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Massachusetts Federal Judge Applies the CFAA Narrowly in AMD v. Feldstein

This week’s internal report by MIT on its handling of the Aaron Swartz case may be an appropriate time to note that the sound and fury over the Computer Fraud and Abuse Act (the “CFAA”) is not limited to its use in criminal cases like the Swartz prosecution. The controversy extends to the use of this law in civil cases as well.*

*The CFAA may be used as either a civil or a criminal law. However, the words of the statute must mean the same thing in each context. As the court noted in the case discussed in this post, “it is not possible to define authorization narrowly for some CFAA violations and broadly for others.”

In my July 2nd post on AMD v. Feldstein I noted that the case had given rise to two note-worthy decisions.  The May 15, 2013 decision, discussed in that post, involved the legalities of the former-AMD employees’ alleged solicitation of current AMD employees in violation of  non-solicitation agreements. However, Massachusetts Federal District Court Judge Timothy Hillman issued a second opinion in the case on June 10, 2013, ruling on the defendant-employees’ motion to dismiss  claims of civil liability under the CFAA.

Judge Hillman’s June 10th opinion reflects the struggle within the federal courts nationally over how to apply the CFAA.  The controversy focuses on the section of the law that imposes criminal and civil penalties on –

whoever … intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains …  information from any protected computer. 18 U.S.C. § 1030(a)(2)(C).*

   *As Judge Hillman observed, “The breadth of this provision is difficult to understate.”

I discussed the courts’ varied interpretations of this provision in some detail in an August 2012 post. As I stated there, “the issue, on which the federal courts cannot agree, is whether an employee who has authorized access to a computer, but uses that access for an illegal purpose — typically to take confidential information in anticipation of resigning to start a competing company or join one — violates the CFAA.” In that post I discussed several of the conflicting decisions over this issue, including the Ninth Circuit’s influential en banc holding in U.S. v. Nosal.

In considering how to apply the CFAA in this case Judge Hillman described the two possible interpretations of the CFAA. The first, a “technological model of authorization,” requires that an employee violate a technologically implemented barrier in order for his actions to give rise to a violation. Under this model, which the court described as the “narrow interpretation,” the employee would have to (for example) use someone else’s login credentials to access his employer’s  computer, or break into (hack) the computer. Another way to view the “narrow interpretation” of the CFAA is that the phrase “without authorization” in the statute is limited to outsiders who do not have permission to access the employer’s computer in the first place.

Under the second model, described as the “broader interpretation,” the employee would be liable under the CFAA if he used a valid password to access information for an improper purpose, for example, obtaining confidential or trade secret information that will be provided to the employee’s new employer, or to a competitor of the current employer.

As Judge Hillman noted, the only First Circuit case to address the scope of the CFAA –  EF Cultural Travel BV v. Explorica, Inc. – only created uncertainty over how to apply the statute.  At least one Massachusetts district court judge has viewed EF Cultural as an endorsement of the broader interpretation. Guest-Tek Interactive Entm’t, Inc. v. Pullen (Gorton, J. 2009).

Judge Hillman, however, disagreed, distinguishing EF Cultural and concluding that the facts in that case shift it into the realm of “access that exceeds authorization” rather than permitted access for an unauthorized purpose. In what seems to be a clear nod to the Ninth Circuit in Nosal, he held that “as between a broad definition that pulls trivial contractual violations into the realm of federal criminal penalties, and a narrow one that forces the victims of misappropriation and/or breach of contract to seek justice under state, rather than federal, law, the prudent choice is clearly the narrower definition.”*

*A recent case from the district of New Hampshire appears to have reached the same conclusion. Wentworth-Douglas Hospital v. Young & Novis Prof. Assoc.  (June 29, 2012).

This is the conclusion that the former AMD employee-defendants wanted the court to reach on their motion to dismiss the CFAA count. However, it turned out to be somewhat of a pyrrhic victory for them.

