The Fourth Justice: My Dissenting Opinion in Fifield v. Premier Dealer Services

Although many commentators are discussing the Appellate Court of Illinois' opinion in Fifield v. Premier Dealer Services, Inc., you may not realize that I sat in on that case as the fourth justice. Unfortunately, my colleagues on the Court forgot to include my dissenting opinion.

So, I figured this blog was as good a place as any to fix that mistake.

"Justice Vanko, dissenting, throwing things in chambers, drinking an Old Fashioned, and about ready to lose his mind:

I dissent. A lot.

In today's ruling, the Court decides in the blink of an eye to rewrite the law of non-compete agreements for at-will employees. Perhaps this is a job the Supreme Court of Illinois wishes, one day, to undertake. Perhaps our General Assembly - if they can put this pension nonsense behind us - will see fit to change the law. But it decidedly is not the function of an intermediate appellate court to work such a fundamental change in the law without so much as a whisper of reasoned analysis.

The Court holds (at paragraphs 13-17) that "continued employment" constitutes sufficient consideration for a restrictive covenant as long as it lasts for two years or more. Fine. But, the Court then ignores decades of case law and sheer common sense. It lumps together this continued employment rationale in two vastly different contexts: (a) a covenant signed at the start of an employment relationship, and (b) a covenant entered into after the relationship begins (commonly known as an "afterthought" covenant).

No Illinois court has merged the analysis of continued employment like the majority does today. In the case of Diederich Ins. Agency, LLC v. Smith (Fifth District), the employee signed a non-compete roughly six months after the beginning of his employment. The same holds true with Lawrence & Allen, Inc. v. Cambridge Human Resource Group, Inc. (Second District), in which the employee signed an afterthought covenant not to compete 18 months after starting his job. Finally, Brown and Brown, Inc. v. Mudron (Third District) confronted a situation where "existing employees were required to sign an employment agreement" with a corporate successor.

I have just summarized all the relevant precedents the Court cites. Shorthand: N/A. To equate these cases with this one borders on lunacy. For some reason, the Court neglects to point out that the dozen or so decisions of this Court discussing and applying the continued employment doctrine all arise in the context of afterthought covenants. #NotASurprise. #Uncontroversial.

Recognizing its precedent gap, the Court pivots to a district court decision in Bires v. WalTom, LLC, which is not binding on this Court. To support its ruling, Bires relies on dicta from Curtis 1000, Inc. v. Suess. In Curtis 1000, Judge Posner was concerned with the adequacy of consideration when the employer - not the employee - obtained a restrictive covenant and then elected to terminate the employment relationship. Such a fact-pattern elicits notions of bad faith, fraud, lack of mutuality, unconscionability, and a host of other legal terms that only a lawyer could love. Nothing in that case suggests Judge Posner would have applied the continued employment doctrine to a fact-pattern in which the employee was the one who elected to end the relationship.

To recap, mathematically speaking:

(district court case X 1) + (dicta in Seventh Circuit case X 1) ≠ (consistent decisions of this court on continued employment doctrine X approximately 19) + (common sense X infinity)

The majority (which curiously never mentions or rebuts my dissent...#Waiver #Estoppel) fails to discuss why we should treat covenants signed at the start of employment differently than those afterthought covenants which pose special problems.

It has to do with the idea of reasonable expectations.

Suppose Fifield here signed on with Premier Dealer Services and had the expectation he would not be bound to any kind of a non-compete. That may have been an important factor in his decision to begin the relationship. He might have foresaken other equivalent opportunities. And over time, his status as a free-agent begins to cement. If his employer foists upon him a non-compete after years of hardened expectations, then it makes some sense for the law to step in and inquire as to the true consideration provided for that non-compete.

It's not the same case if Fifield walks into the relationship with Premier Dealer Services knowing full well he has to sign the non-compete to take the job in the first place. For starters, he isn't tricked. Both sides have put their cards on the table. He can try to negotiate the terms (which Fifield did here!). And he's in a better position to evaluate other opportunities before agreeing to be bound to the contract.

