TLJ News from November 21-25, 2006

People and Appointments

11/24. The US Patent and Trademark Office (USPTO) announced the appointment of members of its
Performance Review Board: Stephen Pinkos (Deputy Director of the USPTO), Vickers Meadows (Chief Administrative Officer), John Doll (Commissioner for Patents), Lynne Beresford (Commissioner for Trademarks), David Freeland (Chief Information Officer), James Toupin (General Counsel), Lois Boland (Director of International Relations), Barry Hudson (Chief Financial Officer), and Griffin Macy (Deputy Chief Information Officer). See, notice in the Federal Register, November 24, 2006, Vol. 71, No. 226, at Page 67857-67858.

5th Circuit Construes Private Right of Action Under § 1030

11/22. The U.S. Court of Appeals (5thCir) issued its opinion [40 pages in PDF] in Fiber Systems International v. Roehrs, a case regarding private rights of action under Section 1030.

The Computer Fraud and Abuse Act (CFAA), which is codified at 18 U.S.C. § 1030, pertains to "Fraud and related activity in connection with computers". It contains numerous criminal prohibitions, some of which also give rise to private rights of action.

The CFAA is also known as the anti-hacking statute. However, the statute key language of the statute is the ban on accessing "a computer without authorization or exceeding authorized access". The present case, like many others, does not involve hacking of computer systems by outsiders. Rather, employment disputes, post-employment disputes, and disputes over control of corporations, sometimes also include allegations of unauthorized access to various computers by insiders.

Background. Fiber Systems International, Inc. (FSI) is a company that makes harsh environment fiber optic connectors for military use.

Daniel Roehrs and the other individual defendants in the present case were previously officers and directors of FSI. In 2001 Roehrs and others initiated previous litigation to determine ownership of FSI. That case settled in 2003 with Michael Roehrs (Daniel's brother) buying out the interest of Daniel Roehrs and other defendants. That settlement also terminated the employment of Daniel Roehrs and other defendants. Daniel Roehrs and the other defendants formed new companies.

FSI alleged that the defendants "knowingly and intentionally accessed, deleted, downloaded, copied, took, and stole FSI’s confidential business and proprietary information and trade secrets, without authorization, from FSI’s computers". FSI also alleged that the defendants were thieves of intellectual property.

District Court. FSI initiated the present litigation in 2004 by filing a complaint in U.S. District Court (EDTex) against Daniel Roehrs, the other individual defendants, and their new companies. FSI alleged violation of Section 1030. It sought an injunction, and damages. The defendants counterclaimed alleging defamation.

The trial jury found that none of the individual defendants violated Subsection 1030(a)(5), but that three defendants, Daniel Roehrs, Thomas Hazelton, and Rick Hobbs, violated Subsection 1030(a)(4). The jury awarded FSI $36,000 in total damages. However, the District Court entered a take nothing judgment, on the grounds that Subsection 1030(a)(4) does not create a private right of action.

The District Court granted partial summary judgment against FSI on its request for injunctive relief under Section 1030.

The jury also found defamation. It awarded the individual defendants $100,000 each in compensatory damages and $1,000,000 each in punitive damages. However, the District Court reduced the punitive damages awards to $250,000 each, because the state of Texas imposes a cap on punitive damage awards.

Statute. Subsection 1030(g) creates a private right of action. It provides that "Any person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief. A civil action for a violation of this section may be brought only if the conduct involves 1 of the factors set forth in clause (i), (ii), (iii), (iv), or (v) of subsection (a)(5)(B). Damages for a violation involving only conduct described in subsection (a)(5)(B)(i) are limited to economic damages. No action may be brought under this subsection unless such action is begun within 2 years of the date of the act complained of or the date of the discovery of the damage. No action may be brought under this subsection for the negligent design or manufacture of computer hardware, computer software, or firmware."

Subsection 1030(a)(5) provides, in full, that "Whoever ..."

