A dental products supply company, DHPI, won partial summary judgment from a Wisconsin federal court against its ex-employee, Ringo, for competing with DHPI both while still an employee and soon after resigning. The most interesting issues in the opinion, however, concern application of the Computer Fraud and Abuse Act to Ringo’s copying of DHPI’s computer hard drive, and DHPI’s unsuccessful claim against Ringo’s new employer for “misappropriation of confidential information.” Additionally, Ringo’s Illinois Wage Payment Act counterclaim failed because DHPI is a Wisconsin corporation with its principal place of business in that state. Dental Health Products, Inc. v. Ringo, Case No. 08-C-1039 (E.D.Wis., Aug. 24, 2011).
Ringo began working for DHPI in 2002 as a salesman and became Illinois branch manager in 2005. He was subject to a confidentiality and 90-day post-employment non-compete agreement. In 2007, while still employed by DHPI, Ringo began making sales through his own dental equipment sales company. He resigned from DHPI the following year and immediately went to work for his wife’s competing company. Not surprisingly, the court held that Ringo breached his duty of loyalty to DHPI and his non-compete agreement.
Before leaving DHPI, Ringo made a copy of his employer’s computer’s hard drive. In response to DHPI’s Computer Fraud and Abuse Act claim, he protested that he had permission to access the computer at the time he copied the hard drive. Further, he emphasized that he had not damaged the computer system, that he knew most of the information or could have developed it with little difficulty, and that he never viewed the copy. The court held that Ringo’s authorization to access DHPI’s computer ended when he decided to copy the hard drive and quit.
The CFAA has a $5,000 minimum damages provision. DHPI claimed as damages the $16,000 it paid to a computer forensic expert to determine the extent of Ringo’s unauthorized conduct. The court concluded that DHPI’s expenditure “was a reasonable reaction to the knowledge that one of its key salesmen had left the company in order to compete with it and had made a copy of a company hard drive before doing so.”
Ringo counterclaimed under the Illinois Wage Payment and Collection Act for wrongful withholding of earned commissions, failure to compensate him for unused vacation time, and refusal to reimburse him for health insurance premiums he paid while a DHPI manager. The court held, quoting a 1996 Northern District of Illinois decision, that the Act only applies “to a group of employers and employees, all of whom are in Illinois.” Since DHPI was a Wisconsin corporation with its headquarters there, it was not liable.
Lastly, the court rejected DHPI’s misappropriation claim. The company conceded that its customer lists and basic financial information did not constitute trade secrets but insisted that the information was confidential and deserving of protection. The court held that there is no statutory or common law basis for a misappropriation claim other than for trade secrets.
This case teaches that the CFAA prohibits an employee’s illicit access to a company computer and permits reimbursement of expenditures incurred by the employer to determine the extent of its injury. Further, “misappropriation of confidential information” which is not a trade secret is not actionable. The DHPI decision adds to the body of authority limiting the geographic scope of the Illinois Wage Act. Finally, the opinion reminds us that blatant violations of the duty of loyalty and of a reasonable non-compete provision may be summarily punished.