What happens when trade secret protections collide with laws
granting public access to government records? This question took
center stage in a recent case involving the Seattle Police
Department ("SPD"). A federal district court enjoined the
SPD from disclosing a software vendor's allegedly trade secret
information in response to a reporter's public records act
request. Besides serving as a reminder of the precautions that
companies should take when disclosing intellectual property to
public agencies, the case also raises interesting questions and
Software vendor Versaterm creates information management systems
for public agencies. Police departments around the country,
including SPD, have licensed software products from Versaterm.
SPD's license agreements generally provide that SPD may not
copy or display the user manuals and documentation Versaterm
provides with its software products. The parties' agreements
also provide that Versaterm may designate certain of its material
as "proprietary information," and that absent such a
designation, Versaterm's materials may be subject to disclosure
under Seattle's Public Records Act.
A reporter in Austin, Texas suspected that
something was fishy with crime reporting statistics from police
departments using Versaterm's software. He filed a public
records request with SPD seeking "[m]anuals and other training
documents relating to [Versaterm's software] specifically any
guides or instructions about how to query and export crime data
from the system." Because Versaterm designated the manuals it
provided to SPD as "proprietary information," SPD
notified Versaterm of the request and of SPD's intent to
produce the documents absent a court order.
Versaterm promptly sought a temporary restraining order and then
a preliminary injunction from the U.S. District Court in Seattle to
halt the disclosure. Insisting that "[t]he metaphorical
wrecking ball is about to hit the building," Versaterm argued
that its software manuals disclose critical Versaterm trade
secrets, including the functionality and design of Versaterm's
software, instructions on how to use the software, and screen shots
of the software.
Several aspects of the court's order granting
Versaterm's injunction are worth noting.
First, even though the SPD did not contest that Versaterm's
documents contained trade secrets, the SPD argued that it had a
broad duty to disclose public records, it had no affirmative duty
to invoke a trade secrets exemption to the public records laws on
Versaterm's behalf, and that any such exemption should be
construed narrowly. While the court's order prevents the
SPD's disclosure of the documents (for now), the case
highlights the risks involved with providing trade secrets to
government agencies. Usual contractual provisions
(e.g., non-disclosure agreements) may not be
enough to trump laws mandating broad access to public records.
Second, the court declined to rule on Versaterm's argument
recently-enacted federal Defense of Trade Secrets Act qualified
as a "statute which exempts or prohibits disclosure of
specific information or records" for purposes of
Washington's state public records act. The court did not reach
the merits of this argument because it was not properly briefed,
leaving open an important question regarding the interplay between
state public records laws and the DTSA.
Third, before granting Versaterm a preliminary injunction, the
court ordered briefing on whether the reporter was a
"necessary party" to the lawsuit under Federal Rule of Civil Procedure 19; the court
concluded the reporter was not, reasoning that the reporter's
"interest in disclosure" is adequately represented by
SPD. But query whether SPD actually shares
Versaterm's interest in
non-disclosure, because such disclosure could
lead to public scrutiny of SPD's own crime statistics. Notably,
SPD did not directly oppose Versaterm's motion—it simply
filed a "response" asking the Court to determine whether
Versaterm's manuals are exempt from disclosure—nor did it
challenge whether the documents actually constituted trade secrets
(despite the fact that, prior to the lawsuit, SPD had already made public at least some portions of
Versaterm software manuals). Now that the Court has granted a
preliminary injunction, what is stopping SPD from entering into a
settlement agreement and stipulated permanent injunction in order
to save costs?
In this respect, Versaterm may be getting off easy. The reporter
has not sought to intervene in the proceedings, and may lack the
resources to fight this battle in court. Because the next
government contractor who tries to prevent public records
disclosure of its trade secrets may not be so lucky, this case
serves as a cautionary tale (and its conclusion remains to be
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