Two federal courts have issued important rulings scaling back the use of the Computer Fraud & Abuse Act (“CFAA”), 18 U.S.C. 1030, et seq., for alleged violations of online agreements. These decisions are noteworthy in the trade secret area because employers and businesses have used the CFAA when they believe that a former employee or competitor has improperly accessed their electronic records. In the first decision, EarthCam, Inc. v. OxBlue Corp., et al., 2017 WL 3188453 (11th Cir. Aug. 1, 2017), the U.S. Court of Appeals for the Eleventh Circuit rejected a claim that a competitor’s access of a customer account violated the CFAA (a link to the opinion can be found here). And in the second, hiQ Laboratories, Inc. v. LinkedIn Corp., Case No. 3:17-cv-03301 (EMC) (N.D. California Aug. 14, 2017), Judge Edward Chen of the U.S. District Court for the Northern District of California found that a violation of LinkedIn’s online terms and conditions did not support a CFAA claim. (A link the opinion can be found here). Judge Chen’s opinion is particularly noteworthy because it appears to depart from some of the reasoning of a recent decision by the U.S. Court of Appeals for the Ninth Circuit that allowed Facebook to invoke the CFAA. As explained below, these rulings may signal a growing judicial reluctance to allow the CFAA to be used to limit otherwise publicly-available information.
Here are some noteworthy posts from the past week and some catch-up on other posts from the past couple of weeks:
Trade Secret and Non-Compete Cases, Posts and Articles:
- “CBS Settles Dispute Over ABC’s ‘Glass House,'” reports Law360. For more on this long-running trade secrets dispute, see my posts from last year here and here.
- In “Bloomberg reveals safeguards for client info,” The Wall Street Journal reports on the various safeguards Bloomberg is committing to after the imbroglio last year when its journalists improperly accessed and reported on the subscriber information of its Wall Street clients.
- “Failure To Define Trade Secrets Establishes Subjective Bad Faith For Attorneys’ Fees Award Under California UTSA,” advises James Goodman for Epstein Becker’s Trade Secrets & Noncompete Blog.
- “Do Non-Compete Agreements Stifle Innovation?” Distil Networks CEO Rami Essaid and LevelEleven CEO Bob Marsh debate the impact of non-compete agreements.
- “Concerns Over Economic Growth Leads Some States to Limit Non-Compete Agreements,” advises John Paul Nefflen for Burr & Forman’s Non-Compete Trade Secrets Blog.
- “How to draft an enforceable noncompete agreement in 5 steps,” recommends Jon Hyman for the Ohio Employer’s Law Blog.
- “Do the Final Episodes of ‘Breaking Bad’ Qualify As Trade Secrets?” asks Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
- “New Hampshire Court Voids Non-Compete Clause in Independent Contractor Agreement,” reports Paul Freehling for Seyfarth Shaw’s Trading Secrets Blog.
- “On Non-Compete Agreements: A Response to the Wall Street Journal’s Recent Article,” advises Jonathan Pollard for the non-compete blog.
- For those in Michigan, “Dana Can’t Prove Trade Secrets Theft, Judge Rules,” reports Law360.
- For more on the Dana case, see, “Accessing trade secrets is not the same as misappropriating trade secrets” by Tim Bukher for LawTechie.
- “Is the DOJ Avoiding Domestic Trade Secret Cases?” asks Jan Wolfe for The AmLaw Litigation Daily.
- “You Need To Work Harder To Fight Trade Secret Theft,” warn Michael Bunis and Anna Dray-Siegel of Choate Hall & Stewart LLP for Law360.
- For those in Massachusetts, see Michael Rosen’s recent post, “More on ‘Material Change’ and Legislative Update,” for Foley Hoag’s Massachusetts Noncompete Law Blog.
Cybersecurity Posts and Articles:
- “White House Posts Preliminary Cybersecurity Incentives,” advises Jessica Goldenberg for Proskauer’s Privacy Law Blog.
