IP Law Daily Sale of ‘stolen’ consumer data did not infringe copyright, but could be trade secret misappropriation
Thursday, June 28, 2018

Sale of ‘stolen’ consumer data did not infringe copyright, but could be trade secret misappropriation

By Thomas Long, J.D.

Pairings of names and addresses in a database of consumer data were the result of enough of a creative process to be copyrightable as compilations, but they were entitled only to limited copyright protection, the U.S. Court of Appeals in San Francisco has held. The compiler and owner of the database—Experian Information Systems, Inc.—failed to show that competing consumer and business data seller Nationwide Marketing Solutions., Inc. infringed its copyright because it did not establish a "bodily appropriation" of the entirety of its work. However, Nationwide could have engaged in misappropriation of trade secrets in violation of Arizona law by acquiring "stolen" Experian data from a third party and offering to sell it, the court determined. The consumer information lists at issue could be protectable as trade secrets if Experian maintained proper safeguards to protect their confidentiality. There were triable issues of fact as to Nationwide’s knowledge of misappropriation, and a district court erred in granting Nationwide’s motion for summary judgment with respect to the trade secrets claim (Experian Information Solutions, Inc. v. Nationwide Marketing Services Inc., June 27, 2018, Schroeder, M.).

Experian was in the business of compiling databases and licensing portions of them to companies for use in marketing campaigns. One of the largest such compilers in the United States, Experian compiled the ConsumerView Database (CVD), which contained more than 250 million records, each pertaining to an individual consumer. The database included compiled pairings of names and addresses. The court noted that these pairings were the product of a sophisticated process to ensure the accuracy of the information and its utility for marketing purposes. Experian carefully chose the sources of the data—such as catalog purchase data, cable company records, and real estate deeds—and ran prospective new data sources through various tests to measure the data’s quality and to identify differences from data that already resided in the database. Experian’s employees reviewed the test results and only added data to the CVD if the source was approved. Experian also excluded name and address pairings that it believed were not valuable to its clients, such as business addresses and addresses of prison inmates.

Nationwide—which did business under the name Natimark—was a smaller and more recent player in the consumer database compilation industry. Natimark also utilized methodologies to yield lists of information, but Experian asserted that the companies’ respective lists were materially different. In 2011, Natimark acquired a database called the National Consumer List (NCL) from a third party with the intention of reselling the data. The NCL contained data for about 200 million consumers. In April 2012, a data broker acting on behalf of Natimark attempted to sell Experian a compilation of children’s birthdays, accompanied by the name and address pairings of the parents. Experian found that that there was a match rate of 97% between the pairings in the Natimark sample and Experian’s own corresponding CVD pairings, leading Experian to conclude that the data had been stolen. An expert later compared the Natimark database with Experian’s and found a 94% match rate. Experian also asserted that the low price Nationwide paid for the data was an indication that the data had been stolen. Subsequently, Experian filed suit against Natimark for copyright infringement.

The district court held that Experian’s compilation of pairings lacked sufficient creativity or originality to be protected under copyright. Experian added a claim for trade secret misappropriation, but the district court determined that the pairings could not be trade secrets, and even if they were, Experian did not provide sufficient evidence that Natimark knew or had reason to know that the pairings were either secret or stolen. Experian appealed.

Copyrightability. The Ninth Circuit reversed the district court’s holding on copyrightability. Although facts are not copyrightable, collections or compilations can receive protection under copyright law if they contain sufficient creative input with respect to the selection, arrangement, or coordination of the data. Only a minimal level of creativity is required. In this case, Experian’s selection process involved at least the minimal level of creative input needed for copyright protection, the court said. The data in the CVD were not merely compiled or replicated; Experian’s selection process resulted in a compilation that allegedly was different and more reliable from compilations created by the other four largest database compilers in the United States. However, in the court’s view, the lists were more like a telephone book—which lacked the "creative spark" required to be copyrightable—and less like James Joyce’s novel "Ulysses" (cited by the court as an example of a highly creative work), and therefore they were entitled only to limited protection under the copyright laws. Therefore, others could freely use the facts contained in Experian’s database as long as they did not employ the same selection or arrangement of the information.

Infringement. Although the pairings of consumer names and addresses were entitled to limited protection, Natimark did not infringe Experian’s compilation, the court decided. Generally, in the context of factual compilations, infringement should not be found in the absence of "bodily appropriation of expression" or "unauthorized use of substantially the entire item." Making this determination required a side-by-side comparison. The Experian database that allegedly was infringed was updated through September 2011. Neither that entire database nor Natimark’s allegedly infringing database was introduced into evidence, and the court noted that, as a practical matter, it might have been impossible to do so. Even if the entireties of the databases were in provided for the necessary comparison, it was undisputed that Experian’s database contained about 250 million pairings, whereas Natimark’s contained only about 200 million. Therefore, the court reasoned, even if all of Natimark’s pairings were exact copies of pairings in Experian’s database, the match rate could only be 80%, which was insufficient to establish a bodily appropriation of Experian’s work. Accordingly, the Ninth Circuit affirmed the district court’s grant of summary judgment in favor of Natimark on the copyright infringement claim.

Trade secrets. Experian fared batter with respect to its claim for trade secret misappropriation in violation of the Arizona Uniform Trade Secret Act. First, the court noted that, although the contents of Experian’s database could be gathered from generally available sources that were matters of public knowledge, Experian spent a considerable amount of money and effort in developing the compilation, and therefore the compilation could be protected under Arizona law. There were at least triable issues that the CVD had economic value as a secret not readily ascertainable by its competitors. Although Experian licensed the use of the database to others, it contended that it entered into strict security agreements with licensees to maintain the database’s secrecy. Accordingly, Experian made a prima facie showing that the CVD was a trade secret.

Misappropriation under Arizona law required a certain degree of knowledge on the part of the defendant for liability to be established. Specifically, the defendant must know or have reason to know that the trade secret at issue was acquired by improper means. The Ninth Circuit held that the district court erred in holding that there were no triable issues of fact as to whether Natimark knew or had reason to know when it acquired the data that the data were obtained through improper means. In the appellate court’s view, evidence of the low price that Natimark paid for the data—allegedly less than 1% of the market rate for a one-time license to obtain actual ownership of the data—was evidence that Natimark had constructive knowledge that the data it obtained were stolen. In addition, Natimark acquired the data through an invoice, which was unusual in the industry, as opposed to obtaining limited use rights through a written agreement. Finally, evidence of Natimark’s principal’s prior experience could indicate that he should have been put on notice of an improper acquisition. Therefore, Natimark presented enough evidence as to misappropriation to survive summary judgment. The grant of summary judgment in Natimark’s favor on the trade secrets claim was reversed, and the case was remanded.

The case is No. 16-16987.

Attorneys: Robert Unikel (Arnold & Porter Kaye Scholer LLP) and Max Gavron (Arnold & Porter Kaye Scholer LLP) for Experian Information Solutions, Inc. Mark A. Fuller (Gallagher & Kennedy PA) for Nationwide Marketing Services Inc. Marcella Ballard (Venable LLP) for The Direct Marketing Association Inc. d/b/a The Data & Marketing Association.

Companies: Experian Information Solutions, Inc.; Nationwide Marketing Services Inc.; The Direct Marketing Association Inc. d/b/a The Data & Marketing Association

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