David Nosal, Employee Data Theft, and Why Employment Lawyers Should Understand Their Clients' IT Infrastructure

Stoel Rives LLP
Contact

Earlier this month, a federal judge in San Francisco sentenced David Nosal to a year in prison, three years’ supervised release, 400 hours of community service, and $60,000 in fines. His crime? Nosal violated the Computer Fraud and Abuse Act (“CFAA”), among other federal statutes, when he departed from his former employer with a stash of its most sensitive business data.

Employment law doesn’t normally develop in criminal courtrooms, but Nosal’s case is an important exception. The outcome of his pending appeal to the 9th Circuit will almost certainly offer important guidance for employers on how best to prevent and, where necessary, remedy employee data theft. It’ll likely reinforce a familiar lesson: employers should craft their employee technology policies with an eye toward the law of data security. A well-developed IT infrastructure can give an employer substantial legal advantages and lead to better outcomes when employee data theft occurs.

What Is The CFAA?

To understand the practical importance of Nosal’s case, employers should first understand how the CFAA can apply to departing employees who steal company data. Congress passed the CFAA in 1986 – before the advent of most modern information technology – to combat computer hacking. The CFAA makes it a federal offense to obtain information or perpetrate a fraud either by (a) accessing a computer “without authorization,” or (b) by “exceed[ing] authorized access” on any such computer. In addition to its criminal penalties, the CFAA creates a parallel civil cause of action for hacking victims.

For employers, a key benefit of the CFAA is that it may provide a ticket into federal court in a data theft case. (It’s one of only a few federal statutes that does so.) The benefits of a federal forum can be significant for an employer. Particularly in multi-state disputes, the federal system allows for the streamlined discovery of electronically stored information in ways that many states do not. Additionally, CFAA plaintiffs need not prove that the stolen information rises to the level of a trade secret, which is often a central dispute in other types of data theft cases.

When Is Employee Access To Sensitive Data "Unauthorized" Under The CFAA?

That makes the CFAA important for employers. But just how broadly does its concept of “unauthorized access” sweep? At the time of its passage, the CFAA seemed only to target “hacking” in the traditional sense of the word, i.e., external bad actors who – often from remote locations – secretly program their way into a company’s computer system without ever setting foot on company premises. (Consider, for example, the recent attack on Target’s computer system.) 

Today, however, breaches due to external threats make up only a limited portion of all yearly data theft in the U.S. In May 2013, the Commission on the Theft of American Intellectual Property found that “[m]uch [data theft] occurs the old-fashioned way.” The culprit is often a disloyal employee who had legitimate access to the stolen data through her employment: “Hard drives are either duplicated on site or physically stolen by bribed employees; employees are planted temporarily in companies or permanent employees leave and illegally share proprietary information; . . . and email accounts are compromised.”  

At first blush, theft by a disloyal employee would seem to fall outside the scope of the CFAA. Employees are, after all, typically “authorized” to access and use hard drives, email accounts, and the proprietary information they contain in connection with their jobs.   So, for employers, is the CFAA off-limits?

Not quite. In the last decade or so, a handful of federal courts have applied the CFAA to employee data theft using a duty-of-loyalty theory. The best-known example is International Airport Centers, L.L.C. v. Citrin, 440 F.3d 418 (7th Cir. 2006), in which Judge Richard Posner reasoned that an employee who misused a company laptop forfeited his authorization to use the laptop when he engaged in misconduct. The court held that “Citrin's breach of his duty of loyalty terminated his agency relationship . . . and with it his authority to access the laptop, because the only basis of his authority had been that relationship.”

Nosal:  Misuse Is Not Unauthorized Access

But then along came David Nosal. In October 2004, Nosal voluntarily resigned from Korn/Ferry International, a major executive search firm headquartered near San Francisco. He departed with confidential business data from Korn/Ferry’s internal database of executive candidates. When it discovered Nosal’s theft, the government indicted him for violating the CFAA, the Economic Espionage Act, and other federal laws. The district court eventually dismissed the CFAA counts against Nosal, and the government appealed.

In United States v. Nosal, 676 F.3d 854 (9th Cir. 2012), the 9th Circuit affirmed the dismissal of the CFAA counts against Nosal. In a colorful opinion by Judge Alex Kozinski, the court held that the CFAA does not cover an employee who merely misuses an employer’s information to which he otherwise has legitimate access. Judge Kozinski viewed the government’s argument to the contrary as giving way to an essentially unlimited category of criminal liability:

Minds have wandered since the beginning of time and the computer gives employees new ways to procrastinate, . . . . Such activities are routinely prohibited by many computer-use policies, although employees are seldom disciplined for occasional use of work computers for personal purposes. Nevertheless, under the broad interpretation of the CFAA, such minor dalliances would become federal crimes.

Instead, he wrote, “‘exceeds authorized access’ in the CFAA is limited to violations of restrictions on access to information, and not restrictions on its use.” Because the government had not alleged that Korn/Ferry restricted Nosal’s access to the data at issue, it affirmed the dismissal.

