Aggrieved employers have often turned to the Computer Fraud and Abuse Act (CFAA) in suing former employees that allegedly absconded with information from company computers—especially critical trade secrets. Such suits face bleak prospects in the U.S. Court of Appeals, Ninth Circuit after the ruling in United States v. Nosal, 676 F.3d 854 (9th Cir. 2012). In Nosal, the en banc court held an employee could not be liable under the CFAA for "exceeding authorized access" to an employer's computer by accessing proprietary information in violation of the employer's written computer use policies. In so holding, the Ninth Circuit entrenched its split from other circuits that have interpreted the CFAA more broadly. Nosal clarifies the Ninth Circuit's view that the CFAA targets true "hacking," and not violations of company computer use policies or website terms of service, even those involving trade secret theft. Recently, the Ninth Circuit's approach was ratified by the U.S.Court of Appeals, Fourth Circuit in WEC Carolina Energy Solutions LLC v. Miller, 2012 WL 3039213 (July 26, 2012) and then by the Solicitor General's decision not to seek certiorari of the Nosal decision before the Supreme Court.
Background of the Nosal Decision
Defendant Nosal, a former employee of an executive search firm, allegedly convinced several former colleagues to download and transmit lists of executives so that he could compete with his former employer. The employer had required employees to sign agreements that they would only use company information for legitimate business purposes, and further featured prominent warnings in its database against unauthorized use.
Nosal was criminally charged with violating the CFAA's prohibition on "exceeding authorized access" to a protected computer, on the grounds that taking of the employer's information for hostile competitive use was clearly unauthorized under the employer's written policies and employment agreements. Nosal was also charged with 15 additional criminal counts, including federal trade secret misappropriation. Nosal moved to dismiss the CFAA charges, arguing that the CFAA's "exceeds authorized access" prong was not satisfied because the employees in question had authorized access to the computers. It did not matter whether the use of the information was authorized.
Illustrating the extent to which opinions (and Circuits) differ on this issue, the district court granted Nosal's motion, the Ninth Circuit panel reversed, and the en banc Ninth Circuit vacated the panel decision and affirmed the district court's dismissal.
The Ninth Circuit's Decision
In affirming the district court's decision, the en banc Ninth Circuit held that "the phrase 'exceeds authorized access' in the CFAA does not extend to violations of use restrictions." For more than a decade, courts have wrestled with the scope of the terms "authorization" and "access." The issue boils down to whether a computer owner can allow access to its computer for certain purposes, but not others. The Ninth Circuit has now clarified that the CFAA is not triggered where there is merely unauthorized use of information—the defendant's access itself must have been without or in excess of authorization. Thus, under Nosal, if a business wants to protect sensitive information, it must either limit access, or rely on legal remedies other than the CFAA.
The Nosal opinion expresses grave concern that the broad reading advocated by the government could criminalize much innocuous activity. In particular, the court noted that the phrase "exceeds authorized access" appears in another section of the CFAA, § 1030(a)(2)(C), which has no requirement of fraudulent purpose, and requires only that the person who "exceeds authorized access" has "obtain[ed] . . . information from any protected computer" (i.e., any computer that can connect to the Internet). The government's view, the Court feared, could make "every violation of a private computer use policy a federal crime."
Judge Kozinski noted the ubiquity of transgressions against computer use policies, wryly observing that the universe of those who use a computer in violation of computer use restrictions "may well include everyone who uses a computer." Judge Kozinski colorfully cautioned, "Under the government's proposed interpretation of the CFAA . . . describing yourself [on a dating website] as 'tall, dark, and handsome,' when you're actually short and homely, will earn you a handsome orange jumpsuit." The Court reasoned that a narrow interpretation, requiring that access itself must be unauthorized, best comports with Congress's intent to criminalize computer hacking.
The opinion concludes by recognizing that the Ninth Circuit is at odds with the Fifth, Seventh, and Eleventh Circuits, each of which has adopted broader interpretations of the CFAA's "authorization" requirement.
