Common Flaws in Computer Fraud Class Actions: Lawsuits claiming unauthorized use of smartphone tracking technology are lacking key elements.

by Dorsey & Whitney LLP
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A number of class actions have recently been filed in federal district  courts,  predicated,  in part, on alleged violations of the federal computer crime statute, the Computer Fraud and Abuse Act, complaining of tracking software placed on iPhone and Android devices and unwanted text messages.  Decisions in these cases have implications for filing a valid CFAA civil action.

CFAA provides a civil remedy— compensatory damages and injunctive relief—for “[a]ny person who suffers damage  or loss by reason  of a violation  of this” criminal  statute.  In ruling on motions to dismiss the CFAA claims in these class actions, the courts have highlighted two critical elements of the  CFAA that are common to most CFAA civil actions:  first, whether the access to the targeted computer,  in these cases a phone, was without  authorization; and, second, whether the victims of the computer  crime  suffered  the  requisite $5,000 statutory  damage or loss.

The key element that plaintiffs must allege and prove in most CFAA civil actions is whether the defendant accessed the targeted computer  “without  authorization” or exceeded authorized access.

For example, the complaint in In re iPhone Application Litig., alleged that class members  downloaded free apps from the Apple Inc. “App Store” that “allow[ed] their  personal data to be collected  from  their iDevices” “without  users’ awareness or permission and transmits” their personal information  so that it could be used to track them “on an ongoing basis,” including “location data to Apple’s servers.”

The U.S. District Court for the Northern District of California in 2012 held that the plaintiffs did not properly allege a CFAA claim because the “installation of software that  allegedly harmed the phone was voluntarily downloaded by the user,” and thus the facts pled established that iPhone users authorized Apple to access their devices.  The court, however, recognized that the complaint would have been proper if it had alleged that Apple had exceeded its authorized access by continuing to collect data after “Plaintiffs had switched the Location Services setting  [in  the  iPhone] to  ‘off,’ ” signifying their intent  not to  authorize further monitoring of their personal information.

JURISDICTIONAL DAMAGES

The reported class actions also highlight a common fatal flaw of many CFAA civil actions—a failure to properly allege the $5,000 jurisdictional damage or loss that results in dismissal of the claim.  This jurisdictional requirement is not to be confused with the ultimate proof of compensatory damages.  Both “damage” and “loss” are statutorily defined terms that relate to computers.  The CFAA defines “damage” to mean “any impairment to the integrity or availability of data, a program or system or information.”

The CFAA defines “loss” to mean “any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.”  The CFAA requires “loss to one or more persons during any one-year period … aggregating at least $5,000 in value.”  The CFAA limits these damages to economic damages.

Based on these definitions, the courts have excluded commonly understood damages or  losses.  In 2011, the  U.S. District Court  for the Southern District of New York found in  Bose v. Interclick Inc. that lost revenue, for example,  from the theft of confidential information  is “not cognizable economic losses.”  Because “[o]nly economic damages or  loss can be used to meet the $5,000 threshold,” a plaintiff is required to allege actual monetary losses, the court found.

Interclick rejected as damages the collection of personal information through flash cookies and history- sniffing code because it did not result in any economic damage to consumers or unjustly enrich the collectors of that information.

Similarly, in In re Google Android Consumer Privacy Litigation, the U.S. District Court for the Northern District of California held in March that it was not  sufficient for plain- tiffs simply to allege that Android’s collection of their personal information through apps such as Angry Birds “diminished the value of their” personal information.  There must be a factual recitation  establishing actual dollars lost as opposed to speculative losses.

Thus, it was not sufficient for plaintiffs to allege that Google’s collection of data “interrupted their service” and “that a new battery could cost $70.00.”  For their claim of loss to be valid, they also had to allege that  Google’s conduct forced them to purchase  “new  batteries,” and that for the entire class it added up to the requisite $5,000.

Another trap plaintiffs fall into is not adequately alleging an interruption  of service or costs to remedy such an interruption of service.  Simply alleging that the defendant’s actions consumed space on the hardware of the phone is not sufficient.

In  a  2009  decision,  the  federal district court in Minnesota in Czech v. Wall Street On Demand Inc., rejected the bare allegation that unwanted text  messages sent  to a cellphone constituted damage “under circumstances that did not actually involve any  impairment to the cellphone user’s service.”  Actual impairment or interruption has to be established.

In sum, before  filing  a  civil CFAA  action,  plaintiffs  must ensure that they have sufficiently conducted an investigation and marshaled  facts establishing  two points :  one,   that access to the computer in question was without authorization or it exceeded authorized access; and,  two,  that it can properly meet the statutory definition of damage or loss.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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