Ninth Circuit Vastly Expands Scope of Criminal, Civil Liability for Computer Fraud

by Ballard Spahr LLP

In a pair of highly anticipated decisions, the Ninth Circuit significantly reshaped criminal and civil liability under the federal Computer Fraud and Abuse Act (CFAA). The court’s recent decisions in United States v. Nosal (Nosal II) and Facebook v. Power Ventures, Inc., hold implications for every organization with employees, customers, computers, and websites. They provide answers—and raise questions—concerning:

  • Username/password sharing for everything from company devices and networks to social networking profiles
  • Insider-facilitated cyber-theft of intellectual property and customer data
  • Restricting access to public websites for website crawling, data harvesting, and online advertising

The CFAA creates criminal and civil liability for any person who "intentionally accesses a computer without authorization or exceeds authorized access" and thereby obtains virtually any type of information stored on the computer. In the employment and intellectual property contexts, in particular, courts have disagreed over whether employees violate CFAA by accessing company computers to misappropriate confidential and proprietary information. This typically takes the form of the employee's use of his own network credentials or his consensual use of another employee's credentials (username/password sharing) to access the targeted computer network and data.

The Ninth Circuit held in United States v. Nosal (Nosal I) in 2012 that a former employee did not "exceed[] authorized access” to his former employer's computer network when he enlisted two current employees to download and transfer proprietary data to him before he resigned to join a competing business. The Ninth Circuit reasoned that the employees were authorized to access the network at the time of misappropriation. They did not "exceed" their authorized access even though their misappropriation violated their employer's terms of use for the network.

Nosal I precipitated a circuit split over the CFAA's application to similar employee/IP-theft scenarios. The Fourth and Ninth Circuits (along with district courts in other circuits, including the Third) apply the narrow interpretation of "exceeds authorized access" noted above. The First, Fifth, Seventh, and 11th Circuits have adopted a broad view of the CFAA, wherein an employee’s misuse of information obtained from a computer he is authorized to access invalidates the authorization and supports CFAA liability.

Mr. Nosal was subsequently convicted of conspiracy under the CFAA's alternate prong for accessing his former employer's network "without authorization" and for theft of trade secrets under the Economic Espionage Act (EEA). These convictions were based on his use of his former executive assistant's username and password to access the company's network and steal additional trade secrets that he intended to use to compete with his former employer.

The Ninth Circuit affirmed Mr. Nosal's convictions under the "without authorization" prong of the CFAA and the EEA in Nosal II on July 5, 2016. The Ninth Circuit held that Mr. Nosal's use of a current employee's network credentials to obtain company data was "without authorization." The court explained that "[o]nce authorization to access a computer has been affirmatively revoked, the user cannot sidestep the statute by going through the back door and accessing the computer through a third party.”

Important for all employers, the court stated that a company employee lacks authority to share their network credentials with a former employee (or any other outsider) who then accesses the company network. Such conduct can create CFAA liability both for the former employee/outsider and for any current employee who knowingly allows others to use his network credentials.

The Ninth Circuit applied the CFAA's "without authorization" prong in the non-employment context on July 12, 2016. In Facebook v. Power Ventures, Inc., Facebook sued Power Ventures and its proprietor for the consensual use of Facebook user profiles to advertise for its website. Facebook sent a cease–and-desist letter to Power and blocked its Internet Protocol (IP) address from accessing Facebook servers. Power ignored the cease–and-desist letter and switched IP addresses to continue accessing Facebook user accounts. The Ninth Circuit held that Power's continued accessing of Facebook's servers was “without authorization” after Facebook affirmatively revoked any such authorization through its cease–and-desist letter and IP address blacklisting.

Important for all organizations operating websites and networks, the Ninth Circuit applied Nosal II to hold that an authorized user of a network (even a public social networking website like Facebook) lacks authority to grant access to that user's data on the network—at least in the face of the affirmative prohibition of such by the network owner. Although Power Ventures is a civil CFAA case, the court's interpretation of "without authorization" likely will be applied to criminal CFAA cases. Therefore, any person or organization now faces a threat of criminal and/or civil liability for accessing a public-facing website where the website owner has affirmatively attempted to restrict such access.

Read together, these recent decisions raise important questions about whether restrictions on access and use to computer networks and websites create potential criminal and civil liability for computer trespass and fraud. Organizations should consider these recent developments both in terms of compliance with, and affirmative use of, the CFAA as to the online activities of those inside and outside of their organization.

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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