Unfortunately, that rule wasn’t good news for employers in the 9th Circuit, who now face a significant obstacle when pursuing CFAA claims against thieving employees. According to Nosal, they must allege and prove that the offending employee had no authorization to access the stolen data for any purpose.

Nosal's Case Goes On

But the case hasn’t ended there. Nosal’s indictment contained several other CFAA counts that the 9th Circuit didn’t consider on appeal. On remand, those counts presented another intriguing question about the CFAA: can a former employee violate the CFAA through an agent

Consider, for example, a case in which employees Jack and Jill work for Acme, Inc. Jack voluntarily resigns from Acme, thereby terminating his authorization to use its computer systems. Jill, however, still works for Acme and is authorized to access its computer network. Jack then asks Jill to steal data from the Acme network on his behalf. By herself, Jill is immune from CFAA liability under Nosal, because she is authorized to access the network. But Jack has no such authorization. May the government prosecute him under the CFAA for asking Jill to pass him data that she herself may legitimately access?

In United States v. Nosal, 930 F. Supp. 2d 1051 (N.D. Cal. 2013), a federal district judge overseeing Nosal’s prosecution on the remaining counts said yes. The government alleged that – in addition to the theft he personally committed – Nosal and a co-conspirator had persuaded then-current Korn/Ferry employees to steal valuable business data on Nosal’s behalf. At the time of the theft, then employees were authorized to access the information, but Nosal and the co-conspirator were not. Nosal moved to dismiss those counts. “[B]ecause [a then-current employee] allowed Defendant’s co-conspirators to use her credentials to access the Korn/Ferry system, the co-conspirators cannot be said to be acting ‘without authorization’. . . .” 

The court disagreed and denied the motion to dismiss. “[T]he Ninth Circuit made clear,” it held, “that it is the actions of the employer who maintains the computer system that determine whether or not a person is acting with authorization,” a rule established in LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (9th Cir. 2009). Applying Brekka, the court found that “the CFAA appears to contemplate that one using the password of another may be accessing a computer without authorization.” Nosal has indicated that he will likely challenge that conclusion on appeal.

So What Does All This Mean For Employers?

On a practical level, what does this mean for employers? Nosal’s second appeal will likely reaffirm Brekka’s principle that “it is the actions of the employer who maintains the computer system that determine whether or not a person is acting with authorization.” In other words, the ways in which an employer designs its information technology infrastructure can have far-ranging legal consequences for its business. To anticipate those consequences, employers should:

  • Implement access controls with the law of data security in mind. The manner in which an employer restricts access to its business data can make or break a subsequent CFAA claim. For each category of business data, employers should impose clear requirements dictating who may access it and who may not. Of course, well-developed access controls have other benefits, too. The Uniform Trade Secrets Act, for example, defines “trade secret” to include only information that “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Trade secret plaintiffs commonly meet that requirement by offering evidence of thorough access controls.   

Deciding to implement effective access controls in the abstract is easy. Actually doing so isn’t, for a number of reasons. For one thing, the particular controls that an employer should adopt depend heavily on the specifics of its broader IT infrastructure and business needs. Password protection alone may in some cases be too lax, especially if the employer has not developed a clear electronic technology policy for its employees. On the other hand, overly-restrictive controls might inhibit communication among employees, hampering productivity and innovation. To achieve the right balance, employers need more than abstract legal knowledge; they (and their counsel) should carefully analyze the particulars of their business goals and IT infrastructure in light of the standards and ground rules set by the applicable law of data security.

  • Use IT to determine the full scope of data theft. Nosal’s conviction also usefully illustrates the value of a well-designed IT infrastructure in uncovering evidence of theft, particularly when it comes to exiting tech-savvy employees. Had the evidence shown that only Nosal himself accessed Korn/Ferry’s confidential database, the CFAA charges against him would likely have failed. However, because the evidence revealed the involvement of multiple other co-conspirators, the government successfully showed that Nosal “accessed” its computer system through an agent, and at a time when he had no right to do so for any purpose.

Careful analysis of a departing employee’s company computer media can easily yield such key evidence. That analysis is as much a lawyer’s work as it is an IT professional’s. A normal computer’s hard drive contains far too much information for anybody to digest completely, which means that computer forensic investigators often need guidance on where and what to look for. Many investigators are familiar with the basic technical aspects of data theft – rapid file access, indicia of USB and cloud storage activity, etc. – but even the best investigators may miss key evidence. Evidence of illegal solicitation or a fragment of a web-based personal email to a co-conspirator may be lurking in a computer’s slack and unallocated space, but if an investigator focuses solely on an employee’s use of external storage devices, she may miss it. A lawyer’s involvement in the forensic investigation is often necessary to unearth such key facts.

Nosal’s case is an important reminder that employers should plan ahead when it comes to data security. We will track his appeal as it progresses.

 

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.

© Stoel Rives LLP | Attorney Advertising

Written by:

Stoel Rives LLP
Contact
more
less

Stoel Rives LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.