Religious Technology Center v. Netcom On-Line Communication Services, Inc.
Chapter 07
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Email Listserve[NOTE: This case has been edited for classroom use by the omission of text, citations, and footnotes. See this alternate source for the full opinion.]
U.S. District Judge Ronald M. Whyte
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' APPLICATION FOR A PRELIMINARY INJUNCTION AND DEFENDANT ERLICH'S MOTION TO DISSOLVE THE TRO . . . .
This case involves the scope of intellectual property rights on the Internet. Plaintiffs, two Scientology-affiliated organizations claiming copyright and trade secret protection for the writings of the Church's founder, L. Ron Hubbard, brought this suit against defendant Dennis Erlich ("Erlich"), a former Scientology minister turned vocal critic of the Church, who allegedly put plaintiffs' protected works onto the Internet.n2
On June 23, 1995, this court heard the parties' arguments on eight motions, five of which relate to Erlich and are discussed herein: (1) plaintiffs' motion for a preliminary injunction against Erlich and Erlich's related motion to dissolve or amend the Amended TRO; (2) plaintiffs' application to expand the TRO; (3) plaintiffs' motion for contempt against Erlich; (4) Erlich's motion to vacate the writ of seizure; and (5) and plaintiffs' request for sanctions against Erlich's counsel.n3 For the reasons set forth below, the court grants in part and denies in part plaintiffs' motion for a preliminary injunction against Erlich and Erlich's motion to dissolve the TRO, denies plaintiffs' application to expand the TRO, denies plaintiffs' motion for contempt against Erlich, grants Erlich's motion to vacate the writ of seizure, and denies plaintiffs' request for sanctions against Erlich's counsel.
I. BACKGROUND
Defendant Dennis Erlich was a member of the Church of Scientology ("the Church") from approximately 1968 until 1982. During his years with the Church, Erlich received training to enable him to provide ministerial counseling services, known as "auditing." While with the Church, Erlich had access to various Scientology writings, including those of the Church's founder, L. Ron Hubbard ("Hubbard"), which the Church alleges include published literary works as well as unpublished confidential materials (the "Advanced Technology works"). According to plaintiffs, Erlich had agreed to maintain the confidentiality of the Advanced Technology works.
Since leaving the Church, Erlich has been a vocal critic of Scientology and he now considers it part of his calling to foster critical debate about Scientology through humorous and critical writings. Erlich has expressed his views about the Church by contributing to the Internet "Usenet newsgroup" called "alt.religion.scientology" ("the newsgroup"), which is an on-line forum for the discussion of issues related to Scientology.n6
Plaintiffs allege that in the six months prior to their filing suit, Erlich unlawfully posted to the newsgroup works from two separate categories of writings by Hubbard which are contained in Exhibits A and B of the FAC. . . . Plaintiff Bridge Publications, Inc. ("BPI"), a nonprofit branch of the Church, claims to be the exclusive licensee of CST's copyrighted literary works listed in Exhibit A to the Complaint ("Exhibit A works"), which consist mainly of policy letters and bulletins from the Church.
Plaintiff Religious Technology Center ("RTC"), a nonprofit religious corporation, "was formed by Scientologists, with the approval of [Hubbard], to act as the protector of the religion of Scientology and to own, protect, and control the utilization of the Advanced Technologyn7 in the United States." FAC, Ex. C, at 2. RTC claims to be the exclusive licensee of the copyrights and the owner of the other rights in the unpublished Advanced Technology works listed in Exhibit B to the Complaint (the "Advanced Technology" works or the "Exhibit B works").
BPI and RTC allege that Erlich infringed the copyrights in the Exhibit A and B works. RTC also alleges that Erlich misappropriated its trade secrets in the Exhibit B works, the confidentiality of which it alleges has been the subject of elaborate security measures. RTC further claims that those works are extremely valuable to the Church. Erlich admits to having posted excerpts from some of the works, but argues that the quotations were used to provide context for debate and as a basis for his criticism. Erlich further argues that he has neither claimed authorship of any of the works nor personally profited from his critique, satire, and commentary. Erlich contends that all of the Exhibit B documents he posted had been previously posted anonymously over the Internet, except for item 1, which he claims he received anonymously through the mail.
