In September 2011, a federal jury in Virginia awarded DuPont $919.9 Million in a trade secret misappropriation case.  DuPont brought the case against Kolon Industries, a South Korean competitor, claiming that Kolon misappropriated 149 of its trade secrets relating to its aramid fiber technology, which is used in products such as Kevlar body armor.  The case arose when a former employee of DuPont began working with Kolon to develop a competing aramid fiber technology.  The jury will now be asked to consider awarding DuPont punitive damages against Kolon as a result of the misappropriation.  Further details about this case can be found at here.

Steve Jobs has passed away, leaving many iMourners beside themselves today. His legacy has touched many aspects of everyone’s lives, from the way they now conduct business on a tablet, to the way they remember what groceries to get, to the amount of overtime people are owed ….WHAT!?! How did that last bit get in there?

Our blog is not just satisfied mentioning Jobs passing, finding a candle app on our iPad and holding it above our heads. We must look at the lasting impact the iphone, ipad, and other electronic devices have on wage & hour law in the workplace.

As a harsh reminder of the impact technology is having on wage & hour law, recently Chicago police Sgt. Jeffrey Allen filed a class action against the City of Chicago claiming iOT. Allen is suing the City of Chicago on behalf of himself and others, seeking pay for time spent dealing with work-related phone calls, voice mails, emails, text messages and work orders via BlackBerry devices and similar “personal digital assistants.” The officer alleges these activities entitle the group to overtime compensation under the federal Fair Labor Standards Act (FLSA).
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The Computer Fraud and Abuse Act (“CFAA”), enacted in 1984 was the first federal law to address computer crime.  It originated as a criminal statute and initially was directed only to important federal interest computer crimes.  As information technology and applications increased exponentially over the next two decades, so did the scope of the CFAA.  It now contains a private right of action, section 1030(g) and it covers any “protected” computer which is one used in or affecting interstate or foreign commerce or communications, thus making any computer with internet access a subject of the statute’s protection.  Unlike the economic espionage act, 18 U.S.C. §§ 1831-39 (2006), the CFAA, while providing for a private right of action, was not enacted with trade secret protection in mind.  It is an anti-hacking statute.

With increasing numbers of employees using computers at work, employers have turned to the CFAA in situations where disloyal employees have pilfered company information from the employer’s computer system.  The CFAA penalizes “access” or intrusions to a computer system in which information is stored.  The CFAA forbids conduct by anyone, “who 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, ….”  The statute defines “exceeds authorized access” to mean “access a computer with authorization and to use such access to obtain or alter information in a computer that the accessor is not entitled to so obtain or alter.  (18 U.S.C. §1030(e)(6).)  The CFAA does not, however, define “unauthorized access.” 

Plaintiff companies often allege that defendants violated the CFAA, when a competitor acquired confidential or proprietary in formation indirectly, through a disloyal employee who used his or her authorized access to the plaintiff company’s computer systems or network to collect information (or delete and )alter it.    Circuit Courts of Appeal are split over whether and when the CFAA applies in this situation. The split in authority concerns the interpretation of the terms “without authorization” and “exceeds authorized access.”

As of this writing many, if not most, circuit courts that have construed the “authorization” language of section 1030(g) have adopted an expansive view of the statutory language, and held that an employee who is authorized to use his employer’s computer systems and networks and been granted access to proprietary information immediately breaches his duty of loyalty to the employer (and thereby is “unauthorized”) if he or she uses the information so accessed against his employer’s economic interest.  These courts hold that such conduct supports a claim under the CFAA.   

In September 2009, the Ninth Circuit Court of Appeals expressed a different view. In LVRSC Holdings, LLC v. Brekka (9th Cir. 2009) 581 F.3d 1127, the Court held that if an employer gave an employee permission to access its computers and databases in conjunction with the employee’s work duties, then the employee’s subsequent use of the information obtained through that authorized access, is not “unauthorized” and misuse of the information against the interest of the employer is not a CFAA violation. District Courts in other circuits have recently begun to adopt this interpretation of the CFAA.  These cases reflect the view  that “authorization” does not turn on an employee’s intentions in obtaining the employer’s information but instead on whether access to the information was granted.  (See Océ North America, Inc. v. MCS Services, Inc., 2010 Westlaw 3703277 at *4 (D. Maryland, Sept. 16, 2010) [holding that while an employee remained employed by the company, he had authorization to use computers and computer software and that “copying software onto his own laptop may have been a violation of his employment agreement, but that does not constitute a violation of the CFAA”].)  In Cvent, Inc. v. Event Bright, Inc., 2010 Westlaw 3732183 (E.D. Virginia, September 15, 2010), the Court noted that a “mere allegation that a defendant used the information [which it had been given authority to access] in an inappropriate way, did not state a claim for relief [under the CFAA].”

Adding to this confusion are recent events in United States v. Nosai, in April of this year, in Nosai, the ninth circuit held that employees did “exceed authorized access” under the CFAA when they used employer issued accounts to obtain  information from their employer’s computer system for benefit of a competitor. On October 27th however, the Ninth Circuit ordered an en banc rehearing of the Nosai case, and ordered that District Courts in the Circuit not rely on the Nosai decision pending the rehearing. Stay tuned.

