United States: Guilty Verdict In Critical Computer Fraud And Abuse Act Trial

After a two-week trial before United States District Court Judge Edward Chen of the Northern District of California, David Nosal—the named defendant in the seminal Ninth Circuit case, United States v. Nosal—was convicted of three counts of violating the Computer Fraud and Abuse Act ("CFAA").¹ Mr. Nosal's conviction demonstrates that, despite the Ninth Circuit's narrow interpretation of the "exceeds unauthorized access" element of the CFAA, the CFAA is still a useful tool to prevent trade secret misuse.

CFAA Allegations Against Nosal

Mr. Nosal's road to trial neatly illustrates the shifting scope of the CFAA. The CFAA imposes both criminal and civil liability on a person who "intentionally accesses a computer without authorization" or "exceeds authorized access" in using a computer, thereby obtaining "information" from a computer that is "used in or affecting interstate or foreign commerce."² The CFAA is often used in civil litigation as a tool in combination with state law trade secret claims to prevent the misuse of trade secrets and to obtain federal court jurisdiction over such a dispute.

In 2004, Mr. Nosal left the executive search firm Korn/Ferry International and was found to have persuaded current and former employees of the firm to download confidential information from the company's computers and transfer the information to Mr. Nosal to help him start a competing business. After an investigation of Mr. Nosal's conduct that stemmed from an email from Mr. Nosal intercepted by the FBI, he and some of the employees who assisted him in the transfer of information were indicted. The indictment against Mr. Nosal alleged two categories of CFAA violations. Counts 2 and 4-7 alleged that current employees of Korn/Ferry accessed the company's internal database and disclosed competitively sensitive information to Mr. Nosal (the "Insider Counts"). Counts 3 and 8-9 alleged that former employees of Korn/Ferry, including Becky Christian, used a current employee's password to access Korn/Ferry's "Searcher" database and provide Mr. Nosal with confidential source lists (the "Outsider Counts"). The government brought a total of eight criminal counts against Mr. Nosal under the CFAA, accusing him of "aiding and abetting the Korn/Ferry employees in 'exceed[ing] authorized access with intent to defraud.'"³

The Long Road to Trial

The case against Mr. Nosal was filed in the United States District Court for the Northern District of California in 2008. In 2009, in LVRC Holdings LLC v. Brekka, 581 F.3d 1127 (9th Cir. 2009), the Ninth Circuit limited the scope of the CFAA and held that the term "exceeds authorized access" does not apply to an employee who is authorized to access a computer, but uses the computer in a manner contrary to his employer's interests.

After the Ninth Circuit's ruling in Brekka, Mr. Nosal moved to dismiss the CFAA violations. In 2010, the district court dismissed the Insider Counts, finding that, because current employees had accessed their employer's information "with authorization," they did not "exceed authorized access."⁴ However, the district court declined to dismiss the Outsider Counts, recognizing that those counts "presented more complicated questions" because the indictment alleged that former employees, who no longer had access to the database, obtained access to the database and misused confidential information.⁵

The government appealed the dismissal of the Insider Counts. Initially, a three-judge panel on the Ninth Circuit reinstated those counts, but after the Ninth Circuit heard the decision en banc in 2012, the district court's dismissal of the five Insider Counts was affirmed. There, the Ninth Circuit held that the phrase "exceeds authorized access" in the CFAA is "limited to violations of restrictions on access to information, and not restrictions on its use."⁶ The court expressed concern about transforming the CFAA into an "expansive misappropriation statute," finding that the purpose of the statute was to "punish hacking—the circumvention of technological access barriers—not misappropriation of trade secrets." Id.