. . . On February 8, 1995, plaintiffs filed this action against Erlich, Klemesrud, and Netcom for copyright infringement and, against Erlich alone, for misappropriation of trade secrets, seeking actual, statutory, and punitive damages, injunctive relief, impoundment of the infringing materials and equipment, and attorneys' fees and costs.
On February 10, 1995, the court granted plaintiffs' ex parte application for a temporary restraining order ("TRO") prohibiting Erlich from making unauthorized use of works identified in the exhibits to the complaint and an order directing the clerk to issue a writ of seizure under 17 U.S.C. § 503(a). On February 13, 1995, in execution of the writ of seizure, local police officers entered Erlich's home to conduct the seizure. The officers were accompanied by several RTC representatives, who aided in the search and seizure of documents related to Erlich's alleged copyright infringement and misappropriation of trade secrets. Erlich alleges that RTC officials in fact directed the seizure, which took approximately seven hours. Erlich alleges that plaintiffs seized books, working papers, and personal papers. After locating Erlich's computers, plaintiffs allegedly seized computer disks and copied portions of Erlich's hard disk drive onto floppy disks and then erased the originals from the hard drive. Although plaintiffs returned to Erlich's counsel some of the articles seized, Erlich contends that plaintiffs have not returned all of the seized articles, including ones that are unrelated to the litigation.
On February 23, 1995, the court issued an "Amended TRO," which sought to clarify what types of use were prohibited and to emphasize that Erlich could make "fair use" of the Exhibit A works.
II. PRELIMINARY INJUNCTION/DISSOLUTION OF TEMPORARY RESTRAINING ORDER
A. Legal Standards
A party seeking a preliminary injunction may establish its entitlement to equitable relief by showing either (1) a combination of probable success on the merits and the possibility of irreparable injury, or (2) serious questions as to these matters and that the balance of hardships tips sharply in its favor. These two tests are not separate, but represent a continuum of equitable discretion whereby the greater the relative hardship to the moving party, the less probability of success need be shown. The primary purpose of a preliminary injunction is to preserve the status quo pending a trial on the merits.
. . . .
C. Likelihood of Success on Trade Secret Claim
In the third cause of action, plaintiff RTC alleges that Erlich misappropriated its trade secrets. California has adopted a version of the Uniform Trade Secret Act ("UTSA"), Cal. Civ. Code § 3426.1 et seq. The UTSA defines a trade secret as
information, including a formula, pattern, compilation, program, device, method, technique, or process, that:Cal. Civ. Code § 3426.1(d). The UTSA further defines "misappropriation" of a trade secret as(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) Disclosure or use of a trade secret of another without express or implied consent by a person who:Id. § 3426.1(b).(A) Used improper means to acquire knowledge of the trade secret; or
(B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was:(i) Derived from or through a person who had utilized improper means to acquire it;(C) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
(ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
1. Nature of Works
As a preliminary matter, Erlich argues that the Advanced Technology works cannot be trade secrets because of their nature as religious scriptures. . . .
. . . Erlich argues that the Church cannot have trade secrets because trade secret law is necessarily related to commerce. The Church contends that, like other organizations, it must pay bills, and that licensing fees from these documents allow it to continue operating.
The Church's status as a religion does not itself preclude it from holding a trade secret. . . .
Nor is there any authority to support Erlich's argument that the Church's religious texts cannot be trade secrets because, unlike most trade secrets, these secrets are not used in the production or sales of a commodity but are the commodities themselves. . . .
. . . .
Thus, there is at least some precedent for granting trade secret status to works that are techniques for improving oneself (though not specifically spiritually). Conversely, there is no authority for excluding religious materials from trade secret protection because of their nature. Indeed, there is no authority for excluding any type of information because of its nature. . . .
Although trade secret status may apply to works that are techniques for spiritually improving oneself, the secret aspect of those techniques must be defined with particularity. It appears that plaintiffs are claiming that the entire works themselves, . . . . This definition is problematic because it is impossible to determine when the "secret" has been lost after portions of the works have been disclosed. . . . [P]laintiffs have [not] identified their trade secrets with sufficient definiteness to support injunctive relief.