 It is common for plaintiffs in employee-related trade secrets and unfair competition cases to allege something of a grab bag of statutory and common law theories.  Often, claims of misappropriation of trade secrets, intentional interference with economic advantage, breach of duty, and common law unfair competition will be based on the same set of facts (a departing employee exported a former employer’s confidential, proprietary and trade secret information, or solicited the former employer’s customers on the basis of such information).  The number of differing theories is limited only by the facts and the scope of the pleading attorney’s legal imagination.

Over the last decade however, defendants in these cases have begun to attack such pleading by claiming that the California Uniform Trade Secrets Act (“CUTSA”) “preempts” common law provisions which, prior to the passage of CUTSA, would have supported claims based on misappropriation.  In K.C. Multimedia, Inc. v. Bank of America Technology and Operations, Inc. (2009) 171 Cal.App.4th 939, the Sixth Appellate District of the Court of Appeal of California held that the CUTSA preempts common law claims that are based on the same nucleus of facts as the misappropriation of trade secrets claim.  

Depriving a plaintiff of alternative common law claims can be valuable to a Defendant.  Proving a trade secret misappropriation claim can be much more difficult than proving a claim of intentional interference or breach of duty. CUTSA requires a plaintiff to satisfy specific statutory standards to prevail.  The standards under common law theories can be relatively less demanding and easier to prove.

In its broadest sense, a CUTSA preemption attack argues that CUTSA preempts any common law claim that is based on conduct which could support a trade secret claim.  This interpretation of CUTSA is well established in federal courts.  (See, for example, First Advantage Background Services Corp. v. Private Eyes, Inc. (2008) 569 F.Supp.2d 929 [motion to dismiss]; “If there is not material distinction between the wrongdoing alleged in a CUTSA claim and that alleged in a different claim, the CUTSA claim preempts the other claim.”  (Convolve, Inc. v. Compaq Computer Corp., 2006 U.S. Dist. LEXIS 13848 cited in Bryant v. Mattel, Inc., 2010 U.S. Dist. LEXIS 103851.)) The K.C. Multimedia case was the first published California Court of Appeal decision to adopt the reasoning of these Federal Courts. Many practitioners viewed K.C. Multimedia and its federal predecessors as a significant shift in the law, one that increased the plaintiff’s burden in these cases.  I thought that too.  Now, I don’t think so.

Although federal courts appear willing to consider a preemption attack based on the pleadings in a case, some defense practitioners report that California trial courts appear more reluctant than federal courts to sustain demurrers or motions for judgment based on CUTSA preemption. That certainly has been my experience.  This reluctance, if it exists, might be explained by the fact that in K.C. Multimedia, the Court found preemption in response to an in limine motion after a long period of discovery.  In K.C. Multimedia, the plaintiff was well committed by testimony and discovery responses to its allegations that the same acts supported both the CUTSA and common law claims.  Some lawyers defending employee mobility lawsuits brought in California state courts feel that instead of a demurrer or attack on the pleadings, the better strategy is to conduct discovery designed to commit the plaintiff to a particular set of facts, and then to demonstrate to the court that plaintiff is grounding both the CUTSA and common law claims on the same facts.   

Frankly, I wonder if this strategy will remain effective for very long.  Employee misconduct and unfair competition cases often involve various forms of misconduct (See, for example, Reeves v. Hanlon and Bancroft Whitney). Often, it is not difficult for this conduct to be pleaded so that common law claims are supported by factual allegations that are distinct and separate from the allegations that support the statutory trade secrets claim. Precise pleading and a clearly developed theory by the pleading party may bar most preemption attacks.

By: Lizbeth (“Beth”) West, Esq.

Given the state of the economy and the desperation felt by many employees regarding the security of their job (and the anger felt by disgruntled former employees regarding the loss of their job), violence remains a real and serious threat in the workplace. Recognizing this fact, on September 8, 2011, the Department of Labor – OSHA Division – issued a new Directive aimed at providing compliance officers guidance for investigating and responding to allegations and incidents of workplace violence.  OSHA has also launched a new webpage focused on preventing workplace violence. 

In the Directive, OSHA points out the alarming statistics from the Bureau of Labor Statistics’ (BLS) Census of Fatal Occupational Injuries (CFOI) show that an average of 590 homicides occurred each year during the years 2000 through 2009. In fact, homicides remain one of the four most frequent work-related fatal injuries, and remained the number one cause of workplace death for women in 2009. Several studies have shown that prevention programs can reduce incidents of workplace violence.  According to OSHA, by assessing their worksites, employers can identify methods for reducing the likelihood of incidents occurring.  OSHA believes that a well written and implemented Workplace Violence Prevention Program, combined with engineering controls, administrative controls and training can reduce the incidence of workplace violence in both the private sector and in governmental workplaces.

Continue Reading OSHA Issues New Directive Focused On Preventing Workplace Violence;Employers Are Advised to Evaluate Their Workplace to Ensure Compliance