District Court Proceedings on the Outsider Counts

On remand, the government argued that, unlike the current Korn/Ferry employees in the Insider Counts, who were authorized to access the Korn/Ferry computers, the former employees in the Outsider Counts were not authorized to access the Korn/Ferry computers. Consequently, unlike the dismissed counts, the Outsider Counts alleged unauthorized access, not merely unauthorized use.⁷

Mr. Nosal moved to dismiss these counts, focusing on the Ninth Circuit's narrowing of the statute and arguing that there were no allegations that Mr. Nosal or his co-conspirators engaged in hacking, or the "circumvention of technological barriers."⁸ Earlier this year, the court denied the motion to dismiss, finding that the CFAA would "be rendered toothless" if it did not apply when a current, authorized employee shared his or her password with an unauthorized user, or sold it to that user. This was a key issue in the case because the government alleged Mr. Nosal, after leaving Korn/Ferry, had instructed an assistant to access Korn/Ferry's database using a Korn/Ferry employee's password. The court reasoned that, "[s]urely, Congress could not have intended such a result."⁹

At trial, the defense team argued that Mr. Nosal did not exceed his "authorized access" to his former employer's computers. After he resigned from Korn/Ferry, Mr. Nosal agreed to work as an independent contractor for Korn/Ferry and complete unfinished search assignments for $25,000 per month. As part of his separation agreement, Mr. Nosal pledged not to compete against Korn/Ferry. According to the defense, because Mr. Nosal still had authorized access to the Korn/Ferry database as an independent contractor, his misappropriation of confidential information did not "exceed authorized access." In response, the government argued that, even if Mr. Nosal was authorized to access the information in the company's database, he violated the CFAA by instructing others, including his assistant at the time, to breach the system using a borrowed password.¹⁰ This allegation was confirmed by the testimony of Mr. Nosal's assistant.¹¹

After less than two days of deliberation, the jury found Mr. Nosal guilty of all counts, including the three CFAA violations. The defense has announced it intends to appeal the verdict to the Ninth Circuit, who will be asked to address the scope of the CFAA yet again.

Implications

Mr. Nosal's conviction provides the Ninth Circuit, and likely the United States Supreme Court, the opportunity to further demarcate the boundaries of the CFAA. Critics of the CFAA argue that Congress intended the statute to be an anti-hacking statute only, and not another tool to prosecute run-of-the-mill trade secret misappropriation cases. Employers seeking to protect their confidential information stored electronically, and prosecutors looking to punish the theft of valuable property, counter that the broad language of the statute covers a wide array of unauthorized actions involving computer systems, and that further narrowing the CFAA will hamstring companies' ability to protect their vital trade secrets.

The verdict in Nosal is critical to the future of the CFAA because Mr. Nosal's conduct was neither current employee misuse nor "hacking" by an outsider. Instead, this case presented a classic example of a former employee using deceitful means in an attempt to obtain access to information that he could use effectively in a competitive endeavor. Such a scenario is frequently in the news, and the civil and criminal features of the CFAA have generally been strong weapons against such conduct. Mr. Nosal's conviction shows that, even in the shadow of restrictive Ninth Circuit precedent, particularly precedent developed in that very case before trial, the CFAA remains a valuable tool in the fight against trade secret theft.

Footnotes

1. United States v. Nosal, 676 F.3d 854, 864 (9th Cir. 2012)

2. 18 U.S.C. § 1030(a)(2)(C). The CFAA provides for a private cause of action carrying a two-year statute-of-limitations. See 18 U.S.C. § 1030(g).

3. Id. at 857.

4. United States v. Nosal, C 08-0237 MHP, 2010 WL 934257, at *8 (N.D. Cal. Jan. 6, 2010) rev'd, 642 F.3d 781 (9th Cir. 2011) on reh'g en banc, 676 F.3d 854 (9th Cir. 2012) and aff'd, 676 F.3d 854 (9th Cir. 2012).

5. Id.

6. United States v. Nosal, 676 F.3d 854, 864 (9th Cir. 2012).

7. United States v. Nosal, CR-08-0237 EMC, 2013 WL 978226, at*6 (N.D. Cal. Mar. 12, 2013).

8. Id. at *8.

9. Id. at *9.

10. Vanessa Blum, Amid Calls for Reform, a Rare Trial of Hacking Law, The Recorder (Apr. 5, 2013), http://www.law.com/jsp/ca/PubArticleCA.jsp?id=1202595052519&slreturn=20130325102617.

11. Vanessa Blum, Prosecutors Get Key Testimony from Ex-Love in Hacking Trial, The Record (Apr. 15, 2013), http://www.law.com/jsp/ca/PubArticleCA.jsp?id=1202596146617.

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