Yet, we find ourselves in a landscape where the Court finds the parties' reasonable expectations don't matter. Over the past several years, the continued employment doctrine has evolved from its historical roots. It originally was intended to eliminate an employer's chicanery into tricking an employee into signing a restrictive agreement, only to discharge him or her shortly thereafter. Our appellate courts then applied the doctrine regardless of which party - employer or employee - ended the relationship. That wasn't very smart. Now, we've extended it to all employees who are terminable at-will (that is, about 95 percent of private sector workers). That really wasn't very smart. And to put the cherry on top of this sundae, we've somehow spirited up a bright-line where the continued employment must last at least two years. That's just flat-out making stuff up. Welcome to the vortex of judicial activism and arbitrary rules!

So we've succeeded in giving employees a two-year option in which they can decide whether to breach a covenant not to compete or solicit customers. Terrific. Talk about creating uncertainty. This decision comes at great social cost. For starters, it will reduce companies' incentives to train younger workers and give them access to clients. It almost begs employers to limit their access to company secrets (particularly in that heart-stopping period right before an employee's two-year option window is about to close). This can only lead to declining productivity, and with where India and China are at in that regard, God help us.

Beyond that, we've screwed the lawyers. For years, they've operated under the assumption the continued employment doctrine applied to afterthought covenants only. Now, they'll have to start calling their clients and tell them we've subtly shifted the law on them. Why doesn't anyone care about lawyers? I don't get this.

Perhaps I'm being too naive. The lawyers will find creative ways around today's ruling. They'll write non-compete agreements so that something else provides consideration beyond the inception of employment itself. Imagine all the self-serving consideration paragraphs we now have to analyze. So I guess consideration could be a signing bonus of $2,500 (which surely will be deducted from the employee's other forms of compensation), eligibility to receive a year-end bonus, or access to company confidential information. One lawyer already has suggested sufficient consideration might come from making the covenant inoperable in the event of a termination without cause. Desperation is the mother of all invention!

In sifting through this precedential mess and trying to make sense of where we're at now, I am reminded of a quote from one of the great American movies of my lifetime - Billy Madison - which somehow seems fitting here:

Mr. Madison, what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.
 

I would hold simply this: The continued employment doctrine only applies in the event of a covenant not to compete signed after the start of employment. And in all cases, the Court must consider the totality of the circumstances to determine whether continued employment provides sufficient consideration for an afterthought covenant, consistent with the general principles in Reliable Fire Equipment v. Arredondo. #CommonSense #JudicialRockStar #Pragmatist

I beg the lawyers for Premier Dealer Services to petition for rehearing on this issue. Or appeal to the Supreme Court of Illinois. I need a drink."

And here's the actual Opinion.

Fifeld v. Premier Dealer Services - Opinion by Ken Vanko

Face It: Judges Sometimes Hate Competition Cases

Believe it.

One exceedingly difficult message to convey to clients is this: A judge may not view your case as importantly as you do.

In my personal view, judges should be agnostic to subject-matter. That is, he or she should (in a perfect world) treat each case with equal importance. This may mean some disputes are simple or straightforward, in which case a decision should be fairly easy to reach. But a judge's subjective view as to a type of case should not influence his or her choice of outcomes (or more accurately, his or her relative time spent thinking about the case).

In the world of non-compete and trade secrets disputes, judges often don't like these disputes.

There are a couple of reasons.

First, they usually are teed-up on an emergency basis, clogging already full judicial calendars.

Second, they smack of the ordinary rough-and-tumble of economic life, where battles should be fought in the board rooms.

And third, they almost always sometimes sound like a bunch of old people fighting over canasta points.

There's a couple of recent examples where you can get a glimpse of how judges quickly tire of non-compete litigation.

