Kalow & Springnut, LLP v. Commence Corp., No. 07-3442, 2009 WL 44748 (D.N.J. Jan. 6, 2009).

The federal district court in New Jersey has declined to dismiss a claim under the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030, concluding that plaintiff’s allegation that defendant’s software product contained a “time-bomb” causing it to stop working after a period of time sufficiently alleged the statute’s required element of intent to cause harm.

Plaintiff Kalow & Springnut filed a class action suit claiming that software manufacturer Commence Corp. had inserted a hidden “time-bomb” code in a software program purchased by the class members that caused damage to their protected computers when the code caused the program to stop working after a certain period of time. Among other claims, Plaintiff alleged that this conduct violated the CFAA, which imposes liability on a person “who knowingly causes the transmission of a program, information, code or command, and as a result of such conduct intentionally causes damage…” 18 U.S.C. § 1030(a)(5)(A)(i). However, in June 2008, the court dismissed this count of the complaint with leave to amend because it failed to allege the element of intentional harm required by the CFAA.

Kalow & Springnut subsequently filed an amended complaint that made additional factual allegations, including that because computer software does not “wear out or fail like a mechanical device…for software to stop working, it must either have been intentionally designed to stop working, or the environment in which it is operating must have been altered.” Plaintiff further alleged that it had not altered its computer system immediately before the software stopped working, thus the software must have been intentionally designed to stop working by way of a “time-bomb” in the software’s code.

In ruling on Commence’s motion to dismiss the amended claim, the district court rejected Commence’s argument that the claim relies on faulty logic which fails to consider other possible explanations, such as a programming error in the software. Citing to the Supreme Court’s decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and its Third Circuit progeny, which articulate a somewhat more lenient pleading standard than had previously been applied, the court noted that the standard “simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element.” A plaintiff is required only to allege sufficient facts to give fair notice of its claims, the court concluded, and thus a defendant cannot defeat an allegation upon a motion to dismiss by simply offering an alternative explanation, as Commence did.

This case serves as a reminder to litigants asserting or defending trade secrets-related claims under the CFAA that, particularly in light of Twombly, the notice pleading standard makes it difficult to defeat a CFAA claim at the motion to dismiss stage based solely on challenges to the logic or plausibility of plaintiff’s factual assertions concerning intent.