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E-Commerce News
Choice Point is Class Action Target and Apple Entitled to Identities of Bloggers
April 13, 2005
CHOICE POINT IS CLASS ACTION TARGET
A proposed class action filed on March 4 in California federal court accuses executives of ChoicePoint Inc. of violating federal securities laws by failing to disclose what they knew about the data broker's security problems during the past year.
The complaint seeks to certify a class of shareholders who acquired ChoicePoint securities between April 22, 2004, when the company announced first-quarter earnings, and March 3, 2005.
ChoicePoint’s business is gathering information on millions of people and selling it to insurance companies, landlords, employers, law enforcement, federal agencies, and other customers. In February, news reports indicated that individuals posing as legitimate businesses bought personal information on some 145,000 individuals from ChoicePoint and used it for identity theft purposes.
In a report filed March 4 with the Securities and Exchange Commission, ChoicePoint said it will limit its sales of products containing sensitive personal information, a move that may cut its 2005 revenue by up to $20 million. The company also revealed that it is the target of a Federal Trade Commission probe into its compliance with federal laws governing consumer information and security and an informal inquiry by the SEC into recent stock trades by top ChoicePoint executives.
The complaint says that the price of ChoicePoint shares declined by more than 13 percent between Feb. 22 and March 4 as information about the company's security problems came to light.
According to the complaint, ChoicePoint allegedly failed to disclose that it had inadequate, ineffective measures to protect consumers from security breaches and that it had profited from selling consumer's private information to illegal enterprises.
The complaint alleges the company knew that the company's actions exposed more than 500,000 people to the threat of identity theft, according to the complaint.
The complaint seeks compensatory damages in an unspecified amount on behalf of the class as well as legal costs and counsel fees and expenses.
APPLE ENTITLED TO IDENTITIES OF BLOGGERS
A California Superior Court has ruled that neither the First Amendment nor California's shield law for journalists bars discovery of the identities of persons who allegedly misappropriated Apple Computer's trade secrets by leaking them to several Apple-oriented bloggers.
First Amendment protections for journalists, even if they were to apply to bloggers, do not give the bloggers a license to violate criminal laws, nor is there any strong public interest in permitting the disclosure of Apple's trade secrets, the court said. As for California's shield law, the court remarked that the statute is a limited protection in the form of immunity from contempt--it is not applicable to a person who posts trade secrets on a Web site, in apparent violation of the criminal law.
The ruling came when the court denied a motion for a protective order against a subpoena served by Apple Computer Corp. on an e-mail service provider, Nfox, seeking the identities of unnamed individuals who had allegedly leaked specific, trade secret information about Apple products to three Web sites.
The court found that Apple had made out a satisfactory case that the information at issue constituted proprietary trade secrets and that it had taken adequate steps by way of internal investigation to justify the external discovery it sought in the case. One posting, for example, contained an exact copy of a detailed drawing of a technology known as "Asteroid," which was taken from a confidential set of slides labeled, "Apple Need-to-Know Confidential."
According to the court, even if those seeking protection from the order were "journalists," they would not on that basis be entitled to a "free pass." "Journalists cannot refuse to disclose information when it relates to a crime," the court said here.
In balancing the need for discovery against any privilege, the court cited to previous case law which set forth a test that weighs, among other things, whether the reporter is a party to the lawsuit, whether the discovery was important to the plaintiff's claims, whether other sources of information had been exhausted, whether the public interest would be advanced by limiting disclosure. In applying this test, the court noted that the web sites never answered the its inquiry as to why there was a true public benefit from disclosure The court denigrated the Web sites' claim to be journalists, stating that they merely took the information leaked to them from their sources "and turned around and put it on the PowerPage site with essentially no added value."
According to the court, the information published on the bloggers' Web sites is "stolen property, just as any physical item, such as a laptop computer containing the same information on its hard drive (or not) would be," the court wrote.
Unlike whistleblowers who may advance the public interest by reporting private and public misconduct, there is no compelling interest publishing Apple's trade secrets, the court concluded. "An interested public is not the same as the public interest."
This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.