- “Tackling Cyber Security Challenges in the Healthcare Industry,” reports Healthtech.
Computer Fraud & Abuse Act Posts and Articles:
- “IP Cloaking Violates Computer Fraud and Abuse Act, Judge Rules,” advises David Kravets for Wired.
- “Southern District of Georgia Judge Narrowly Construes Computer Fraud and Abuse Act,” advises Neil Weinrich for Berman Fink Van Horn’s Georgia Non-Compete and Trade Secrets News Blog.
- David Nosal’s criminal conviction under the CFAA has been upheld by the U.S. District Court for the Northern District of California, reports Bob Egelko in, “Executive’s conviction upheld in trade-secrets theft,” for SFGate.
- “It’s Time to Reform the Computer Fraud and Abuse Act,” argues Scientific American.
A recent trade secrets decision out of New Jersey against The Weather Channel illustrates some interesting trade secret issues that arise in licensing agreements — namely, to what extent can a licensee extract itself from a licensing agreement when it concludes that it can gather the subject matter of the license from other publicly available places (or come up with the information more cheaply).
In Events Media Network, Inc. v. The Weather Channel, 2013 U.S. Dist. LEXIS 97514 (July 12, 2013), U.S. District Court Judge Robert P. Kugler denied a motion to dismiss filed by The Weather Channel, finding that the plaintiff Events Media Network, Inc. (EMNI) had presented sufficient allegations of trade secret theft to move the case forward. EMNI contends that The Weather Channel took proprietary information that was supplied under their license agreement and improperly used it after the license expired.
The case involves one of the thorniest issues that arise in trade secret litigation — whether a compilation of publicly available information can qualify as a trade secret. In its Amended Complaint (attached as a PDF below), EMNI described its business as collecting, reviewing and distributing information for various local and national events and attractions. While it conceded that none of the individual bits of data gathered together was confidential, EMNI argued that once that information was gathered together from the various sources using a custom built database, it qualified as a trade secret.
Applying Georgia’s Uniform Trade Secret Act, Judge Kugler agreed, at least at this early stage of the litigation, that EMNI had identified sufficient evidence that the information it supplied to The Weather Channel, organized in the fashion that it was, constituted a trade secret. In this respect, his decision rests on solid ground and is consistent with the pleading standards that benefit a trade secrets plaintiff at this early juncture of the case. Todd Sullivan notes that The Weather Channel does not appear to contest that it used the information and predicts the case will be mediated or settled soon.
I Agreed to What?!!! The case raises another interesting trade secret issue that has been in the news lately — whether the terms of a written contract can trump trade secret law. According to the Amended Complaint, EMNI and The Weather Channel contractually agreed that the information supplied by EMNI under the license agreement was proprietary. As a result, EMNI argued that provision should estop The Weather Channel from claiming otherwise.
A recent case out of the U.S. Court of Appeals for the Federal Circuit, Convolve and MIT v. Compaq and Seagate, held that the contract between the parties may be controlling on the question of whether information qualifies as a trade secret and that the parties can decide between themselves what needs to be done to ensure trade secret status. In that case, the Federal Circuit found that the plaintiff’s failure to designate information as “confidential” — as was required under a non-disclosure agreement — doomed the plaintiff’s trade secret claim (for more on the case see Dennis Crouch’s post in Patently O Blog as well as Jason Stiehl’s post for Seyfarth Shaw’s Trading Secrets Blog).
Here, EMNI used the language of the contract to its advantage and argued that The Weather Channel had conceded the proprietary nature of the information under the license. The lesson? In written agreements negotiated between sophisticated commercial parties, courts will frequently defer to the language of the agreement.
Quick Takeaway for Licensees: Do your due diligence and if you have skepticism over the value of what you are going to be licensing, it may be best to say “no thanks” to the deal.
Quick Takeaway for Licensors: The language of your agreement may prove critical so make sure that your licensee concedes that the information that you are supplying is protected and proprietary. More often than not, the court will apply the language agreed to by the parties.