The Nosal opinion mostly preserves, and slightly expands, the status quo limitations on the CFAA. The Ninth Circuit had already adopted a narrow interpretation of the CFAA's access prong in LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (2009). Brekka found the term "without authorization" did not apply to an employee who took confidential information from his employer merely because the employee breached his duty of loyalty to his employer, but Brekka did not involve breach of a signed employee agreement. Now, in the Ninth Circuit, it is clear that even where the use violates written agreements as well as employer computer use policies, CFAA liability does not ensue as long as the employee was authorized to access the computer. In other circuits, however, contractual use restrictions remain enforceable through the CFAA.
While Nosal involved criminal charges, the CFAA provision at issue also extends to civil actions under § 1030(g). Not surprisingly, the Fourth Circuit in WEC Carolina Energy explicitly extended Nosal's holding to a civil litigation. The implications of these decisions cover a range of scenarios:
Trade Secret Litigation The Ninth Circuit was quite explicit that the CFAA's "general purpose is to punish hacking—the circumvention of technological access barriers—not misappropriation of trade secrets—a subject Congress has dealt with elsewhere." But the federal trade secrets law, codified at § 1832 et seq., does not provide a private right of action. In the last decade, victims of trade secret theft increasingly filed trade secret litigation in federal courts, arguing such courts had original jurisdiction over CFAA claims and supplemental jurisdiction over the trade secret claims. Nosal and WEC Carolina Energy suggest that victims of trade secret theft will no longer have that option, limiting federal trade secrets cases to those where there is diversity of parties.
Employment Agreements Companies adopt a variety of technology acceptable-use policies, or restrict the use of confidential data through employment agreements. Under Nosal, these are not valid bases for bringing a CFAA claim against an employee, although they are still useful for CFAA litigation outside the Ninth Circuit and for raising breach of contract, trade secret misappropriation, and related state law claims. However, insofar as the CFAA has historically been a popular hook for suing former employees in federal court, Nosal throws cold water on such a strategy in the Ninth Circuit.
Privacy Policies Plaintiffs' lawyers have recently filed a spate of class action lawsuits pleading the CFAA against companies that collect demographic information in alleged excess of what consumers "authorize." Under Nosal, consumers will have difficulty pleading a CFAA claim under the theory that they did not authorize disclosure by the defendant companies. Nosal may push plaintiffs' lawyers to file future privacy class actions outside the Ninth Circuit.
The Ninth Circuit and now the Fourth Circuit have adopted a narrow view of "authorization" under the CFAA. On the other side, the Fifth, Seventh, and Eleventh Circuits, and arguably the First and Third Circuits, have adopted broader interpretations. Thus far, only a handful of district court decisions have addressed Nosal, but they already highlight lingering ambiguities.
Outside the Ninth Circuit, the United States District Court for the District ofNew Hampshire, in Wentworth-Douglass Hospital v. Young & Novis Professional Association, 2012 WL 1081172 (March 30, 2012), and the United States District Court for the Western District of Michigan, in Dana Ltd. v. American Axle and Manufacturing Holdings, Inc., (June 29, 2012), applied Nosal in rejecting CFAA claims. In Wentworth, the court held that a contractual restriction on copying files to an external storage drive was not enforceable under the CFAA. In Dana, the court rejected the plaintiff's CFAA claim based on copying data and found that, although the defendants' could have been liable for deleting original files, there was no evidence showing such deletion. The Supreme Court has yet to address the CFAA. Although many hoped that the high court would do so on certiorari from the Ninth Circuit's Nosal decision, the Solicitor General recently decided not to pursue an appeal of the en banc decision. Only a week before, however, another route to the Supreme Court opened up when the Fourth Circuit wholly adopted the Ninth Circuit's Nosal holding, although it is not yet clear if the civil appellant will petition for certiorari in that case.