Koninklijke Phillips N.V., et. al. v. Elec-Tech Int'l Co., Ltd., et al.,, Case No. 14-cv-02737 (BLF) (March 20, 2015)
Plaintiff Koninklijke Phillips N.V. (Phillips) and its subsidiary Phillips Lumileds Lighting Company LLC sued Elec-Tech, a Chinese company, and a number of its subsidiaries and employees for the alleged theft of Phillips' LED lighting technology. The claim arose from the alleged theft of Phillips' proprietary "epitaxy" technology and confidential business information by a former Phillips principal development engineer that Elec-Tech had hired, Dr. Gangyi Chen. Phillips alleged that Dr. Chen had received up front compensation while he was still employed by Phillips and shortly before his departure to Elec-Tech.
The complaint alleged a number of state law claims, including trade secrets misappropriation and related claims, including a claim for violation of the Federal Computer Fraud and Abuse Act, 18 U.S.C. Section 1030 (CFAA). Phillips alleged federal subject matter jurisdiction based on original jurisdiction over the CFAA claim with supplemental jurisdiction over the remaining state law claims. The defendants moved to dismiss the CFAA claim, and with it, the entire action.
The CFAA is a federal claim that prohibits "access" to "protected computers" that is "without authorization or exceeding authorized access." The CFAA was enacted in 1986 by Congress to bolster the ability of federal prosecutors to pursue computer fraud and hacking claims, and also includes a private right of action that is commonly asserted in trade secrets claims involving theft of computerized information. The Ninth Circuit has interpreted "without authorization or exceeding authorized access" restrictively. For example, in the high profile criminal case, US v. Nosal, the Ninth Circuit ruled that an the intentional downloading of current employees of company information did not "exceed[] authorized access" for the employees even though they turned over the company information to the defendant, David Nosal (a former employee at the time). 676 F.3d 854 (9th Cir. 2012). The Ninth Circuit concluded that the employees were generally "authorized" to access company information, and to hold otherwise would "transform the CFAA from an anti-hacking statute into an expansive misappropriation statute." Id. at 857.
Phillips attempted to circumvent Nosal by arguing that Dr. Chen was already an "agent" of Elec-Tech at the time he allegedly downloaded Phillips' confidential material. Specifically, they argued that Dr. Chen had already received compensation from Elec-Tech and was only staying at Phillips in order to act on Elec-Tech's behalf. Thus Phillips effectively argued that their case was no different from an Elec-Tech outsider disguising himself as a Phillips employee to obtain access to Phillips' "protected computers" "without authorization."
Judge Labson Freeman rejected this argument. Initially, she noted that the Phillips' allegations regarding agency were sparsely pled. In any event, she found that the relevant focus for the CFAA was Dr. Chen's relationship with Phillips. Since it was undisputed that he was, in fact, an authorized Phillips employee at the time of the alleged theft, Nosal controlled the situation. She rejected Phillips' allegations that Dr. Chen was compensated by Elec-Tech by noting that it was common for employees to sign with a new company before quitting their old company, and even to receive a signing bonus prior to beginning work. Accordingly, Judge Labson Freeman dismissed the CFAA claim, declined to extend supplemental jurisdiction over the remaining state law claims, and accordingly dismissed Phillips' entire case.
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