Trade Secrets behind a Paywall?: Angie’s List sues Amazon Local

What are the bounds of fair competition? What are the outer limits of company proprietary information? In my recent book Talent Wants to Be Free, I describe the uptick inrecent trade secrets litigation and unfair competition disputes. I argue that some of the moreaggressive practices which attempt to control the flow of information and prevent competitorsfrom free-riding on a company’s information run counter to the goals of innovation andeconomic growth. At the same time, trade secrets and competition law are a balancing act. Wetry to reach that Goldilocks line-drawing of getting the incentives just right: promoting investment in new business ventures, product and service development while encouragingcompetition and the use of existing knowledge in dynamic markets.

Angie's List v. Amazon Local

A new case offers a lens tocontemporary competitive practices, testing the limits of ethical (and lawful) competition. Overthe last ten years, has become one of the largest online retailers selling everythingfrom clothes to video games to local produce. The Everything Store has been praised for itsinnovation especially with ideas like droids that deliver packages or Sunday delivery. AsAmazon continues to expand into new ventures, it’s recently created Amazon Local has run intoa legal conflict.

Amazon Local, similar to earlier companies like Groupon, sells discount offers torestaurants, hotels, beauty stores and yoga studios. Most recently, Amazon Local has branchedinto offerings of service providers.

The Heart of the Lawsuit

How does the company select these providers? This is thequestion at the heart of a new lawsuit. On June 23, 2015, the online site “Angie’s List” suedAmazon accusing it of tortious interference with contract, breach of contract, and mostimportantly the misappropriation of trade secrets. The complaint is available below.

Angie’s List is an internet-based businessfounded in 1995 that provides a forum for subscribed members to get detailed feedback onservice providers such as plumbers, electricians, painters, and more. Angie’s List claims thatover the last twenty years and hundreds of millions of dollars later, it has developed a highlyrated service the core of which is a database of information about particular providers. Angie’sList believes that Amazon Local, on the other hand, has chosen to “shortcut” the years of workneeded to compile this valuable information and has unlawfully appropriated Angie’s List’sproprietary information.

While Angie’s List accepts that Amazon Local is now a competitor, it argues thatAmazon Local must do their own due diligence in creating their service provider list. Instead, italleges that at least twenty Amazon Local employees signed up for their Angie’s List, someusing fake names, and used the information about providers on Angie’s List to approach theircompetitor’s top rated providers for listings on Amazon Local. Angie’s List claims that by theseactions Amazon Local employees misappropriated trade secrets as well as violated themembership agreement every Angie List’s member is bound by, prohibiting the use of theinformation for commercial use. In addition to the contractual breach and trade secretmisappropriation, the claims against Amazon include computer trespass and violations of theComputer Fraud and Abuse Act.

The Bounds of Fair Competition

The case tests the bounds of proprietary information, trade secrets and unfair competition. As I discuss in my article The New Cognitive Property: Human Capital Law and the Reach ofIntellectual Property, Texas Law Review 2015, a robust body of recent research shows that themore we expand the definition of trade secrets and the more we enclose knowledge preventingits use by competitors, we risk hurting economic growth and curtailing innovation. Ironically,also in the past few months, Amazon was in the news for requiring non-compete agreementseven from its part-time seasonal low skilled employees. And yet, here Amazon is accused ofusing its employees to infiltrate the ranks of a competitor and it Amazon that claiming the rightto compete with an incumbent for the welfare of consumers.

While the Membership Agreementswill be a contractual matter and will expand upon the issue at the heart of Pro ProCD v. Zeidenbergon shrinkwrap license and whether an enforceable contract was properly formed, the tradesecrets claims are interesting as they raise the question of what is secrecy and not publicly knownwhen a database is accessed by thousands of random consumers daily. Angie List’s seems tohave developed profiles, ratings, reviews, and lists that have independent economic value andhas taken steps to protect their secrecy by restricting access to members and obtainingmembership agreements which restrict the use and sharing of this information. At the same time,the access of customers to the database is very broad and even with membership restrictionsseems different than NDAs between employees and employers. Was the paywall a reasonableprecaution when thousands of users, non-screened and for a very small annual fee, can gainaccess to the entire database? From a policy perspective, in general consumers and the publicdislike paywalls behind which valuable consumer generated information lies. But in interpretingwhat is “unfair competition,” a court would need to assess the economic logic of protecting thedatabase against competitor viewing and whether the incentive structure suggests that absent apaywall such a database would be of a lesser quality.