The first comes from Ohio in the case of Lawyers Title Company v. Kingdom Title Solutions. The case involved apparent pre-termination competition by a couple of ex-Lawyers Title employees. Proceeding to a jury trial and after an extensive trial court record, Lawyers Title obtained a judgment for (hold your breath) $13,000 in damages. On post-trial proceedings, the district judge - barely - upheld the verdict on the proof of damages, noting:

"...it is impossible to know why [the former customers] took their business elsewhere. But Lawyers did not call its former customers to testify, probably because none of them would ever do business with Lawyers again after being dragged into this silly litigation."

In all fairness to Lawyers, it may have felt compelled to pursue its claims against former employees who (it appears) diverted clients pre-termination. Folding the tent would send a terrible signal for the next slate of employees who may contemplate a move. In that sense, the litigation surely was not "silly." But pursuing litigation with little to no damages is sure to draw the ire of a busy district judge.

The second case, Patch Rubber Co. v. Toelke, originates from North Carolina. There, District Judge Boyle denied a preliminary injunction to enforce a non-compete against a former plant manager. The problem: a ridiculously overbroad agreement that went way beyond protecting a legitimate business interest. In North Carolina, courts cannot modify overbroad agreements, so it is fairly common to see bad contracts chucked out the door early in a case.

And the judge's displeasure at the contract may have colored his view on the remainder of the case. In the face of evidence the employee downloaded "several documents containing a strategic plan...and customer cost and formula information," the court discounted the evidence entirely. It simply found the plaintiff didn't really show how the information was confidential or trade secret material.

This is not to absolve the plaintiff. It very well may have failed to convince the judge. But often times evidence of downloading at least leads to some partial relief, such as a limited injunction to protect against disclosure or use of the downloaded material.

But it's hard not to read the case and conclude that by the time the court got around to analyzing the trade secrets component, he was aggravated by the non-compete.

For employers, it's essential to consider how a generalist judge is going to view a case. The judge will want to know what relief the company will seek and whether there is a real dispute in need of an objective decision maker. It is a stark reality that many judges feel a great majority of competition cases could have been resolved easily before litigation.

Episode 11 of Fairly Competing: Trade Secrets Back to Basics, Part 2

Episode 11 of the Fairly Competing podcast is now available for listeners and subscribers.

In this episode, John Marsh, Russell Beck, and I conduct the second part of our trade secrets boot camp.

In this podcast, we identify commonly used security measures businesses implement to protect trade secret information. We examine security steps companies should take at the time key employees join the organization, as well as those exit interview steps that lead to the better protection of confidential business information. Finally, John, Russell, and I discuss the perils of "bring your own device" policies that companies utilize, which may impact the ability to protect trade secrets adequately.

Listen to the podcast by clicking on the link below, visiting the official podcast website, or subscribing to Fairly Competing on iTunes.

Listen to this episode

Doc Rivers' Non-Compete Agreement

By the time you read this blog post, it's like to be outdated. Such is the fast-paced world of professional sports, and the insane coaching carousel we see every year (but particularly this year in the National Basketball Association).

This past week, the NBA world - which should be focusing on the Heat-Spurs final - has been distracted by the possibility of Doc Rivers leaving the Boston Celtics for the Los Angeles Clippers. The rub is that Rivers, the game's highest paid coach, has three years and $21 million remaining on his Celtics' agreement.

So how, and under what terms, can Rivers leave if he is bound by a current agreement? There are a few different angles to explore on this.

First, in the NBA, a standard coaching contract provides for a means by which teams can negotiate compensation to let coaches leave and jump ship from one team to another before the contract expires. In Rivers' case, his agreement is not standard. He has a separate clause that prohibits his employment as a head coach by another organization before the end of his contract term. The significance is that the Celtics' top brass simply could invoke the non-compete, rather than negotiate under the standard contract clause for suitable compensation to let him leave for another team. Obviously, this creates leverage for management, which is a by-product of the above-market compensation Rivers received a few years ago.

