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 strategic considerations.
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 that the 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 determined…)