2. Independent Economic Value
. . . .
. . . [T]he Church has shown independent economic value.
3. Secrecy
Information is protectable as a trade secret where the owner has taken "efforts that are reasonable under the circumstances to maintain its secrecy." UTSA § 3426.1(b)(2) (emphasis added). . . . The court finds that RTC has put forward sufficient evidence that it took steps that were reasonable under the circumstances to protect its purported trade secrets.
Erlich raises a number of objections to the Church's claims of confidentiality. Erlich argues that the Church's trade secrets have been made available to the public through various means. The unprotected disclosure of a trade secret will cause the information to forfeit its trade secret status, since "information that is generally known or readily ascertainable through proper means by others . . . is not protectable as a trade secret." Restatement (Third) of Unfair Competition § 39 cmt. f, at 432 (1995); see also Cal. Civ. Code § 3426.1(d). Once trade secrets have been exposed to the public, they cannot later be recalled.
. . . .
Finally, Erlich newly emphasizes in his Reply that the works he posted were not secrets because he received them through proper means: eight of the documents were allegedly previously posted anonymously to a public portion of the Internet and one of the documents . . . allegedly came to Erlich anonymously through the U.S. mail. Erlich claims that because the alleged trade secrets were received from "public sources," they should lose their trade secret protection. Although the Internet is a new technology, it requires no great leap to conclude that because more than 25 million people could have accessed the newsgroup postings from which Erlich alleges he received the Exhibit B works, these works would lose their status as secrets. While the Internet has not reached the status where a temporary posting on a newsgroup is akin to publication in a major newspaper or on a television network, those with an interest in using the Church's trade secrets to compete with the Church are likely to look to the newsgroup. Thus, posting works to the Internet makes them "generally known" to the relevant people--the potential "competitors" of the Church.
The court is troubled by the notion that any Internet user, including those using "anonymous remailers" to protect their identity, can destroy valuable intellectual property rights by posting them over the Internet, especially given the fact that there is little opportunity to screen postings before they are made. Nonetheless, one of the Internet's virtues, that it gives even the poorest individuals the power to publish to millions of readers, can also be a detriment to the value of intellectual property rights. The anonymous (or judgment proof) defendant can permanently destroy valuable trade secrets, leaving no one to hold liable for the misappropriation. Although a work posted to an Internet newsgroup remains accessible to the public for only a limited amount of time, once that trade secret has been released into the public domain there is no retrieving it. While the court is persuaded by the Church's evidence that those who made the original postings likely gained the information through improper means, as no one outside the Church or without a duty of confidence would have had access to those works, this does not negate the finding that, once posted, the works lost their secrecy. Although Erlich cannot rely on his own improper postings to support the argument that the Church's documents are no longer secrets, evidence that another individual has put the alleged trade secrets into the public domain prevents RTC from further enforcing its trade secret rights in those materials. Because there is no evidence that Erlich is a privy of any of the alleged original misappropriators, he is not equitably estopped from raising their previous public disclosures as a defense to his disclosure. The court is thus convinced that those postings made by Erlich were of materials that were possibly already generally available to the public. Therefore, RTC has not shown a likelihood of success on an essential element of its trade secret claim.
. . . .
FOOTNOTES
2 Plaintiffs additionally sued defendants Tom Klemesrud ("Klemesrud"), who operates the bulletin board service ("BBS") used by Erlich, and Netcom On-Line Communication Services, Inc. ("Netcom"), who provides that BBS with access to the Internet.
3 The court will address plaintiffs' motion for a preliminary injunction against Klemesrud and Netcom, Klemesrud's motion for judgment on the pleadings, and Netcom's motion for summary judgment in a separate order.
6 Erlich gained access to the Internet by using a personal computer and a modem in his home to connect to defendant Klemesrud's BBS, to which Erlich was one of 512 subscribers paying an annual fee. Klemesrud's BBS, in turn, was connected to the Internet through an arrangement with defendant Netcom under which Klemesrud leased access to the Internet at a fixed rate.
7 These works are part of the "course" materials used in the upper-levels of Scientology training, and are only available to those Scientologists who have successfully completed all of the lower courses.
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