Thursday, October 8, 2015

In Securities and Exchange Commission v. Huang, the district court held that the Fifth Amendment protected two former employees against having to disclose their personal passcodes for company-issued smartphones to government officials. The decision, likely subject to appellate review, exemplifies the competing interests at play as individuals increasingly use company-issued smartphones for business and personal use.

This decision relates to a discovery dispute between the Securities and Exchange Commission (“SEC”) and two former employees (“Defendants”) of Capital One Financial Corp. that allegedly traded stocks based on nonpublic information obtained in their employer’s confidential database. The SEC wanted to access the data on the Defendants’ company-issued smartphones, but could not unlock them without the passcode. While Capital One’s policy stated that it owned the devices and any corporate documents on them, it allowed employees to set their own passcodes and asked them not to keep records of them. The SEC moved to compel the production of the passcodes, and the Defendants asserted their Fifth Amendment right against self-incrimination.

While the Fifth Amendment does not protect corporate records kept by employees, the court found that the passcodes—never shared with the employer—were the Defendants’ “personal thought processes” and subject to Fifth Amendment protections. The court held that the act of producing the passcode was testimonial, persuaded by an Eleventh Circuit decision that found the decryption of a hard drive to be testimonial, and by a district court opinion that analogized divulging passwords to providing the combination to a wall safe—“an act deemed testimonial by the Supreme Court.”

The court also rejected the SEC’s claim that the Defendants’ Fifth Amendment claim should be overruled by the “foregone conclusion” doctrine. Under this doctrine, the Defendants’ testimony is not entitled to Fifth Amendment protections if the SEC could prove with “reasonable particularity” that it already knew of the materials contained on the devices. The court held that the SEC had not shown any evidence that it knew whether the documents it was seeking were actually located on the devices (or that they existed at all).

While the court’s decision in Huang provides a valuable constitutional safeguard, it also demonstrates how the privacy afforded to smartphones may turn on the steps taken to restrict access to the device. In 2014, a Virginia court found that a suspect could be compelled to produce a fingerprint because it did not require a communication of knowledge. Thus, a smartphone secured by biometric data may leave individuals with fewer constitutional protections than a traditional passcode during encounters with law enforcement.