Monthly Archives: June 2012

It’s a Tax, not a Regulation of Commerce!

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Prior to today, the case brought by twenty-six states (including Ohio), several individuals, and the National Federation of Independent Business challenging the constitutionality of the individual mandate portion of the Patient Protection and Affordable Care Act had been decided by the Court of Appeals for the Eleventh Circuit stating that Congress lacked authority to enact the individual mandate. Based on this ruling, and a feeling that the U.S. Supreme Court would follow suit, many thought that the Act would become meaningless without this “penalty” for individuals failing to purchase health insurance. 

The Supreme Court changed all of that with one hundred plus pages of text that essentially takes a completely opposite position from the Court of Appeals. The opinion, released today, states that the individual mandate is a constitutional act of Congress when construed under Congress’s powers to lay and collect taxes, and not pursuant to the Commerce Clause (as has been the position of the President since the inception of the law). In declining to approve the individual mandate under the Commerce Clause, but approving it under the power to tax, the Court stated that “Congress already possesses exclusive power to regulate what people do.” “Upholding the Affordable Care Act under the Commerce Clause would give Congress the same license to regulate what people do not do.” The Court went on to say that despite the Act calling the payment a “penalty,” and not a “tax,” the payment was functionally a tax, which will be paid to and collect by the IRS. 

While the fallout from this decision will continue for months to come, it would appear the country should continue to prepare for implementation of those portions of the Act that become effective in 2014.

Stay away from my friends: When is a business’s social media friend list a trade secret?

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Sasha VanDeGrift  by Sasha VanDeGrift

The general rule in Ohio is that for a customer list to be a trade secret, it has to be… a secret. Usually this means that the customer list is stored in a locked drawer or a password-protected server that only a few trusted people can access.

But with the emergence of social media, a friend list may be as or more important than a traditional customer list. But can a business’s friend list be a trade secret just like a customer list?

Christou v. Beatport, L.L.C., No. 10-cv-02912-RBJ-KMT, 2012 U.S. Dist. LEXIS 34307 (D. Colo. 2012) has raised this very issue. Christou owned several nightclubs in Denver that featured electronic house music. Christou employed Bradley Roulier as his talent scout and performance coordinator. Roulier had access to the friend lists.

The relationship between Christou and Roulier soured and Roulier left Christou’s nightclub empire to form a competing music business called Beatport. As former employees sometimes do, Roulier left with information that Christou believed to be trade secrets, including the friend lists.

Christou sued Roulier and Beatport, claiming the friend lists were trade secrets. Beatport moved to dismiss, arguing that the friend lists could not be trade secrets as anyone who accessed Christou’s social media pages could see who Christou’s friend are.

But the court found that the names themselves, readily available to the public, were not the important factor. Rather, by friending a business, the business gained access to the friend’s interests and preferences, contact information, and a built-in means of contact. This information cannot be obtained from outside sources. The court found that Christou could continue the lawsuit against Beatport because the friend lists could plausibly be trade secrets.

The court did not address whether the individual user’s profile is private or public. Facebook in particular has made headlines when privacy settings changed automatically and made formerly private content public. If a user made his/her content public, including the interests and preferences that could be valuable to a business, would that negate the court’s conclusion that the information requires protection because it cannot be obtained elsewhere? Can something be a trade secret when the business cannot control whether the very thing it desires to protect is actually a secret.

On the other hand, a friend list is greater than the sum of its parts. Having lists of thousands of people who have self-identified themselves as potential customers is immensely valuable. In Christou, the friend lists contained thousands of people, some of whom identified favorite DJs, songs, artists, etc., which would help Christou or Beatport learn what music was trending with their primary audience. Even if the customers all made their profiles public, which would make their contact and preference information just as available to Beatport as to Christou, Beatport would have to use its resources to find the profiles. Having a list of those people would save time and money, a fact that might persuade a judge that regardless of whether the profiles are public or private, the information is a trade secret.

Few, if any, courts have resolved these questions. As the court in Christou stated, whether a friend list is a protectable trade secret is an issue of first impression in federal court. Likewise, Ohio courts have not decided this issue. But we are likely to see more litigation on this issue, including the final decision in Christou.

The implication from the court’s decision is that under the right circumstances, a friend list might be a trade secret. Friend lists have business value and have to be treated that way. Make it clear that you do not want anyone other than your people talking to your friends. If your actions do not tell your competition to stay away from your friends, the competition will try to replace you as your friends’ BFF in the industry