the context you suggest, my guess is the Constitution and the investigative power of Congress probably trump it.
I have no doubt that Google is very ornery about releasing information. But that doesn’t necessarily mean they’re entitled to be, or that the fora and methods they’ve chosen for asserting their purported rights are the correct ones.
former trade secret lawyer - August 30, 2008 at 9:56 am
Frank,
Sorry to repeat myself, but I continue to see a disconnect between my experience and what I take to be the central premise of your post.
As I’m sure you know, the federal government has very powerful procedures (e.g., “second requests”) through which they see all the dox, and they pose tough questions live and even under oath, and they force the deal parties to compile and present data, and they hear the detailed complaints from the competitors. Having participated in that process many times on behalf of deal parties and opponents, I continue to question the notion that the federal government is powerless to pore over the competitive aspects of proposed deals. They do it every day, year round, year in and year out. Entire groups within DOJ and FTC do nothing but that.
P2P Foundation » Blog Archive » Search Engine Secrecy and the Public Sphere - July 9, 2009 at 1:59 am
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