Second, the incentives in the coaching world strongly favor negotiated transactions to release coaches from their contracts. If a coach makes it publicly known that he's considering leaving, then recruiting (either via free-agency or - in the case of college coaches - from high school players) will suffer. And team chemistry may be shot. Therefore, a team - faced with a disgruntled coach and a looming PR disaster - needs to think about an appropriate business resolution, not enforcing agreements.

Third, the supply of potential competent coaches vastly exceeds the number of available openings. There's a new school of thought, based largely on statistics, which demonstrates that coaches don't influence game outcomes as previously thought. If that's the case, then owners and management can use coaches as mere assets on a balance sheet - to gain even some minimal compensation to waive a contract term and allow a coach to leave if another team genuinely wants that coach. In pro sports, this compensation usually takes the form of draft picks or actual players. In college, it's generally a buy-out of the contract by the hiring university. Economists and other experts likely will debate for years to come the intrinsic value of coaches, but everyone would agree that finding a replacement for most coaches generally is pretty easy.

Recall, too, that coaching obligations generally are in-term, not post-term, restraints. It is not, to my knowledge, illegal to sign a coach to a contract that contains a garden-variety post-termination restrictive covenant (although this may be an interesting question for any institution or franchise in California, Oklahoma, and North Dakota). But no one does it.

Why is that?

For starters, no team or university is likely to set a standard that makes it difficult to attract a top-flight coach. Even though economists may feel as though coaches' ability to influence outcomes is overstated, institutions always want to be viewed as an attractive destination. Put another way, an industry standard has developed that by and large discourages any organization from requiring a post-termination non-compete.

On a related point, coaches sign contracts that guarantee them compensation for a term of years. Most employees are at-will, meaning they can resign at any time and are perpetual free agents. An in-term non-compete for an employee like Rivers limits his ability to leave for another team, and the Boston Celtics have the exclusive right to his unique services for a period of years. Both sides get an obvious tangible benefit. This level playing field simply is not a paradigm most employees are familiar with.

The one high-profile post-termination non-compete exception I have seen in recent years involved Billy Donovan. Donovan, the current University of Florida basketball coach, agreed in principle to leave and join the Orlando Magic after winning two national titles with the Gators. He soon backed out of the deal to which he committed. As part of a settlement, the Magic released Donovan from his coaching contract and allowed him to return to UF. But Donovan agreed not to coach in the NBA for five years. Incidentally, that pact has now expired - and Donovan openly has ruminated over a potential return to the NBA.

Is anyone surprised?

Oklahoma Legislation Impacts Employee Non-Solicitation Covenants

Hat-tip to Josh Salinas at Seyfarth Shaw for his fine analysis of new Oklahoma legislation that chips away at some prohibitions on restrictive covenants.

Oklahoma is one of three red-flag states that generally prohibit non-competition agreements. And while true non-compete arrangements are void like they are in North Dakota and California, Oklahoma statutory law allows for agreements under which an employee agrees not to solicit the sale of goods or services "from the established customers" of the employer.
Therefore, Oklahoma courts will enforce reasonable restraints that fall short of broad non-compete restrictions.

The new legislation, Senate Bill 1031, affects another type of restraint - employee non-solicitation covenants. As readers know, those types of covenants impact an employee's ability to solicit fellow employees to leave and join a competitor. They're commonly referred to as "Pied Piper" clauses and can work significant hardships on employees who are looking to build a team of sales or information technology professionals for a new company.

SB 1031, embedded below, allows for contractual covenants that prohibit an employee's ability to entice away other employees. Josh makes the point in his blog post that this new legislation may permit only clauses restricting active recruitment or enticement away of current employees. Put another way, is a clause prohibiting an employee from hiring those employees who may seek out alternative employment on their own enforceable under Oklahoma law? Josh says likely not.

