De-CFAA-nating Federal Law: Appeals Courts Weaken Electronic Data Use Protections

The federal Computer Fraud and Abuse Act, 18 U.S.C. § 1030, (CFAA) is — for most of corporate America — one of the most powerful weapons available to protect trade secrets. Like many state computer crimes laws, CFAA was enacted to prevent “hacking.” Its scope is much broader, however, because it contains various prohibitions against accessing a computer “without authorization” or in a manner that “exceeds authorized access.” For many in the business community, CFAA has become a preferred method of seeking injunctive relief, damages, attorneys’ fees, and other remedies from disloyal employees, competitors, and others who have made improper use of proprietary information stored on the company’s computer system — or who have destroyed electronically stored information altogether. For example, the U.S. Court of Appeals for the Seventh Circuit¹ held several years ago that an employee who erased crucial data on his company laptop before turning it in at the end of his employment violated CFAA. Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d 418, 419-21 (7th Cir. 2006).

A July 26, 2012 federal appeals court decision, however, is the latest in a series to raise questions about the viability of CFAA as a remedy for such misconduct. In WEC Carolina Energy Solutions LLC v. Miller, ___ F.3d __, 2012 U.S. App. LEXIS 15441 (4th Cir. July 26, 2012), the U.S. Court of Appeals for the Fourth Circuit² held that CFAA provides no remedy against a former employee who before resigning had downloaded his employer’s proprietary information at the behest of a competitor. The Fourth Circuit found that the defendant’s use was not “without authorization” or in a manner that “exceeds authorized access” on the following basis:

To protect its confidential information and trade secrets, WEC instituted policies that prohibited using the information without authorization or downloading it to a personal computer. These policies did not restrict Miller’s authorization to access the information, however.

The fact that CFAA can provide the basis for criminal penalties was among the rationales articulated by the Fourth Circuit for its narrow reading of the statute. However, the same is true of the Copyright Act, which criminalizes copying by both unlicensed users and licensees exceeding the scope of their authorization. The Fourth Circuit also reasoned that employers had other “means to reign in rogue employees,” including claims for misappropriation of trade secrets. But the wrongful conduct at issue in such cases might well have destroyed the trade secret status of the information. The fact that the plaintiff need not establish trade secret protection is among the reasons that CFAA and similar state computer crimes laws can provide such an effective remedy for wrongful use that involves a computer.

The Fourth Circuit’s July 26, 2012 decision in WEC Carolina expressly adopted the rationale of an April 2012 en banc decision of the U.S. Court of Appeals for the Ninth Circuit.³ Authored by Chief Judge Kozinski, the Ninth Circuit’s decision in United States v. Nosal, 676 F.3d 854, 863 (9th Cir. 2012) reversed a three-judge panel’s decision that was consistent with the Seventh Circuit’s more expansive view of CFAA. CFAA, the Ninth Circuit held in Nosal, provides no remedy against a group of disloyal employees who retrieved confidential information via their company user accounts and transferred it to a competitor. In other words, so long as the defendant was authorized to access the computer in question, the fact that the access was for an unauthorized purpose did not make it “without authorization” or in a manner that “exceeds authorized access.”

Whatever the merits of the recent CFAA decisions by the Fourth and Ninth Circuits, they make one prospect seem likely: Before too long, the U.S. Supreme Court may be called upon to resolve conflicting views of the scope of CFAA.

¹The Seventh Circuit has appellate jurisdiction over the U.S. District Courts in Illinois, Indiana, and Wisconsin.
²The Fourth Circuit has appellate jurisdiction over the U.S. District Courts in Virginia, Maryland, North Carolina, South Carolina, and West Virginia.
³The Ninth Circuit has appellate jurisdiction over the U.S. District Courts in California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

If you have any questions about or would like to discuss these topics further, please contact your Foley attorney or any of the following individuals:

Michael J. Lockerby
Partner
Washington, D.C.
202.945.6079
[email protected]

Andrew B. Serwin
Partner
San Diego/Del Mar, California
858.847.6728
[email protected]