Although the judge found that “the narrower interpretation” of the CFAA “is preferable” and  found that AMD’s “allegations are  … insufficient to sustain a CFAA claim under a narrow interpretation of the CFAA,” he declined to dismiss the CFAA claims against the defendants, noting that “this is an unsettled area of federal law, and one where the courts have yet to establish a clear pleading standard.” Instead, he deferred action on this claim until the factual record is complete, meaning the conclusion of discovery.

And, if it was the defendants’ hope to dismiss the federal CFAA claim in order to force the case into state court (which is unclear, since AMD also pleaded diversity jurisdiction), not only did they fail to accomplish this by means of this motion, but the court went so far as to note that “even if the CFAA claims are dismissed at a later date, the pendant state law claims need not be remanded to state courts. … It would be extremely inefficient to remand this case to state court given the quantity of evidence already presented to this Court.”

Bottom line: the defendants won their central legal argument, but did not get their reward. And, this section of the CFAA remains in limbo in the First Circuit, pending final word from the First Circuit Court of Appeals on its proper interpretation.

 Advanced Micro Devices, Inc.v. Feldstein

Things are Settling Back Down in Yoknapatawpha County

Things are Settling Back Down in Yoknapatawpha County

“It was as though she realised for the first time that you – everyone – must, or anyway may have to, pay for your past; the past is something like a promissory note with a trick clause in it which, as long as nothing goes wrong, can be manumitted in an orderly manner, but which fate or luck or chance, can foreclose on you without warning.” Requiem for a Nun, William Faulkner

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For many years the Estate of James Joyce was infamous for its use of copyright law to restrict what many people considered fair uses of  Joyce’s works. Now that most of Joyce’s works are in the public domain, it seems that the owner of William Faulkner’s copyrights, Faulkner Literary Rights LLC (“Faulkner”, is stepping up to take its place. But in the “Midnight in Paris” case you’ve gotta wonder: what the heck was Faulkner thinking?

Even many people who have never read a word of William Faulkner will recognize these famous lines: “the past is never dead. It’s not even past.” These words are spoken by the fictional County attorney Gavin Stevens in Faulkner’s novel Requiem of a Nun.

The production of a Hollywood movie oftenrequires the producer to obtain many copyright permissions. However, when Woody Alan’s Midnight in Paris was released in 2011, one of the characters paraphrased these lines from Faulkner. When the protagonist, Gil (played by Owen Wilson) accuses his wife, Inez (played by Rachel McAdams) of having an affair she asks him where he got that idea. He responds that he got the idea from Hemingway, Fitzgerald, Gertrude Stein and Salvador Dali, a response that Inez ridicules because they are all dead. In response, Gil quotes Faulkner: “The past is not dead. Actually, it’s not even past. You know who said that? Faulkner, and he was right. And I met him too. I ran into him at a dinner party.”

The producers of Midnight in Paris may have tried and been denied the right to use these words, or they may not have tried at all, concluding that the use was too minimal, and too transformative, to require a license. Regardless, after the movie appeared Faulkner sued Sony Pictures Classics Inc. in federal court in Mississippi alleging, among other things, copyright infringement. On July 18, 2013 the case was dismissed based on the fair use doctrine. Faulkner Literary Rights LLC v. Sony Pictures Classics Inc.

The federal judge who drew this case, Judge Michael P. Mills,* did his level best to address the Faulkner estate’s case with a straight face, and wrote an opinion that would do any college English major proud. However, he gave himself away when he commented, “how Hollywood’s flattering and artful use of literary allusion is a point of litigation, not celebration is beyond this court’s comprehension.”

*Judge Mills is a graduate of the University of Mississippi and has lived in Mississippi for more than 30 years, although there’s no reason to think he’s ever visited Yoknapatawpha County.

