Saving e-Data Value

The Internet Newsletter January 2002 Volume 7, Number 1 American Lawyer Media

Preserving the Value of Internet Information
Via the Tort of Misappropriation

By Jonathan Bick

The Internet bristles with proprietary information and personal data that doesn’t qualify for either statutory protection based on copyright or patents, or traditional unfair competition protection based on confusion of source. Actionable when a party takes information from the commercial site of a rival and uses the information to damage that rival, the tort of Internet misappropriation helps to fill in this gap.

The Internet is particularly susceptible to the unauthorized access, taking and use of another's information property for two reasons. First, the Internet is primarily composed of publicly disclosed informational content. Second, Internet content is standardized in such a way as to make the access, copying and use of such content easy for even the neophyte Internet user.

The unauthorized taking and use of Internet information can occur in many forms. Internet hackers can break into an e-mail account to read or send e-mails or simply copy information found on an Internet site. Other hackers specialize in gaining unauthorized access to Internet network systems. Still others obtain access to targeted Internet databases.

Black's Law Dictionary defines the tort of misappropriation as "the application of another's property or money dishonestly to one's own use." The tort of misappropriation generally is associated with unfair competition litigation. An unfair competition claim involving misappropriation usually concerns the taking and use of the plaintiff's property to compete against the plaintiff's own use of the same property.

Unfair competition is an umbrella cause of action that covers all violations of fair and honest business practices. Misappropriation of trade secrets, trademark and trade name violations and trade dress infringements are all forms of unfair competition. Unfair competition with respect to intellectual property most commonly is associated with trademark law.

Trademark law recognizes the right to a unique pecuniary interest that belongs to a party that has expended labor and money to make a distinct mark. The tort of misappropriation of publicly disclosed information is a branch of the law of unfair competition that recognizes a new and additional pecuniary interest.

Basis for the Application
The application of the tort of misappropriation to the Internet is based squarely on the U.S. Supreme Court's articulation of the tort of misappropriation in International News Service v. Associated Press, 248 U.S. 215 (1918) nearly a century ago.

In International News Service, the Court held that the owner of information that was gathered for commercial use was worthy of protection from a business competitor’s interference . The result was to enjoin a defendant from taking or using any of the plaintiff's information until its commercial value had vanished.

Needless to say, the defendant in this case was engaged in the copying of news stories from traditional bulletin boards and the plaintiff's newspapers—rather than from electronic bulletin boards and web sites—and selling them as the defendant’s own. However, the competitive relationship between the parties in International News Service is similar to the competition between commercial entities with a web presence.

Most important, the Supreme Court concluded that the tort was misappropriation rather than misrepresentation and consequently the defendant's actions amounted to unfair competition in business.

The Court has never attempted to classify news as property. It chose to characterize the Associated Press' interest in the news as "quasi-property" because, as noted in Justice Brandeis' dissent, "the knowledge for which protection is sought in the case at bar is not a kind upon which the law has heretofore conferred the attributes of property." Consequently, to apply the tort of misappropriation to Internet matters does not require the court to find that Internet content is property.

This finding is important for two reasons. First, determining the property right in much Internet content is difficult. Second, in the case of Internet misappropriations, normally the material that both parties are concerned about must be evaluated in terms of their relationship, irrespective of the rights that either has against the public.

The unauthorized access, taking and use of another's information property may be the work of a disgruntled employee, a business competitor or a security specialist. To employ the remedies for misappropriation, who executes the bad act is less important than showing that the bad act has benefited a competitor. A cause of action for misappropriation of Internet information assets exists when one can prove that such assets exist, and that they were improperly used without authorization by a competitor. Federal and state courts have identified the tort of misappropriation as a basis for enforcing legal rights in Internet information. For example, in October, the Supreme Court of Indiana found that a university was not entitled to invasion of privacy or trademark claims against a former professor who created imposter web sites and e-mail addresses, but was entitled to an injunction to stop these activities based in part on the tort of Internet misappropriation. Felsher v. Univ. of Evansville, 755 N.E.2d 589; 2001 Ind. LEXIS 903 (2001).

The defendant in the case had created imposter web sites and e-mail addresses to harm the reputation of the university. The plaintiff could not base its claims on the trademark infringement, trademark dilution, unfair competition and false designation of origin provisions of the Lanham Trade-Mark Act—15 U.S.C. §§ 1114, 1125(a)—because these trademark actions require commercial use of the domain name. See 15 U.S.C. 1125(c)(4)(B) (1999) (stating that noncommercial use of a mark is not actionable under this section).

Since the plaintiff in this case did not assert a right to relief under the Lanham Act, the court did not debate whether the "commercial use" requirement for trademark actions is satisfied by domain name registration and corresponding presentation of information on a web site. Instead, the court found that an appropriate remedy was misappropriation of a corporation name or likeness, which is based on state unfair competition law and trademark statutes, as well as common-law torts.

Whether a client is a small business that needs to know whether it can take action against a hacker, or a large company whose Internet data may be misused on a web page, the tort of misappropriation will be an inescapable part of every tort lawyer's practice. To a lesser extent, an individual dissatisfied with the treatment of his or her personal data via the Internet also may have a claim based on misappropriation.

The size and nature of the Internet pose new challenges to preserving the value of informational products, principally electronic databases that contain immense amounts of information. The digital nature of Internet information enables it to be cheaply and rapidly copied and disseminated virtually worldwide, whether through a web site on the World Wide Web or by e-mail.

In turn, the nature of the Internet promotes Internet-related investments that are related to database informational products. U.S. case law has made it clear that free riding in the marketplace is inherently undesirable and normally unlawful when a subsequent seller of a product may take advantage of the original manufacturer/seller's reputation or expenditures to create consumer demand that injures the original seller.

Misappropriation, because of its ability to halt the unauthorized and uncompensated use of such investments, has the promise to be an effective weapon against unfair Internet business tactics.


The author is Counsel to Brach Eichler ( and an adjunct professor of Internet law at Pace Law School and Rutgers Law School. He is also the author of 101 Things You Need To Know About Internet Law (Random House 2000).