Computer Fraud & Abuse Act Articles, Cases and Posts:
- As I briefly noted in my post last night, Congresswoman Zoe Lofgren (D-CA) and Senator Ron Wyden (R-OR) have introduced an amendment to the CFAA popularly known as “Aaron’s Law,” to narrow the CFAA, reports Wired. As readers of this blog know, Swartz had been charged under the CFAA after allegedly accessing the server of MIT to improperly download approximately 4.8 million academic journals; he committed suicide earlier this year after negotiations over his plea bargain broke down. The amendment would, among other things, define access without authorization and exclude online agreements, computer use policies and employment agreements from serving as a basis for a claim under the CFAA.
- For more commentary on Aaron’s Law, see Russell Beck’s post in his Fair Competition Blog, Robert Milligan’s post for Seyfarth Shaw’s Trading Secrets Blog, and Jason Weinstein’s take for Steptoe’s Cyberblog.
Trade Secret and Non-Compete Cases. Posts and Articles:
- “Obama Administration Issues New Strategic Plan for Intellectual Property Enforcement,” announces Russell Beck, who provides a fine summary in his Fair Competition Law Blog.
- The ITC and a Chinese court have come to opposite conclusions over the same basic trade secrets dispute, notes Orrick’s Trade Secrets Watch Blog. In, “Rubber Match? Resin Trade Secret Battle Results in a Multi-Jurisdictional Draw,” Mark P. Wine and Francis Cheever report that the ITC ruled in favor of American rubber manufacturer SI Group but that the Chinese court sided with Chinese manufacturer Sino Legend. For more on the ITC proceeding, see, “ITC judge rules for SI Group in intellectual property case,” in RubberNews.com.
- Speaking of long-running trade secret imbroglios involving Chinese companies, “Chinese Wind-Turbine Maker Sinovel Charged With IP Theft,” reports Law360. The U.S. Attorney for Wisconsin has indicted Sinovel for the alleged theft of source code from American Superconductor’s computer system. The New York Times also has an article covering the indictment.
- For those embroiled in a dispute over a forum selection clause in Georgia, “Atlantic Pacific Illustrates Impact of Georgia’s New Restrictive Covenants Law on Forum and Venue Selection Considerations,” advises Collin L. Freer for Berman Fink Van Horn’s Georgia Non-Compete and Trade Secret News Blog.
- “U.S. District Judge in Massachusetts Declines to Enforce Noncompetes Because the Jobs of Two Employees ‘Materially Changed,’” advises Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog.
- “Tyco Accused Of Smear Campaign In Trade Secrets Row,” reports Law360.
- For more on the new Connecticut non-compete statute, see “Non-Compete Legislation In Connecticut,” by David Popick for Epstein Becker’s Trade Secrets & Noncompete Blog, and, “Connecticut Law Restricts the Use of Non-Compete Agreements in Acquisitions and Mergers,” by Patricia Reilly, Matthew Curtin and Stephen Rosenberg for Littler’s Unfair Competition & Trade Secret Counsel Blog.
- “Rogue Employees – What to do?” asks Rob Radcliff for his Smooth Transitions Blog.
- “Takeaways From UK’s Vestergaard Trade Secrets Case,” advise Akash Sachdeva and Ben Hitchens of Edwards Wildman Palmer LLP for Law360.
Cybersecurity Posts and Articles:
- “Bank’s new cybersecurity audits catch law firms flat-footed,” reports Martha Neil for the ABA News.
- “Big Banks Worried About Outside Counsel Who BYOD,” advises David Hechler for Corporate Counsel.
- “FINRA Sees ‘Proliferation’ of Complaints About Cybersecurity Breaches, Official Says,” reports Maria Lockshin for Bloomberg BNA.
- “Federal Data Breach Legislation Introduced, But Will It Go Anywhere?” asks Christin McMeley of Davis Wright Tremaine for JDSupra.