The 9th Circuit: Employees Are Free to Steal from the Company Computers

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Yesterday the 9th Circuit Court of Appeals issued an opinion holding that limiting an employee’s access to the company computers solely for business purposes, i.e. not stealing the data for a competitor, cannot be the predicate for a violation of the federal computer crime statute, the Computer Fraud and Abuse Act (“CFAA”), Title 18, U.S. C. § 1030. U.S. v. Nosal, 2012 WL 1176119 (9th Cir. April 10, 2012). The CFAA makes it a crime in various instances to access a computer “without authorization” or to have “exceeded authorized access” to obtain information from the computer and permits those, including companies, who are victims of violations of the statute to bring a civil action against the perpetrators.

Acknowledging that its decision conflicts with the 5th, 7th and 11th Circuits, there is a good chance the Supreme Court will have the final say on this issue if the Department of Justice decides to appeal. As the dissent pointed out, this decision is counter to the common sense notion that a “bank teller is entitled to access a bank’s money for legitimate purposes, but not to take the bank’s money for himself.”

Brekka

The history of this case dates back to LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (9th Cir. 2009). Brekka involved the classic employee theft of data whereby employees, before they leave to compete, e-mail to themselves competitively sensitive company data. The Brekka court refused to apply the CFAA to this theft of data, holding that employees cannot act “without authorization” because their employer gave them “permission to use” the company computer. Id. at 1133. Thus, Brekka was predicated on the simplistic proposition that employees have permission to access the company computers and, thus, by definition cannot access the company computers without authorization.

Nosal I

Two years later, in U.S. v. Nosal, 642 F.3d 781(9th Cir. 2011), the 9th Circuit clarified its decision in Brekka, and allowed a violation of company policies to serve as a predicate to prove unauthorized access in the employer/employee context. As of the Nosal decision, Brekka had been relied upon by numerous district courts in and out of the 9th Circuit as a bar to using the CFAA against employees who stole data from their employers’ computers.

David Nosal, a Korn/Ferry executive, was indicted for stealing confidential data from the company computers prior to joining a competitor. Nosal had allegedly recruited “three Korn/Ferry employees to help him start a competing business.” Id. at 782. The Indictment charged these employees with “using their user accounts to access the Korn/Ferry computer system” who then “transferred to Nosal source lists, names, and contact information from the ‘Searcher’ database – a ‘highly confidential and proprietary database of executives and companies’ – which was considered by Korn/Ferry ‘to be one of the most comprehensive databases of executive candidates in the world.’” Id.

The district court had initially rejected Nosal’s motion to dismiss the CFAA counts but reversed itself after the Brekka decision. The government appealed relying upon Korn/Ferry’s computer policies that restricted the scope of employees’ access to the company computers including one that “restricted the use and disclosure of all such information, except for legitimate Korn/Ferry business.” Id.

The government argued that based on these policies, Nosal had exceeded authorized access. The court agreed, holding that “an employee ‘exceeds authorized access’ under §1030 when he or she violates the employer’s computer access restrictions – including use restrictions.” Id. Nosal distinguished Brekka on the lack of computer policies governing Brekka’s right to access the company computers — “[b]ecause LVRC [the employer] had not notified Brekka of any restrictions on his access to the computer, Brekka had no way to know whether – or when – his access would have become unauthorized.” Id. at 787.

The court concluded that “as long as the employee has knowledge of the employer’s limitations on that authorization, the employee ‘exceeds authorized access’ when the employee violates those limitations.” Id at 788. Subsequently, the court granted an en banc hearing of its decision in Nosal.

Nosal II

The recent reversal of the initial Nosal decision reasoned that the CFAA only applies to hackers and that “without authorization” and “exceeds authorized access” should be read only to “apply to outside hackers (individuals who have no authorized access to the computer at all) and “exceeds authorized access” would apply to inside hackers (individuals whose initial access to a computer is authorized but who access unauthorized information or files). The court stated that “[t]he government’s construction of the statute would expand its scope far beyond computer hacking to criminalize any unauthorized use of information obtained from a computer.”

As the court admits, it basically defines “without authorization” to mean “the circumvention of technological barriers” in the computers. There is, however, nothing in the plain language of the CFAA that supports such a restrictive interpretation of access “without authorization.” Based on Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010), where the Supreme Court criticized “judicial-speculation-made-law- divining what Congress would have wanted if it had thought of the situation before the court,” it is highly unlikely that the Supreme Court will read such a restriction into the statute.

Nosal further held that “the government’s construction of the statute would expand its scope far beyond computer hacking to criminalize any unauthorized use of information obtained from a computer” and that this would make criminals of large groups of people who would have little reason to suspect they are committing a federal crime.” As described by the dissent in the case, the court “posit[s] a laundry list of wacky hypotheticals” that include “private computer use policies” that prohibit personal use of company computers making criminals out of “[e]mployees who call family members from their work phones . . . if they send email instead.”

This of course raises an issue of prosecutorial discretion. A similar laundry list of wacky hypotheticals could also be posited with the mail and wire fraud statutes, yet the Supreme Court has upheld both statutes. For example, a student who called home from college asking his parents to send him money for books, when he really intended to use the money to buy beer is technically in violation of the wire and mail fraud statutes. The bottom line is, as the dissent in Nosal pointed out, it is simple to come up with a contorted application of any criminal statute. That does not make the law unenforceable or unconstitutional.
 

Topics:  Computer Fraud and Abuse Act, Data Theft, US v Nosal

Published In: Business Torts Updates, Labor & Employment Updates, Science, Computers & Technology Updates

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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