Predictably to everyone except Faulkner, Judge Mills found the movie’s use of the quote highly transformative, a key factor in determining whether a copy qualifies as fair use. The heart of the court’s decision is captured in this quote:

The speaker, time, place, and purpose of the quote in these two works are diametrically dissimilar. Here, a weighty and somber admonition in a serious piece of literature set in the Deep South has been lifted to present day Paris, where a disgruntled fiancé, Gil, uses the phrase to bolster his cited precedent (that of Hemingway and Fitzgerald) in a comedic domestic argument with Inez. Moreover, the assertion that the past is not dead also bears literal meaning in Gil’s life, in which he transports to the 1920’s during the year 2011. It should go without saying that this use is highly distinguishable from an attorney imploring someone to accept responsibility for her past, a past which, to some extent, inculpates her for the death of her child. Characters in both works use the quote for antithetical purposes of persuasion. On one hand is a serious attempt to save someone from the death penalty, and on the other is a fiancé  trying to get a leg up in a fleeting domestic dispute. The use of these nine words in Midnight undoubtedly adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.

In addition to its claim of copyright infringement, Faulkner alleged woodyviolation of the Lanham Act. Faulkner claimed that the film would “deceive or confuse viewers as to a perceived affiliation, connection or association between William Faulkner and his works on the one hand, and Sony, on the other hand.” The proposition that the use of this Faulkner quote in Woody Alan’s movie would confuse viewers as to a perceived affiliation between Faulkner and Sony is, if not an insult to the intelligence of Americans, certainly an insult to the New Yorker(ish) fans of Woody Alan. The judge denied this claim out of hand.

What was Faulkner thinking when it filed this case?

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Bonus content 1 – Letter in which William Faulkner quite his job with the U.S. Postal Service:

October, 1924

As long as I live under the capitalistic system, I expect to have my life influenced by the demands of moneyed people. But I will be damned if I propose to be at the beck and call of every itinerant scoundrel who has two cents to invest in a postage stamp.

This, sir, is my resignation.

(Signed by Faulkner)

Bonus content 2 – A couple of days after this post was published the Wall Street Journal published an extensive article on Faulkner’s attempts to capitalize on William Faulkner’s estate, including an unsuccessful attempt to sell Faulkner’s 1949 Nobel Prize medallion. The article discusses similar efforts by the estates of Hemingway, Fitzgerald, Joyce and Nabokov.
Why Did Broadcasters Use a Local Affiliate to Challenge Aereo in Boston?

Why Did Broadcasters Use a Local Affiliate to Challenge Aereo in Boston?

Why did a Boston affiliate of ABC file suit a major copyright infringement action against Aereo in Boston, rather than ABC itself? Or another major broadcaster, such as CBS, NBC or Fox?

On May 15th, in a post titled “Does Second Circuit Decision Determine Copyright Legality of Aereo “Antenna-Farm” System Nationwide?”, I discussed the fact that Aereo had filed a preemptive suit in the Southern District of New York. The suit asked the federal district court to enjoin the major broadcasters (ABC, NBC, CBS, Fox) from filing what Aereo called “duplicative-follow-on suits” or “do-overs.” Aereo was attempting to prevent the broadcasters from following it around the country and filing a new copyright infringement lawsuit in each circuit in which Aereo launched its service. Aereo argued that the opinion of the Second Circuit Court of Appeals in WNET v. Aereo, holding that Aereo’s retransmission of over-the-air broadcasts do not violate broadcaster copyrights, was binding nationwide on the plaintiffs in that case.

However, as I pointed out in May, even if that legal argument were to be successful, at best it would only be binding on the plaintiffs in that case. For example, while ABC was a plaintiff in New York and could, conceivably, be bound nationwide by the Second Circuit decision, Aereo could not stop a non–party, such as a local affiliate, from bringing suit in another district.

In fact, that is precisely the strategy the broadcasters have followed in Boston, the second market  in which Aereo has released its service. The sole plaintiff in the Boston case is a local ABC affiliate station, WCVB–TV. The complaint emphasizes WCVB’s copyright rights in its original, local programming (Chronicle, CityLine, news and weather), shows in which WCVB, not ABC, owns the copyrights.

Now you know why a local affiliate sued Aereo in Boston.

(For the first post in a four-part series on the Aereo cases, click here).