I agree and think the answer is found in Inergy Propane, LLC v. Lundy. This is an Oklahoma case from 2009 where the same issue was at play, except the case involved a customer (not employee) non-solicitation covenant. As Oklahoma law has developed, a prohibition on diverting clients "where no active solicitation has occurred" runs afoul of state statutory law and is an illegal restraint on trade. I think it's likely Oklahoma courts would find that the same rationale applies to employee non-solicitation agreements, particularly since (as Josh notes) recent Oklahoma cases have frowned upon broad "no-hire" covenants.

The best argument for making the distinction is that a restraint on soliciting customers is much more likely to impact an employee's value to potential new employers and therefore limit his or her right to earn a living. The same hardly can be said for Pied Piper clauses, which shouldn't impede one individual's ability to sell his or her services on the open market.

Unfortunately, this legislative and judicial hair-splitting and word-play does no one any good. It is exceedingly difficult for an employer to determine who solicited whom. And in the absence of a mistakenly sent e-mail or a customer who is exceedingly loyal to the company, an employer is unlikely to find out except through the discovery process which party initiated the contact.

These statutes may be intended to discourage litigation, but only invite it, as they fail to create objective rules.

OK Senate Bill 1031 by Ken Vanko

Episode 10 of Fairly Competing: Trade Secrets, Back to Basics Part 1

Episode 10 of the Fairly Competing podcast is now available for listeners and subscribers.

In this episode, John Marsh, Russell Beck, and I conduct the first part of our trade secrets boot camp.

John, Russell, and I discuss particular types of trade secrets, from those commonly recognized to those that are more difficult to define and uphold in court. We also compare and contrast trade secrets with other forms of intellectual property, discuss the benefits of conducting a trade secrets audit, and talk about the differences between trade secrets and lesser protected confidential information.

Part 2 of Trade Secrets, Back to Basics focuses on security measures and will be available soon to listeners.

Listen to the podcast by clicking on the link below, visiting the official podcast website, or subscribing to Fairly Competing on iTunes.

Listen to this episode

Deter Cyber Theft Act Would Augment Federal Policy Against Industrial Espionage

Last month, a group of bipartisan senators introduced the Deter Cyber Theft Act (S. 884, a copy of which is embedded below).

This legislation follows a long series of recent developments that makes clear one thing: our Congress can actually find common ground on a public policy issue.

Federal policy is shifting towards greater recognition of trade secret rights and their collective value to American enterprise. Last year, Congress enacted the Theft of Trade Secrets Clarification Act in almost unprecedented fashion to close a loophole created by the oft-discussed (here and elsewhere) Aleynikov case.

The Obama Administration has been more active than any administration in memory at preventing industrial espionage from foreign governments and actors. It has published a comprehensive strategy to mitigate the theft of trade secrets from U.S. companies. The Administration also invited public comment on its trade secrets legislative strategy. And in 2012, Senator Chris Coons introduced the Protecting American Trade Secrets and Innovation Act. That law would have, in effect, created a federal civil cause of action for trade secrets theft.

The latest building block in this comprehensive effort at the federal level is the Deter Cyber Theft Act, which would (if enacted) require the Director of National Intelligence to create a foreign watch list, identifying countries that engage in industrial or economic espionage.

The proposed law would require the DNI to:

1. Identify the types of technologies that rogue states target.
2. Disclose what was being used to steal or appropriate U.S. technologies.
3. Name foreign governments, and foreign companies, that were active in industrial or economic espionage.

There are other interesting elements here. A rogue state would include not only those that target U.S. industry through government action, but also those that "fail to prosecute" or otherwise permit industrial espionage through priveate enterprise.

The centerpiece of the law is the import ban. The Act would require the President to direct U.S. Customs to exclude from entry into the United States any article that incorporates misappropriated technology or "to protect the Department of Defense supply chain." Finally, the law is broad enough to extend beyond trade secrets, and expressly includes "proprietary information." Section 2(7) of the proposed legislation gives non-exhaustive examples of proprietary information that would be protected under the Act, and it's broad enough ("commercially valuable information") to encompass just about anything U.S. business or government maintains that's not generally available in the public domain - regardless of whether it meets the statutory definition of a "trade secret."