  (i) knowingly causes the transmission of a program, information, code, or command, and as a result of such conduct, intentionally causes damage without authorization, to a protected computer;
  (ii) intentionally accesses a protected computer without authorization, and as a result of such conduct, recklessly causes damage; or
  (iii) intentionally accesses a protected computer without authorization, and as a result of such conduct, causes damage; and
(B) by conduct described in clause (i), (ii), or (iii) of subparagraph (A), caused (or, in the case of an attempted offense, would, if completed, have caused) --
  (i) loss to 1 or more persons during any 1-year period (and, for purposes of an investigation, prosecution, or other proceeding brought by the United States only, loss resulting from a related course of conduct affecting 1 or more other protected computers) aggregating at least $5,000 in value;
  (ii) the modification or impairment, or potential modification or impairment, of the medical examination, diagnosis, treatment, or care of 1 or more individuals;
  (iii) physical injury to any person;
  (iv) a threat to public health or safety; or
  (v) damage affecting a computer system used by or for a government entity in furtherance of the administration of justice, national defense, or national security;"

Subsection 1030(a)(4) provides that "Whoever ... knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period".

Court of Appeals. FSI brought the present appeal. It first argued that there is a private right of action for violation of Subsection 1030(a)(4). The Court of Appeals agreed.

Subsection 1030(g) creates the private right of action. It provides that there is a private right of action "only if the conduct involves 1 of the factors set forth in clause (i), (ii), (iii), (iv), or (v) of subsection (a)(5)(B)". Subsection 1030(g) does not reference Subsection 1030(a)(4).

Nevertheless, the Court of Appeals reasoned that "Section 1030(g) extends the ability to bring a civil action to any person suffering damage or loss under ``this section,´´ which refers to § 1030 as a whole, as subsection (g) does not proscribe any conduct itself. And although § 1030(g) refers to subsection (a)(5)(B), the statute does not limit civil suits to violations of § 1030(a)(5). Indeed, if Congress intended to limit civil actions in this manner, it could have simply provided that civil actions may only be brought for violations of subsection (a)(5)."

Accordingly, the Court of Appeals held that "a civil action may be maintained under § 1030(a)(4) of the CFAA if the violative conduct involves any one of these factors" set out in Subsection 1030(a)(5). It vacated the District Court's take nothing order, and remanded.

The Court of Appeals cited as authority for this proposition the Third Circuit's 2005 opinion [19 pages in PDF] in P.C. Yonkers, Inc. v. Celebrations the Party & Seasonal Superstore, LLC, which is reported at 428 F.3d 504. See, story titled "3rd Circuits Holds Employer May Sue Former Employee Under § 1030" in TLJ Daily E-Mail Alert No. 1,249, November 8, 2005.

This article does not summarize the sections of the Court of Appeals' opinion that address other appeal issues, such as the defamation issue.

This case is Fiber Systems International, Inc. v. Daniel Roehrs, et al., U.S. Court of Appeals for the 5th Circuit, App. Ct. No. 05-41213, an appeal from the U.S. District Court for the Eastern District of Texas, Sherman Division. Judge King wrote the opinion of the Court of Appeals, in which Judges Jolly and Garwood joined.

This case was tried in the Eastern District of Texas. However, this is also a rare example of a technology related case that actually arose in the Eastern District of Texas. FSI is based in Allen, Texas, which is a short distance from the U.S. District Court in Sherman, Texas.

More News

11/21. Federal Reserve Board (FRB) Governor Kevin Warsh gave a speech to the New York Stock Exchange. He said nothing about communications services or information technology. Rather, he spoke about FRB communications and the flow of information related to policy making at the FRB. The speech might be of interest to those who think about the role of information flows in government processes. He explained that market entities provide information to the FRB and to markets. Markets, in turn, generate information, such as asset prices, that the FRB uses to make monetary policy. The FRB then communicates information regarding its polices that entities use to make business decisions. The FRB also has regulatory and supervisory powers to affect the flow of information provided by entities. What underlies this speech, and related speeches by FRB officials in prior years, is that the FRB is concerned about information flows. Warsh stated that he wants to prevent "the signals from getting crossed", and that the FRB should "make our communications and intentions as clear as possible". In contrast, officials at some federal agencies that regulate communications services and information technology, such as the FCC, speak little about information flows, and arguably, make less effort to make their communications and intentions as clear as possible, to the detriment of the efficient operation of markets.

Go to News from November 16-20, 2006.