What can a business do about an anonymous review that reveals extremely sensitive and damaging information on a public review site about the inner workings of a business, its investment activities and funding, the personalities of its leadership, and its operations? Absolutely nothing, says the California Court of Appeals, and a new decision recently issued a few days ago.

The California Court of Appeals has shut down software company Machine Zone’s attempt to learn the identity of anonymous reviewer who wrote a scathing review containing damaging information about the company on employee review site Glassdoor.com.  The Ninth Circuit’s decision has important implications for a business dealing with anonymous reviews that divulge very sensitive or damaging information about the business in a public forum.

“Scandal” at Machine Zone

It all started when an anonymous review was written about Machine Zone on Glassdoor.com, which allows disgruntled former employees, current employees, and other anonymous reviewers to provide reviews about a their experience working for Company. Machine Zone is a Silicon Valley software developer of videogames, including the online multiplayer game “Game of War: Fire Age.”

In the review, a former employee disclosed confidential information about Machine Zone, including the following review, with the title “Scandal”:

Entitled “A Scandal,” the review commences by identifying three “Pro’s” of employment at MZ: “Free food, free massages, [and a] spacial [sic] office.” It then sets out four “Con’s,” as follows: “1. Management spreads unreal information to both outside VC’s and employees. For example: “a) They claim that they have developed a language translator. However, their ‘translator’ just calls Google translation API. They actually don’t have a product translator. “b) In July 2014, their CEO announced that they raised $250,000,000 (250 million) from JP Morgan, based on a total value 3 billion dollars. After one year has been passed, it’s not verified by any other resources. The CEO has never mentioned it again.

“3. Terrible work-life balance, except for the platform team, which do not know what to work on. For Data Science team and Game Engineering team, people usually go home after 10:00pm and have on-call duties every month. “4. The senior management lost directions. The company has invested heavily in the platform team (there are 70-80 engineers). However, after one year, nothing has been done by that team. The CEO said in the team meeting: I don’t expect products and revenue from the platform team. I only want you can show demos. The platform is only for attracting investments from VCs.” (Some punctuation regularized.) Under the heading “Advice,” the review stated, “Stop telling the investors and employees the unreal information. A company cannot survive forever by cheating!” The review went on to assert that employees were “Very Dissatisfied”; that they, or Doe, “ ‘Disapprove’ [of] Gabriel Leydon (CEO)”; that Doe would not recommend MZ to a friend; and that MZ’s business outlook was “Getting Worse.”

Concerned about the information that the review was disclosing, Machine Zone notified Glassdoor that the post revealed confidential information about Machine Zone’s valuation, fundraising, as well as internal confidential statements made about its CEO and management regarding confidential strategic business plans. The post was taken down, though the Court decision does not make clear whether this was done by the reviewer electively, or for another reason.

Who is John Doe?

Apparently interested to know the identity of the reviewer, Machine Zone filed a lawsuit against the anonymous reviewer, John Doe,  asserting that the review violated the confidentiality obligations and the employment agreement that the employee had previously agreed to when beginning work with Machine Zone.  Once the lawsuit was filed, Machine Zone issued a subpoena to Glassdoor, asking for a complete identity information so that they could learn the identity of the person who leaked the information in the online review.

Glassdoor refused. Citing concerns about the right to free speech and provide anonymous information, Glassdoor claimed that the anonymous reviewer had a First Amendment right to write the review and disclose the information, and that the information did not actually consist of any confidential, non-public or competitively sensitive information. Machine Zone, dissatisfied and upset with Glassdoor’s position, challenged its position, and the case went all the way to the California Court of Appeal.

What Went Wrong

Things did not go well for Machine Zone at the appeal level, and the Court denied Machine Zone’s motion to compel the identity of John Doe. In reading the California Court of Appeal’s decision (which was longer than expected), as the pages went on, it became clear that the Court was whacking Machine Zone, over and over again, on nearly every issue. The Court  found several points to be particularly relevant:

  • The Court repeatedly pointed to the fact the Machine Zone had only sued John Doe for one single claim, which was a breach of contract. There was no claim for defamation, libel, slander, interference with business relationships and prospective economic relationships, or any other type of claim brought. Machine Zone was represented by the attorneys at Arnold & Porter in the appeal proceedings. Presently, there was only a breach of contract claim brought, to avoid problems with California’s anti-SLAPP statute, which comes into play in a lawsuit that is brought to silence negative criticism or comments in public matters. California’s anti-SLAPP statute not only allows the lawsuit to be dismissed, but it can result in the filer of the lawsuit to be ordered to pay all of the attorneys fees of the reviewer. This can be a source of dissuasion from filing defamation suits, but it is possible that in this case, counsel for Machine Zone who filed the original John Doe lawsuit overestimated the risks and in acting too conservatively by bringing a breach of contract action only, took too narrow of a path that ultimately ended short.
  • In its sole contract claim, Machine Zone claimed that John Doe violated confidentiality obligations by revealing sensitive confidential information. However, the Court pointed to the facts that long before the case had reached the appeals stage, Glassdoor had repeatedly asked Machine Zone to identify, with specificity, what information it was contending was confidential, and Machine Zone never did. The Court found that Machine Zone was never able to clearly articulate what exactly was confidential, or what exactly was a trade secret, about the information that the reviewer was disclosing (even though the review clearly disclosed inside information that was of a sensitive and damaging nature). This was probably another error caused by acting too conservatively, and never clearly expressing what what information they contended was truly sensitive/confidential in nature (presumably taking the position that “all” of the information was confidential).
  • The Court also made interesting statements about how confidential information was by its nature true, not false. Apparently, Machine Zone was claiming that the information disclosed in the review was not accurate, while at the same time maintaining that it was confidential. The  Court seemed to believe that Machine Zone was making inconsistent arguments that were directly contradictory, and that Machine Zone could not simultaneously claim that the nondisclosure agreement was being breached unless it was prepared to prove, that information that was actually true and confidential was disclosed. So, this basically results in a situation in which a business that has extremely sensitive and damaging information leaked about it, in order to learn successfully allege that the speaker was revealing confidential information, has to admit that the damaging information is to a degree true. From the Court’s opinion:

Here, however, MZ has never attempted to separate the portions of Doe’s review that are “not literally accurate in all respects” from those that might have conveyed true, and confidential, information. An employer cannot establish a claim for breach of a nondisclosure agreement unless it is prepared to prove, and does prove, that the defendant disclosed actual confidential information, i.e., that his or her statements were, in some relevant degree, true.9 Nothing in this record would sustain a finding that the CEO’s statements—reported by Doe inaccurately, according to MZ—had this effect. MZ’s hesitation on this point may be understandable, because Doe’s supposed disclosures do not cast MZ in a favorable light. But MZ cannot be excused from the requisite showing merely because proving a prima facie case might be embarrassing to it.

  • Obviously, this puts Machine Zone between a rock and a hard place. It is hard to imagine that Machine Zone would risk bigger problems, such as a securities fraud action, or legal claims from its investors, for making materially misleading statements in investment fundraising, in order to root out the identity of this anonymous reviewer. This again circles back to issues of strategy and planning, namely, whether the lawsuit brought against John Doe was ever legitimate to begin with from the start (i.e., intended on really prosecuting the claim) or whether it was a fishing expedition brought by alleging a throwaway breach of contract claim, the purpose of which was only to learn the identity of the reviewer.

So, where does this leave things for businesses who have dirty laundry leaked by former employees in a public forum that is sensitive and damaging? Obviously, every business has negative Nelly employees that take every opportunity to disparage managers, supervisors, or the business as a whole. There’s no way to silence those voices. But the Court’s decision makes it clear that businesses cannot simply rely on the confidentiality paragraphs and employment agreements to protect themselves from the public disclosure of sensitive information by disgruntled or former employees. It is not clear whether the employment agreements in the Machine Zone employee agreements contain non-disparagement provisions, provisions permitting injunctive relief, or what type of legal language might be necessary to give a business the protection it needs to prevent the situation from happening, but it is clear that the typical NDA-type provisions and employment agreements will not suffice, at least in California. Some creative ideas might be to include provisions in the employment agreement waiving the employee’s right to challenge enforcement of a non-disparagement provision on the basis of Anti-SLAPP; or having the employee agree and acknowledge that all elements of a tortious interference claim are met and will not be disputed, in the event enforcement of the contract provisions are necessary.

Of course, the last option is obvious, which is, to simply to file defamation claims and go through anti-SLAPP proceedings and see whether the court determines that the information revealed by the reviewer is of the type that is actually considered protected free speech; and appeal those proceedings in the event they do not go favorably.

Whatever the approach may be, it is clear that a workable solution needs to be identified to prevent businesses from suffering from the wrongful disclosure of damaging information in a public forum. There’s something that seems unfair with the notion that a company cannot do anything to stop the public disclosure of its dirty laundry in a public forum by an insider who has gained that information by virtue of the close relationship with the company.

AXIS Legal Counsel’s Business Practice provides legal advice to numerous small businesses with a variety of legal matters, including business formations, contracts, deals, and transactions, business administration, corporate governance, operations, risk management / insurancelabor/employment matters, intellectual property, healthcare, crisis management, directors/officers, private/data security, technology, statutory/legal compliance, and business litigation. AXIS represents businesses, corporations, LLCs, LLPS, partnerships, and startups in need of a corporate lawyer, for business legal matters as well as business litigation, such as disagreements, non-solicit agreements, non-competes, trade secrets, and other disputes with businesses. We are also experienced in providing assistance to business clients concerning business contracts, corporate formation matters, contracts and transactions, business litigation, business legal advice for Corporations, LLPs, LLCs, Partnerships, Small Business, Startups, and others involving corporate law.

If you are seeking a business lawyer, or for information on retaining AXIS Legal Counsel to represent your business in connection with any legal matter, contact info@axislegalca.com or call (213) 403-0130 for a confidential consultation.

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