This latest legislative effort is largely in response to a series of high-profile incidents involving China. Just about every week or so, we hear a new story about a hacking incident, whether at the New York Times to track dissidents or to infiltrate the Pentagon or American businesses to appropriate industrial and defense secrets.

Senator Carl Levin, a sponsor of the bill, targeted China in his comments following introduction of the Act. And given the momentum created last year with an otherwise divided Congress, it's hard to envision much dissent over this legislation.

Deter Cyber Theft Act by Ken Vanko

The Employee's First Client Meeting

I am taking a little bit of a different approach with this post, with a focus on representing employee clients in competition litigation.

When I first talk to a new client who has a legal problem involving a non-compete (or a related issue), there is much to consider in a short amount of time. The client frequently is overwhelmed. Her mind is going in many directions. He or she may never have hired an attorney before.

When this is the case, clients often want to know what to expect and how to prepare for an initial meeting.

Obviously, every attorney is different. But I think these rules generally apply (both to non-compete cases and to other types of engagements). If individual clients understand these points, they should feel more at ease before meeting with an attorney:

1. Have your documents ready. At the risk of stating the obvious, clients should have relevant documents available for counsel to review. These should include, at a minimum, the following: employment contracts, handbook provisions, cease and desist letters, the complaint and related court papers if a suit is on file, and the contents of any personnel file. My personal preference is to receive these before the meeting, provided the engagement letter is signed. Which leads me to Rule #2...
2. Review the engagement letter. My standard practice before a meeting with a new client is to send them the engagement letter for review. I prefer to have any questions about retainers, fees, and the scope of the engagement addressed up front before the meeting, so our first meeting is focused on legal advice.
3. Develop a list of questions you want answered. Clients sometimes are surprised by the direction meetings with counsel take. And it is frequently the case that they forget to ask questions that are important to them. It is worth taking the time to type out a list of questions ahead of time. I prefer the client e-mail these questions to me beforehand so I can think about how I want to answer them. The questions themselves will alert me to other issues I may need to explore. Finally, they often help guide the meeting and enable a client to feel as though they're participating actively in the meeting, rather than just being questioned. My experience is that clients - whether new or seasoned to litigation - ask very smart questions.
4. Let your attorney understand the industry. Competition disputes (unlike most civil litigation) require the attorney to understand the business. This means clients need to help educate their lawyer learn about the competitive forces at work and the details of how the business operates. I am very direct in telling clients to stop using industry jargon and reduce "inside the beltway" concepts to plain English. If I represent that client, a judge will demand the same of me in court.
5. Disclose all facts - good and bad. Clients need to understand that their attorney is their personal counselor and will represent them in a non-judgmental manner. Too often, clients "hide" bad facts. Lawyers are not, and shouldn't be, cheerleaders. We need to know if there are problematic documents out there or facts that may prove damaging in a lawsuit. Only then can the client receive proper advice.
6. Expect follow-up. Many individual clients want all the answers at an initial meeting. Sometimes, that's not possible. Your attorney may identify an issue that needs some legal research. (Competition disputes are notorious for this.) He or she may need to understand the industry better (particularly if it's not explained well enough at the initial meeting). And it's usually better to make important decisions on litigation strategy after thinking through them for a while.
7. Understand your best, worst, and most likely outcomes. A judge once told me that the best lawyers advise their clients as to these three outcomes. I agree wholeheartedly. Clients need to understand all three. If the lawyer is not giving you all three and explaining them in a concise manner, you need a new lawyer.

Episode 9 of Fairly Competing: The Conviction of David Nosal Under the Computer Fraud and Abuse Act

Our ninth Fairly Competing podcast is now available for listeners and subscribers.

In Episode 9, John Marsh, Russell Beck, and I discuss the recent conviction of David Nosal under the Computer Fraud and Abuse Act.

