Will the iPhone Saga Bankrupt Gawker Media?

The iPhone controversy with Gizmodo is starting to sound like a passage from Orwell’s 1984. Police have searched Gizmodo Editor Jason Chen’s home for evidence regarding how the blog acquired a prototype of the new iPhone.

What’s the secret? Gizmodo told the world they paid $5,000 to someone who found the phone after Apple (AAPL) engineer Gary Powell got so blitzed he left the priceless device at bar Gourmet Haus Staudt — just 20 miles from Apple’s Infinite Loop headquarters. Of course, Powell is probably weaving a different story to keep his job. But does that necessitate the police acting as private security for Apple?

The Journalist’s Shield

Worse, the police probably violated the California Journalist Shield Law — California Penal Code 1524(g) — which protects journalists from these exact types of seizures. Our friends at Business Insider obtained the letter Gawker COO Gaby Darbyshire wrote to Detective Broad describing the law and requesting that the San Mateo police return the confiscated property:

So, is Chen covered? Although we can’t be 100% sure, it seems so. A consortium of lawyers called The Citizen Media Law project asserts:

[I]n California there is relatively clear precedent that online journalists like Chen are covered by the shield law. In O’Grady v. Superior Court, 139 Cal. App.4th 1423 (Cal. Ct. App. 2006), a California appeals court held that Apple could not get the identities of confidential sources from the publishers of “O’Grady’s Power Page” and “Apple Insider,” two sites devoted to covering stories about Apple products. While the court acknowledged that not all bloggers would qualify under the shield law, it explained that characteristics like frequency of publication, permanency of web address, and number of visitors per month made the two sites in question akin to a newspaper or “other periodical publication.” Certainly, Gizmodo outstrips the two sites in O’Grady when it comes to these same characteristics.

On its face, it appears Chen should be protected under the Journalist Shield Law. But all that means is Chen will get all his confiscated crap back.

The Real Issue

The real question is whether Apple has a civil case against Chen or Gawker Media for violating patents and trade secrets by knowingly publishing an insanely detailed dissection of the obvious iPhone prototype. Gizmodo claims they weren’t sure what the device was at first, but that’s a nonsense defense for tech experts who analyze these products for a living. Rather, I think Slate’s take on the law is probably more accurate:

Can Gizmodo get into legal trouble for disclosing Apple’s trade secrets?

Yes. California’s Uniform Trade Secrets Act prohibits the theft or disclosure of legitimate commercial secrets. The state law does not distinguish between rogue employees, corporate spies, and the media, all of whom can be liable under the act. Nor does it matter that Gizmodo obtained the information secondhand—what’s important is the fact that the prototype was a secret and the tech blog either knew or should have known that it was acquired improperly. Both of these conditions seem to be satisfied, according to Gizmodo’s own account of what happened.

What Gawker should fear are the armies of people at Motorola (MOT), HTC, Nokia (NOK), LG, Samsung, and Blackberry (RIMM) reverse engineering this thing. That’s going to add up to a lot of damages if Apple can make a legitimate case under the law. In fact, this case may bankrupt Gawker Media given the prospective damages to Apple. We should find out very soon.

Until then, enjoy this episode of spy geeks meet the corporate police state. It’s especially entertaining on an iPad.