U.S. v. Apple: Where Were the Lawyers?

U.S. v. Apple: Where Were the Lawyers?

All antitrust cases are tried twice – once before the appeal, and once after the appeal. anon

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The district court decision in U.S. v. Apple presents about as clear a case of price fixing as one can imagine.  Apple participated in a conspiracy with five of the “Big Six” publishers (an incestuous group based entirely in Manhattan) to raise prices for e-books above the $9.99 price charged by Amazon.

This was not subtle stuff—it was conduct worthy of the classic 19th century price fixers that led to enactment of the Sherman Antitrust Act in 1890. Secret meetings among competitors to figure out a way to stop the hated price-cutter (Amazon), a White Knight that facilitates the conspiracy to foil the price-cutter (Apple), and an industry with its feet deeply planted in tradition (book publishing) under assault from a new technology (e-book publishing).

The only thing that makes this price-fixing conspiracy different from those in the 19th century is the massive email trail that the parties left, making the government’s courtroom proof that much easier. At least the classic price-fixers had the sense to keep up a pretense of secrecy, and not leave a trail of writings that would be their undoing in court.

Despite loud criticism of the district court decision from some quarters (see, for example, Guilty of Competition, WSJ, subsc.), it’s difficult to imagine that this decision will be overturned by the Second Circuit or (as the Journal wishfully dreams), the Supreme Court. Horizontal price fixing is per se illegal, and Apple acted as the ringmaster for the price fixing in this case. If there is one thing that is certain in antitrust law (an exceptionally difficult area of law with a very high reversal rate), there is no justification for price fixing. Amazon may have had a 90% market share of the e-book market. Amazon’s 9.99 e-book price may have been below the wholesale cost it paid to the book publishers. The book industry and authors may have been suffering economic harm from Amazon’s aggressive pricing. Amazon’s pricing, along with the growth in e-books, may have threatened to disrupt the book publishing industry in ways never before seen in that industry.

However, under antitrust law none of this matters: the Apple/publisher conspiracy to force book prices above the Amazon price of 9.99 was per se illegal, and no “justification” is relevant.

In light of this, a curious question arises: where were the lawyers? Apple has guilty_guilty_guiltya huge legal department, and surely some of the lawyers involved in this massive attempt to corral the “Big Six” book publishers and help them raise prices industry-wide had at least a rudimentary knowledge of antitrust law. Any lawyer who takes antitrust in law school, or studies the topic even casually, comes away remembering one thing: price fixing is per se illegal. The law tolerates no excuse.

Not surprisingly, there is no mention of legal advice Apple or any of the publishers received on the implications of their actions under antitrust law; after all, these communications would have been attorney-client privileged. It is possible that lawyers for Apple or the publishers were pulling their hair out warning  their clients that they were taking terrible risks under the antitrust laws. It is possible that Apple and the publishers that joined in this conspiracy decided that the benefits of their plan outweighed the risks, although that is difficult to imagine. After all, given the large number of people involved, and the way the plan unfolded publicly, there was no chance that the plan could be kept “secret.” The result: a pre-trial settlement by all of the publishers and an embarrassing lawsuit for Apple (the full implications of which remain to be seen), were predictable.

And, business executives don’t often ignore their lawyers’s advice. One would think that attorney’s for one of the publishers would have warned it, and that the forewarned publisher would have mentioned this in one of its emails with Apple or the other publishers (which would not be privileged). However, in the 160 page decision, there is no hint of this.

So, the question remains unanswered, and puzzling: where were the lawyers?

This case may fall within the maxim that all antitrust cases are tried twice, but it seems unlikely. Perhaps, as some have argued, application of the per se doctrine in the context of this case (industry joint action to create a counterweight to a company with monopoly power) is bad economic policy.* But it seems unlikely that the courts will choose this case in which to deviate from over a century of antitrust doctrine.

*A counter-argument is that the Department of Justice under-reacted, and that it should have brought criminal charges under the antitrust laws, rather than merely civil charges.