John, Russell, and I discuss Nosal's conviction under the remaining CFAA counts that survived the Ninth Circuit's en banc decision in 2012. In particular, we debate whether the government's theory of unauthorized access via password sharing falls within the terms of the CFAA. We also predict how the Ninth Circuit may rule after Nosal appeals his conviction. 

You can listen to the podcast by clicking on the link below, visiting the official podcast website, or subscribing to Fairly Competing on iTunes.

Listen to this episode

Password Sharing and the Computer Fraud and Abuse Act, Revisited

I was reading Eric Ostroff's fine post discussing customer lists as trade secrets, in the context of a recent case involving Farmers Insurance Exchange and several of its former agents, Farmers Ins. Exch. v. Steele Ins. Agency, 2013 U.S. Dist. LEXIS 70098 (E.D. Cal. May 16, 2013).

The trade secret at issue in that case involved an electronic compilation of data about insurance customers. Farmers maintains that compilation for its captive agents through something called an "Agency Dashboard." In the captive insurance setting, the insurer normally owns proprietary rights to its customer information. This is in stark contrast to the independent agency system, where the agents themselves retain rights to such data.

Eric does a nice job summarizing the steps Farmers takes to protect its customer data, including the requirement that agents log in with passwords each time they gain access to the database. They must, as Eric points out, acknowledge Farmers' proprietary rights upon entry to Farmers' dashboard system.

Full disclosure, now.

I litigated several matters against Farmers Insurance over the years. And I am well-familiar with the way in which Farmers pursues trade secrets cases against ex-agents, and all too familiar with the Agency Dashboard, what it looks like, and how it works.

So I won't summarize what Eric wrote, but instead I want to highlight a fact that came up in the case and try to apply a claim Farmers hasn't (yet?) pursued.

Yes, I am talking about our old pal, the Computer Fraud and Abuse Act.

At least two of the defendants in the Farmers' case used passwords that did not belong to them to access Agency Dashboard.

One of the defendants was an office employee (seemingly a customer service agent) who used another Farmers agent's password to download reports out of Agency Dashboard. That agent, apparently not complicit, had severe health problems.

Another defendant was the son of a Farmers agent (again, it didn't appear the agent was complicit) and used his father's Farmers password to log in to Agency Dashboard. Though not crystal clear from the record, the defendant then presumably used proprietary data from the dashboard to switch customers away from Farmers. Neither of those defendants had password credentials of his or her own.

This case comes at an interesting time. John Marsh, Russell Beck, and I just recorded another episode of the Fairly Competing podcast (which will be available Tuesday morning), and we discussed the latest chapter in United States v. Nosal. The factual matrix in that case (also from California) involved something very similar to what I've just described: gaining access to a protected computer system through password sharing. (For my prior post discussing Nosal in the District Court, click here.)

That is: X uses Y's password to log in to a protected database, when X can't otherwise gain access through credentials assigned to him.

As the Nosal jury found, this conduct violated the CFAA because the individual is gaining access to a protected computer without authorization. A password is the quintessential access barrier, familiar to everyone.

The Farmers case was teed up for a preliminary injunction around the time the Nosal verdict came down, and there isn't much precedent available for extending the CFAA to the password-sharing paradigm. In fact, given the Ninth Circuit's rather narrow interpretation of the CFAA, it's to be expected that attorneys would pull back on civil claims under this statute.

But it appears that the agents who accessed Agency Dashboard without proper password credentials may have violated the CFAA, at least under the statutory interpretation applied by the District Court in Nosal. The case under the CFAA may be stronger than that against Nosal, because there's no indication Nosal himself accessed the database with someone else's password. He was just directing traffic.

I still have not reconciled, personally, whether the CFAA should be extended to this fact pattern, though I think it probably should. I have great reservations about the CFAA for many reasons. And given the Ninth Circuit's narrow construction of the CFAA, it is possible we'll get further guidance on whether password sharing implicates a statutory violation when Nosal II is decided.